Maharashtra Authority for Advance Ruling (AAR) has in its recent ruling on the application filed by M/s Apsara Co-operative Housing Society Limited has adjudged that activities carried out by a housing society for its members qualify as “supply” under the definition of section 7 of the CGST Act, 2017. It was also adjudged that principle of mutuality doesnt apply in GST law and therefore applicant society and members would be regarded as distinct persons.
Facts of the Case
The Applicant is a co-operative housing society, registered under the Maharashtra State Co- operative Societies Act, 1960 and formed by its members who are the shareholders. The main object of the Applicant Society, as per the Bye Laws are extracted below for ready reference:
- To obtain conveyance from the Promoter (Builder), in accordance with the provisions of the Ownership Flats Act and the Rules made thereunder, of the right, title and interest, in the land with building/buildings thereon.
- To manage, maintain and administer the property of the society;
- To raise funds for achieving the objects of the society,
- To undertake and provide for, on its own account or jointly with a co-operative institution, social, cultural or recreation activities,
- To do all things, necessary or expedient for the attairment of the objects of the society, specified in the bye-laws.
For the purpose of achieving its objects, Applicant raises funds by collecting contributions, (also called as charges in the bye laws of Applicant Society), from members of the society. The said charges, collected on monthly or quarterly basis, include property taxes, common electricity charges, water charges, contribution to repairs & maintenance funds, expenses on repairs and maintenance of the lifts of the society, including charges to running the lifts, contribution to sinking fund, service charges, car parking charges, interest on the defaulted charges, repayment of the installment of the loan and interest, non-occupancy charges, insurance charges, lease rent, non-agricultural tax, or any other charges.
Applicant Society uses the said funds for the specified purposes as enumerated in the bye laws, e.g., property taxes and water charges collected by the society from members is paid to the Municipal Corporation.
Applicant Socicty does not carry out any other activity other than those mentioned in the bye laws of the society, as evident from its Annual Report and Accounts.
Question of which ruling was sought
Whether the activities carried out by the applicant for its members qualify as “supply” under the definition of section 7 of the CGST Act,2017
Order of Maharashtra AAR: Highlights and Ruling
- To be considered as supply , such supply should be made by a person , for a consideration and should be made in the course or furtherence of business. Thus we have to find whether, the applicant can be considered as person, whether the amounts collected from thier members can be treated as ‘consideration’ and finally whether such supply is made in the course or furtherence of business.
- A registered cooperative society is a person with the meaning given in Section 2(84) of the CGST Act,2017. Further in the instant case there are two distinct persons , one the applicant society and another, the member thereof. Thus we find that in the subject case there is a supply made by a person i.e. the applicant.
- Membership fee collected from the members will be treated as ‘consideration’ paid for supply of services as per definition of the term ‘consideration’ as per Section 2(31) of the CGST Act,2017.
- As per Section 2(17)(e) of the CGST Act, 2017 ‘provision by a club, association, society, or any other body (for a subscription or any other cosnideration) of the facilities or benefits to its members is deemed to be business. We find that the various activities undertaken by the applicant for the benefit of its members will come under scope of business.
- In view of above we are of the opinion that all the conditions stipulated for consideraing teh activities of applicant as “Supply” under the GST law have been fulfilled.
- The contention made by the Applicant with regard to principle of mutuality viz applicant society and members are not distinct entity is not tenable in so far as taxability in GST regime is concerned. The case laws in this regard relied upon by the applicant are either pertaining to old law or are based of facts not applicable in the present case.
In view of above Maharashtra AAR has adjudged that activities carried out by the applicant for its members qualify as “supply” under the definition of section 7 of the CGST Act,2017.
Our view
The levy of tax on clubs / association has been a litigative one historically. In this regard decision of a larger bench of the Supreme Court in the case of Calcutta Club Ltd. [Civil Appeal No. 4184/2009] and Ranchi Club Ltd. [Civil Appeal No. 7497/2012] is relevant.
In this case, the taxpayers (i.e. clubs) charged sales tax on food and beverages supplied to non-members or guests who accompany members, but not on supply of food and beverages to its members. The Revenue Authorities sought to tax the latter category also. The clubs argued that the supply of food and beverages to its members is a supply of goods and services to itself, and it was acting as an agent of its members.
The Revenue Authorities alleged that the doctrine of mutuality was not applicable after the amendment to Article 366(29-A), wherein a deeming fiction was created, holding that the supply of goods by clubs to its members will be treated as a sale for the purpose of levy of sales tax. It further argued that the doctrine of mutuality, as applicable to sales tax, was not applicable to service tax, after the introduction of negative list (in 2012) came into force.
The Supreme Court held that the doctrine of mutuality continues to be applicable to incorporated and unincorporated member’s clubs even after the insertion of Article 366(29A) to the Constitution. While providing this decision, the Court also followed its earlier decision, on the doctrine of mutuality, in the case of Young Men’s Indian Association [(1970) 1 SCC 462]. The said ruling was again based on the following two international judicial precedents:
- Graff vs. Evans [(1882) 8 QB 373]
- Trebanog Working Men’s Club and Institute Ltd. vs. Macdonald [(1940) 1 KB 576]
However this decision being related to erstwhile indirect tax laws, its applicability under GST law remains a million dollar question. This decision also raises a concern about whether it can be extended to co-operative societies, unincorporated, joint ventures, etc. which have similar structures to member’s club. Further, whether it will be applicable to proprietary clubs.
Although GST is applicable for supply of goods or services in the course of business and as per the definition of business (as per CGST Act) it includes any provision of benefits provided by a club, association, society, or any such body to its members. However, based on the Supreme Court decision and applying the ‘doctrine of mutuality’, the transactions between the associations and its members should not qualify as supply under the GST regime.
However Maharashtra AAR has toed its line with the language of GST law and thus has adjudged that principle of mutuality doesnt apply under GST Law. May be the issue would be tested in the higher courts in near future.
For ready reference of the readers the order of Maharashtra AAR is given below:
The order of Maharashtra AAR can be downloaded from below:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
