GST Applicable on Membership Fee Collected by Clubs: AAR Maharashtra

The Authority for Advance Ruling (AAR) Maharashtra Bench, comprised of members Rajiv Magoo and T.R. Ramnani, has concluded that a Club’s membership fee and annual subscription fee are subject to GST under the Central Goods and Service Tax (CGST) Act and the State Goods and Service Tax (SGST) Act.

The applicant, M/s Poona Club Limited requested an advance ruling in the matter. The issue at hand is whether the membership cost collected at the time of membership is taxable under the CGST/SGST Act, as well as whether the annual subscription and annual games charge collected from club members are taxable under the CGST/SGST Act.

The Applicant Poona Club had argued before the AAR that the membership fee, annual subscription fee, and annual games charge it collected from its members were not subject to CGST/SGST. The Applicant claimed that because the original contribution, i.e., the membership fee, was not a supply of goods or services, it was not subject to GST. The Applicant also claimed that the club’s major purpose, according to its Memorandum of Association, was to promote sports and stimulate social interaction among its members. It had argued that in this case, there was no profit incentive because the charge was collected by the club to cover administrative and maintenance costs. It had argued that there was no profit motive in this case because the fee was collected by the club to cover administrative and maintenance costs as well as provide facilities to its members. The Applicant Poona Club had also submitted before the AAR that despite the provisions contained in Section 2(17)(c) of CGST Act, 2017, the activities under taken by the club could not be called ’business’ since the main object of the club was not of a commercial nature, and since the fees received from its members was spent back on its members it did not qualify as a ‘supply’ under the CGST Act.

The Applicant also claimed that because the CGST Act defined “supply” and “services” as requiring two people, there could be no supply or service by one person to oneself. The Applicant argued that because the club and its members shared the same identity, the concept of mutuality would apply, resulting in the judgement that there couldn’t have been any transaction or supply between the Club and its members that would be subject to GST.

The term ‘business’ under the CGST Act, according to Section 2(17)(c), includes a club, association, or society providing facilities or services to its members in exchange for a subscription or any other contribution.

The AAR noted that the Finance Act of 2021 added Section 7(1)(aa) to the CGST Act, which went into effect on January 1, 2022 and took effect on July 1, 2017. According to the AAR, a person and its members or constituents are regarded to be two independent persons under the Explanation to Section 7(1)(aa), and the provision of activities or transactions inter-se is assumed to have taken place from one such person to another.

The Applicant Club and its members were distinct individuals, according to the AAR, as a result of the change to Section 7 of the CGST Act, and the fees received by the Applicant Club constituted a consideration for the delivery of goods or services as a separate business. As a result, the AAR determined that the Applicant was required to pay GST on the amount received by its members, and that the mutuality principle no longer applied after the change.

The AAR further pointed out that Section 2(17)(c) of the CGST Act is a special provision for organisations, clubs, and societies. The AAR concluded that the section in question did not need a club or society to have a commercial motive in order for its operations to be termed “business.”

As a result, the AAR determined that the Applicant Poona Club’s membership fee, yearly subscription price, and annual games cost were all subject to tax under the CGST/SGST Act.

To Read Judgment Download PDF Given Below: