GST UPDATE ON LANDMARK SUPREME COURT DECISION REGARDING SERVICE TAX ON CLUB PART-2

We had discussed the landmark Supreme Court decision and the reasoning adopted by Apex Court for arriving at the conclusion in the said case in depth in our earlier update. In the present update, we seek to discuss the applicability of the decision in GST regime.

Applicability of judgment in GST era: -The Service Tax Law has been repealed and it has been 2 years of implementation of GST. Now, the question arises is whether benefit of this Supreme Court decision will be available in the GST era or not? Before proceeding further, it is important to look at the relevant provisions of the Constitution of India. It is submitted that vide The Constitution (One Hundred and First Amendment) Act, 2016, a new article 246A has been inserted to enable the Central Government and the State Government (subject to clause 2) to make laws with respect to goods and services tax imposed. Hence, the power to collect GST on goods and services is being derived from the newly inserted Article 246A of the Constitution of India. At the same time, it is pertinent to mention that the other Articles which had relevance in the erstwhile regime are still prevalent as on date and have been referred by the judgment of the Supreme Court discussed by us. One such Article is 366(29A) pertaining to tax on sale or purchase of goods. It may be noted that certain entries of this Article are inconsistent with the entries of Schedule II of the CGST Act, 2017, for example, works contract being specified as service in Schedule II of the CGST Act, 2017 but the transfer of property in goods in the execution of works contract is covered under sale of goods as per Article 366(29A)(b) of the Constitution of India. Consequently, one may argue that the entries of Article 366(29A) have no relevance in GST Laws. If such an interpretation is taken, then too, the analogy drawn by the Supreme Court in the above cited decision will have persuasive value as the same was considered even while deciding leviability of service tax on services provided by club to its members whereas the provisions of Article 366(29A) pertain to sale or purchase of goods. Nonetheless, the other relevant provisions of the GST law are discussed for ascertaining the applicability of the above cited decision in GST era.

The clause (e) of the defination of ‘business’ given under section 2(17) of the CGST Act, 2017 includes provision by a club, association, society or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. The above provision indicates that the activity of club is treated as business.

However, if we observe the definition of supply given under section 7 of the CGST Act, 2017, we find that supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. We submit that although it is not explicitly stated that supply should be made by one person to another, it is understood that supply involves two persons as sale/barter and other activities require at least two persons. It is further submitted that the definition of person is also given under section 2(84) of the CGST Act, 2017 which includes an association of persons or a body of individuals, whether incorporated or not, in India or outside India. We submit that the definition of person is similar to the Service Tax Laws and is wide enough to cover clubs/association of persons whether incorporated or not.

Before coming to any conclusion, it is also pertinent to make reference to entry no. 7 of Schedule II of the CGST Act, 2017 which reads as follows:-

7. Supply of Goods
The following shall be treated as supply of goods, namely:—
Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
It is also worth noting that according to amendment made in section 7 of the CGST Act, a new sub-section (1A) has been inserted wherein certain activities or transactions which constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. This has the effect that the transactions which are specified in Schedule II shall be treated as supply only if they are made by a person in course or furtherance of business for consideration. We submit that the definition of business includes clubs and so on harmonious reading of the entry 7 of Schedule II, it can be concluded that supply of goods by unincorporated association or body of persons to member for cash is liable to GST. However, it is also to be noted that there is no similar entry for supply of services. Moreover, now the question arises is that whether the interpretation of the term “body of persons” as taken by Supreme Court can be made applicable in GST or not? Well, in our opinion, the analogy of Supreme Court decision can be applied in GST regime too as the explicit mention of “unincorporated association or body of persons” indicates levy of GST only on unincorporated body of persons. Hence, we may say that the purport of the legislation under erstwhile indirect taxation regime is being carried forward in the GST regime also. However, doubt may be created as regards the relevance of doctrine of mutuality as definition of business expressly includes membership fees charged by every kind of club or association whether incorporated or not. Nonetheless, it appears that the litigation baggage of erstwhile indirect taxation regime will continued in the GST era also after pronouncement of decision by the Supreme Court of India.

The content of this GST update is for educational purpose only and not intended for solicitation.
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GST UPDATE ON LANDMARK SUPREME COURT DECISION REGARDING SERVICE TAX ON CLUB PART-2

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