Collection of membership subscription and admission fees from members is not liable to GST as supply of services
Section 7 of the CGST Act pertains to the meaning and scope of supply. Section 7 is very important as GST is applicable only if any transaction/activity is considered as a supply.
- all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
- import of services for a consideration whether or not in the course or furtherance of business; and
- the activities specified in Schedule I, made or agreed to be made without a consideration
So for determination of taxable Amount and tax amount, the primary thing to determine is whether that particular transaction is covered in the scope of SUPPLY or not.
Whether amount collected as membership subscription and admission fees from members is liable to GST as supply of services?
An advance ruling for the above issue was raised in the case of Rotary Club of Mumbai Queens Necklace
Facts of the Case
- The appellant is registered under GST and is an un-incorporated association of individuals.
- The club is affiliated to Rotary International, a worldwide organization with [520+] districts, [35000+] clubs and [1.2 million plus] members.
- The object of Rotary is to encourage and foster the ideal of service.
Role of Appellant with the Rotary
1.Appellant works with Rotary Foundation to:-
i. Promote Peace
ii. Fight Diseases
iii. Provide Clean Water, Sanitation and hygiene
iv. Save Mothers and children
v. Support Education
2. The members come together to form a rotary club. It is not a service club.
3. There is an annual budget of expenses and money is pooled by the members in equal share.
4. It is non-profit institution. It has neither rendered commercial service to its members nor does it render services to outsiders for a fee.
5. For the said purpose, appellant receives contribution from its members for incurring expenditure on its meetings and communication.
6. The receipts majorly comprise of:-
i. Fees from members which in essence is contribution towards yearly expenses. The contribution from new members is collected on pro rata basis rounded to quarter/ half year.
ii. One time admission Fees from New Members (other than who are or were Rotarians).
7. The expenses are in the form of:-
i. Meeting Expenses
ii. Fees and contributions to District or Secretariat of Rotary
iii. Other Administration expenses like printing, stationery, audit fees etc.
8. The amounts collected by way of fees are only pooled together and it is not expected to generate any surplus. Club is not formed to give any facilities or services to its members. The members gather under the umbrella of the club to perform socially relevant activities.
9. Club in normal parlance is understood to provide goods or services to its members such as recreation, sports etc. However, appellant does not provide any facilities or benefits in terms of goods or services to its members.
10. The activities relating to receiving donation etc. is carried out through a charitable trust which is registered under Bombay Public Trust Act, 1950.
11. To ensure the smooth and proper working of the club, membership subscription fees and admission fees are collected from members. The amounts collected are then utilized for administration purposes of the club.
12. In order to avoid unnecessary and unwanted litigation, the appellant is registered under Good and Service Tax (GST) and is currently charging GST on the membership subscription and admission fees collected by it.
13. The Club organizes events for the purpose of enabling members to meet and interact with each other. For such events the Club incurs various expenditure like banquet charges, catering services, etc.
14. Club also incurs expenditure on banquet and catering services for its weekly/monthly meeting. GST amount paid to vendors on such expenses is substantial.
15. The membership / subscription fees are collected from members only to cover meeting expenses, banquet expenses, catering expenses, printing and stationery expenses, etc.
16. Collections pooled from members are not intended to accumulate any surplus fund / profit.
17. Appellant, being a non-profit entity, aims only at furtherance of object of Rotary.
Appeal to AAR
Appellant filed an application before the advance ruling authority (Maharashtra) seeking a ruling on the questions as to whether:-
- The amount collected as membership subscription and admission fees from members is liable to GST as supply of services?
- If the above receipts are liable to GST, can the appellant claim Input tax credit of the tax paid on the Banquet and Catering services for holding members meetings and various events?
Advance ruling authority (Maharashtra) passed the following order:-
- The amount collected as membership, subscription and admission fees from members is liable to GST as supply of services.
- Input tax credit of tax paid on Banquet and catering services cannot be availed.
Aggrieved by the above rulings passed by the AAR, the appellant has preferred appeal to the Appellate Authority of Advance Ruling (AAAR).
Grounds of Appeal to AAAR
On the facts of the case and in law, Advance ruling authority has erred in holding that the amount collected as membership subscription and admission fees from members is liable to GST as supply of services.
Discussions and Findings of AAAR
Can services provided by the appellant be covered under the term of “business” under GST?
1.The issue in the present case is whether the membership/subscription fees, admission fees collected by the Appellant from its members will be subject to GST or not.
2. On perusal of the definition of supply under Section 7, it is revealed that for any activity/transaction to be qualified as supply, the same should be undertaken in the course or furtherance of business.
3. Before applying the above condition in the context of the impugned transaction, AAAR wanted to discuss the meaning of “business” as provided under section 2(17) of the CGST Act, 2017.
4. As per section 2(17) of the CGST Act, 2017, “business” includes:-
a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit
b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a)
c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction
d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business
e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members
f) admission, for a consideration, of persons to any premises
g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation
h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club
i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities
5. In the instant case, it has been submitted by the Appellant that entire subscription/membership amount collected by the Appellant from its members is utilized solely towards expenditures incurred in the meetings, communication and other administrative expenses like printers, stationeries etc.
6. They have categorically submitted that they do not provide any facility or benefit to any of its members against the said subscription or membership fee.
7. They further submitted that the object of the appellant-club is to promote peace, fight Diseases, provide Clean Water, sanitation and hygiene, Support Education, etc.
8. They have also furnished financial statements which reveal that the entire amount of membership subscription and admission fees collected by the Appellant is almost spent towards meetings and administrative expenditures of the Appellant.
9. Thus, on perusal of the above submissions and the financial statements, it was observed that the Appellant is not providing any specific facility or benefits to its members against the membership subscription charged by it, as the entire subscription amount is spent towards meetings and administrative expenditures only.
10. Thus, it was concluded that the Appellant is not doing any business as envisaged under section 2(17) of the CGST Act, 2017.
Can services provided by the appellant be covered under the term of “supply” under GST?
- Once it had been established that the Appellant is not doing any business in terms of section 2(17) of the CGST Act, 2017, it can be deduced that activities carried out by the Appellant would not come under the scope of supply as envisaged under section 7(1) of the CGST Act, 2017.
- On the contrary, if the AAAR held the impugned activities of the Appellant to be supply, then the membership fee collected by the Appellant, which is purely in the nature of a reimbursement for the meetings and administrative expenditures incurred by the Appellant to sustain and propagate their inherent programs, would be subject to the double taxation as the amount spent towards the meetings and administrative expenditures is already subjected to GST at the hands of the suppliers of these input services or goods used in the meetings, events and other administrative functions of the Appellant.
- Thus, doing so would clearly be against the legislature’s intention of the formulation of GST, which certainly does not embrace the idea of double taxation.
- Since, it had been held herein above that impugned activities of the Appellant will not be construed as supply; question regarding the availment of ITC on the input services like catering services, banquet services, etc. does not arise.
- In view of the above discussions and findings, the AAAR set aside the rulings pronounced by AAR
It was thus held by the AAAR that the amount collected as membership subscription and admission fees from members is not liable to GST as supply of services.