GST Payable on Membership/ Subscription Fee Received from Members of a Club

The AAR of Maharashtra held in the case of M/S the Poona Club Limited [Advance Ruling No.GST-ARA-123/2019-20/B-12 dated January 31, 2022] that a club of membership association and its members are distinct persons, and the membership/subscription fee, and annual fee, received from its members are consideration for supply of goods/services as a separate entity covered by the scope of the term ‘business,’ and thus the mutuality principle is not applicable. As a result, GST would be due on any money received from club members.

Facts:

M/s. the Poona Club Limited (“the Applicant”) is a membership association founded to build, manage, and administer a common infrastructure for its members, for which the Applicant receives capital funds obtained only through membership fees from its members. Certain members are forced to pay an annual subscription, which is used mostly to cover office and administrative costs such as salaries, security, labour charges, and power, rather than to provide any specific service or items to members. In addition, all members must pay Annual Game Fees.

The Applicant argued that the membership fee, annual subscription, and annual games fee collected from club members are not subject to tax under the Central Goods and Services Tax Act, 2017 (“the CGST Act“) because the club and its members are considered to be of the same identity, and thus the principle of mutuality applies, and no business or supply by one person with its own self is possible. Furthermore, according to Section 2(31) of the CGST Act, which defines consideration, there must be a recipient who receives the goods and services, and the usual sense of ‘enterprise’ necessitates the establishment of a profit motive.

Issue:

Is the CGST Act applicable to the membership charge, yearly subscription cost, and annual games fee collected by the Applicant from its members?

Held:

In Advance Ruling No.GST-ARA-123/2019-20/B-12 dated January 31, 2022, the AAR of Maharashtra held as follows:

• The Applicant and its members are distinct individuals, according to the modified Section 7 of the CGST Act, and the fees collected by the Applicant from its members are nothing more than compensation for the delivery of goods/services as a separate company.
• In light of the modified Section 7 of the CGST Act, the principle of mutuality, according to the author, is no longer applicable.
• Section 7 of the CGST Act was examined, and it was discovered that the undertaking of a commercial activity, whether or not for financial profit, which means whether or not such action generates a benefit that can be measurable in monetary terms, is prohibited. It also encompasses commercial interactions that are in the form of barter or exchange, with the advantage expressed in non-monetary terms.
• The club and its members are distinct persons, and the fees received by the Applicant from its members are consideration received for the supply of goods/services as a separate entity covered by the scope of the term ‘business,’ and thus the Applicant is required to pay GST on the amounts received from its members.

Relevant Provisions:

Section 7 of the CGST Act

“Scope of supply

(1) The term “supply” has the following meaning for the purposes of this Act:

(a) any kinds of supply of goods or services, or both, made or agreed to be made for a consideration by a person in the conduct or furtherance of business, such as sale, transfer, barter, exchange, licence, rental, lease, or disposal;

(aa) the activities or dealings of a person other than an individual with its members or constituents for cash, deferred payment, or other significant consideration, or vice versa.

Explanation It is hereby clarified that, for the purposes of this clause, the person and its members or constituents shall be deemed to be two separate persons, and the supply of activities or transactions inter se shall be deemed to take place from one such person to another, notwithstanding anything contained in any other law currently in force or any judgement, decree, or order of any Court, tribunal, or authority.

(b) the importation of services for a fee, whether or not in the course of or in promotion of business, and;

(c) the acts listed in Schedule I that were performed or agreed to be performed without payment;

(1A) Where certain activities or transactions, in accordance with sub-section (1), constitute a supply, they shall be treated as either a supply of commodities or a supply of services, as defined in Schedule II,

(2) Regardless of the provisions of subsection (1), ––

a. activities or transactions listed in Schedule III; or b. activities or transactions not listed in Schedule III.

b. any operations or transactions performed by the Central Government, a State Government, or any local authority in which they are engaged as public authorities, as the Government may notify on the Council’s recommendations,

Neither a supply of products nor a provision of services shall be considered.

(3) Subject to the provisions of subsections (1), (1A), and (2), the Government may, on the Council’s proposal, identify the transactions to be classified as-by notification.

a. a provision of things rather than a service; or b.

b. as a service rather than a product delivery.”