Kerala High Court Quashes Retrospective GST on Club-Member Supply [Read Judgement]

Facts of the Case

• The Kerala State Branch of the Indian Medical Association (IMA) filed a writ petition fearing coercive recovery actions by GST authorities concerning services provided under various mutual benefit schemes. The IMA claimed these were non-taxable based on the principle of mutuality.
• The IMA runs multiple schemes: Social Security, Disability Support, Professional and Hospital Protection, Kerala Health, Pension, Mutual Benefit, and Patient Care, funded through contributions from member doctors.
• The Finance Act, 2021, introduced amendments in the CGST and SGST Acts, deeming services provided by clubs/associations to members as taxable, retroactive from 1 July 2017.

Issues Framed

• Whether the amendment to the GST laws through the Finance Act, 2021, violates the principle of mutuality.
• Whether such a statutory amendment can override constitutional provisions or judicial precedents.
• Whether retrospective application of Section 7(1)(aa) of the CGST Act is valid.
• Whether the amendment violates Articles 14, 19(1)(g), 265, and 300A of the Constitution.

Petitioner’s Arguments

• Asserted the principle of mutuality shields them from GST on services to members.
• Cited precedents, including the Calcutta Club and YMIA cases, affirm the non-taxability of club-to-member transactions.
• Argued that deeming provisions under Section 7(1)(aa) were unconstitutional, beyond the legislative power under Article 246A.
• Contended that retrospective tax liability imposed unanticipated and unmanageable burdens, violating fundamental rights.

Respondent’s Arguments

• Defended the legislative competence under Article 246A and stated the amendment was to nullify judicial interpretations.
• Argued that GST laws had a broad legislative scope with no express restrictions, permitting such definitions.
• Emphasised the presumption of constitutionality and legislative power to override judicial precedents via statutory amendments.
• Asserted that Section 7(1)(aa) was within legal authority and its retrospective application was valid.

Court’s Decision & Rationale

• The Division Bench upheld the constitutional validity of the amendments made through the Finance Act, 2021, including Section 7(1)(aa) of the CGST Act.
• It concurred that the principle of mutuality had been legislatively overridden and recognised the legislative authority under Article 246A.
• However, the court invalidated the retrospective application of the provision to the period before 1 January 2022, citing the principles of fairness and non-confiscatory legislative action.

The court declared the retrospective application of Section 7(1)(aa) from 1 July 2017 to 31 December 2021 as unconstitutional. Section 7(1)(aa) remains valid and enforceable only from 1 January 2022.