Collecting contribution & spending towards expenditure by a club comes in purview of business as per GST Act

The present application was filed u/s 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Act, 2017 by the Applicant, seeking an advance ruling in respect of the questions:

i. Whether the activity of the applicant i.e. collecting contributions and spending towards meeting and administrative expenditures only, is ‘business’ as envisaged u/s 2(17) of the CGST Act, 2017?

ii. Whether contributions from members, recovered for expending the same for the weekly and other meetings and other party petty administrative expenses incurred including the expenses for location and light refreshments, amounts to or results in a supply, within the meaning of supply?

Facts:

• The applicant is a group of people who carry out various charitable causes and activities from donations received from members, amount collected through various other channels and accruals of the corpus fund. Donations/charity received are used exclusively for the purpose of donation/charity and no amount is utilized for administration purposes.
• In addition to that, sums are recovered from all the members for expending the same for the weekly and other meetings and other petty administrative expenses incurred which include the expenses for the location and refreshments.
• These meetings are held for the members to review existing activities and consider new projects for execution. In these meetings, the charitable proposals are considered, discussed & approved or rejected for taking up as likely cause for execution. No facilities/benefits are provided such as recreation etc. by club.
• Furthermore, the administration and working of the association and implementation of policies are established and implemented on the concept of mutuality.
• Apart from donations/charity the receipts are Receipts from Indian Member clubs (if any:) Annual collection from members; Entrance fees from new member and Bank Interest. Expenses are generally in the form of i) Meeting expenses, ii) Printing of Circulars; iii) Stationary; iv) Postage; v) Greetings vi) Fees payable to International & District Office.
• The applicant believes that the doctrine of mutuality applies in the present case wherein the contributions are being collected merely to spend back on the members themselves. There is no other commercial consideration whatsoever. Going with doctrine of mutuality, two distinct persons are missing.
• There is no commercial consideration involved in the process. The amount being collected from the members is reimbursement of expenses or share of contribution.
• In the absence of two distinct persons and also in absence of consideration, as defined under the Act, contributions received from members does not qualify as a supply within the meaning of the term, as defined under the Act.

Observation and Findings:

• The applicant collects fees from its members which is used for its own administration purposes as well as for facilitation of meetings of its members.
• The fees collected from members is pooled together to be spent for meeting/administration expenses & for making payments to the DOR/International Office, for administrative expenses.
• The applicant has submitted that, it is a group of persons working which carries out various charitable activities for which it receives amounts as donations/charity and no amount is utilized for administration purposes.
• Thus, meetings/administration expenses are incurred from the fees received from its members. The applicant has strongly argued that the principle of mutuality is applicable in its case and therefore tax is not leviable on the fees received from members.
• In view of the amended section 7 of the CGST Act, 2017, we find that the applicant society and its members are distinct persons and the contribution by the applicant, from its members is nothing but consideration received for supply of goods/services as a separate entity.
• The principles of mutuality, which has been cited by the applicant to support its contention that GST is not leviable on the contribution collected from its members, is not applicable in view of the amended section 7 of the CGST Act, 2017 and therefore, the applicant has to pay GST on the said amounts received from its members.
• According to applicant, there is no commercial consideration involved in the process, just that the funds are collected in a common pool for meeting the expenses for the weekly meetings and other petty expenses incurred in meeting the common objective of betterment of society.
• According to applicant, the amount being collected from the members is reimbursement of of expenses or share of contribution. According to applicant, in the absence of two distinct persons and also in absence of consideration, as defined under the Act, contributions received from the members in the Administration Account does not qualify as a Supply within the meaning of the term, as defined under the Act.
• It was found that the entire dispute raised by the applicant in respect of fees received from its members is settled by the above mentioned amendment made to section 7 of the CGST Act, 2017 and therefore, fees received by the applicant from its members for expending the same for the weekly and other meetings and other other petty administrative expenses incurred including the expenses for the location and light refreshments , amounts to ‘supply’ as defined under the GST Act.
• As per clause (aa) of section 7(1) of the CGST Act, the expression “supply” includes the activities or transactions, by a person, other than an individual, to their members or constituents or vice versa, for cash, deferred payment or other valuable consideration.
• The said clause (aa) clearly specifies that all or any activities or transactions by a person to their members will be treated as ‘supply’. The meetings conducted by the applicant which include food, refreshment, etc. are nothing but activities carried out by the applicant for its members and therefore we hold that, contributions from the members, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments, amounts to or results in a supply, in the subject case.
• From the plain reading of the definition of business 2(17)(e) it is clear that the activities of the applicant falls under the ambit of “business” as per the section 2(17) of the GST Act.
• From the above facts, the definitions and the legal provisions, it is clear that the member and the club are two distinct persons and hence, any activities and transactions between them will be supply between separate/distinct persons.
• After the retrospective amendment as mentioned above, there remains no doubt that the activities involved in present case are nothing but ‘supply’, as defined under the Act. Thus, in view of the above the amount collected as membership subscription and admission fees from members is liable to GST as supply of services.
• The reliance placed by the applicant on order of Hon. AAR in the cases of in the cases of Rotary Club of Mumbai Queens Necklace and Rotary Club of Mumbai Nariman Point is not proper as said order was passed prior to the afore mentioned amendment to section 7 of the CGST Act, 2017.
• The words the activities or transactions, by a person, other than an individual to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration cover all types of activities/transactions of the present applicant.
• There is no list or limit or any restriction prescribed in this respect in this amendment. The fees/donation/subscription/amount/contribution (by whatever name called), collected by the applicant, is nothing but the “consideration” for the such “supply” and is covered by the scope of the term “business”.
• The club and the member are two distinct persons. the principles of mutuality has no application after this amendment. The applicant merely contended that the position does not change after the amendment but failed to explain the said amendment brought about.
• All the other case laws relied, also do not provide any guidance on the legal situation, particularly after the amendment.
• Further, the applicant has also submitted that a co-joint reading of the definitions of a “supplier” and “recipient” as per the GST Act provides that, where a consideration involved in a transaction, the recipient is the “person” who pays the consideration to the “supplier” and hence two different persons have been envisaged in the law to tax a transaction as a supply made for a consideration.
• The amendment to section 7 clearly treats the applicant and its member as two different persons where there is a supply of services from the applicant to its members and this as per the applicant’s own submission that two different persons have been envisaged in the law to tax a transaction as a supply made for a consideration, we find that in the instant case there is supply by the applicant to its members and consideration is received in the form of “fees”.
• The applicant further submitted that they are also doing charitable activities. However applicant’s questions do not pertain to the so called charitable activities done by them and the same are not discussed.

Held:

• The activity of the applicant i.e. collecting contributions and pending towards meeting and administrative expenditures only is “business” as envisaged u/s 2(17) of the CGST Act, 2017.
• The contributions from members, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments, amounts to or results in a supply, within the meaning of supply.

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