Whether Rotary / Lions/Jaycees etc liable fro GST on contributions from the members for meetings and other petty administrative expenses
Here is an interesting AAR by GST AAR Maharashtra in Rotary Club of Mumbai Elegant wherein the following issues and opinion was expressed.
Question 1:- Whether 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?
Answer:- In the affirmative.
Question 2:- Whether 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, within the meaning of supply?
Answer:- In the affirmative.
The copy of the AAR is as under:
GST AAR Maharashtra
Rotary Club of Mumbai Elegant
Advance Ruling No. GST-ARA-26/2020-21/B-108
The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by M/s. Rotary Club of Mumbai Elegant, The applicant, seeking an advance ruling in respect of the following questions.
1.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 ?
2.Whether 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, within the meaning of supply ?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression `GST Act’ would mean CGST Act and MGST Act.
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FACTS AND CONTENTION — AS PER THE APPLICANT
The submissions made by the applicant are as under
2.1 The applicant, Rotary Club of Mumbai Elegant is a group of people who carry out various aharitable 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 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.
2.2 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 a likely cause for execution. No facilities/benefits are provided such as recreation etc. by club.
2.3 Furthermore, the administration and working of the Association and Implementation of policies are established and implemented on the concept of mutuality.
2.4 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.
2.5 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.
2.6 In absence of two distinct persons and also in absence of consideration, as defined under the Act, contributions received from the members does not qualify, as a Supply within the meaning of the term, as defined under the Act.
DOCTRINE OF MUTUALITY
Various case laws referred below would help throw light on doctrine of mutuality:-
2.7 In the case of CIT vs. Bankimpur Club Ltd. 226 ITR 97, the Hon’ble Court discussed the principles of mutuality and at page 103 held as follows:
It should be noticed that in the case of a mutual society or concern (including a member’s club), there must be complete identity between the class of contributors and the class of participators. The particular label or form, by which the mutual association is known is of no consequence.
2.8 Recently in the case of State of West Bengal vs. Calcutta Club Ltd., Larger Bench of the Hon’ble Supreme Court vide its judgement dated 3rd October, 2019, a service tax matter, observed that the definition of “services” under section 65B(44) of the Finance Act, 1994 requires the provision of services by one person to another, and the doctrine of mutuality, which is applicable to clubs qua sales tax for supplies to members, was equally applicable “on all four to services.” Consequently, services by a members’ club to its members amounts to services to self.
2.9 To tax the transaction between an association or club and its members, said transaction must either fit either under clause (a) or clause (c) of Section 7 of the CGST Act, 2017, which defines the term “supply”. As per Clause (a) there must be supply of goods or services or both for a consideration and such supply must be in the course or furtherance of business.
BUSINESS:-
2.10 The term “business” is defined u/s 2(17) and reproduced below for ready reference;
(17) “Business” includes–
(e) Provision by a club association society or any such body (for a subscription or any other consideration) of all the facilities or benefits to its members”. In applicant’s case, members of the club come together only for social cause and there is neither furtherance of any business of benefits or facilities to the members. Hence, applicant is not doing any business as envisaged under section 2(17) of the CGST Act, 2017.
2.11 Applicant also relies Orders of the Appellate Authority of Advance Ruling, Maharashtra in the case of ‘Rotary Club of Mumbai Nariman Point’ as well as `Rotary Club of Mumbai Queen Necklace’ where the said Authority have observed that the Appellant is not providing any specific facility or benefits to its members against the membership subscription charged by it, as the entire subscription amount is spent towards meeting and administrative expenditures only Hence, Appellant is not doing any business as envisaged under section 2(17) of the CGST Act, 2017 and since, Appellant is not doing any business in terms of section 2(17) of the CGST Act, 2017, it can be deduced that activities carried out by the Appellant would not come under the scope of supply as envisaged under Section 7(1) of the CGST Act 2017 and held that the amount collected as membership subscription and admission fees from members is not liable to GST as supply of services”.
2.12 Co-joint reading of the definitions of a supplier [Section 2(105) of the CGST Act, 2017] and a receiver [Section 2(93) of the CGST Act, 2017] provides that, where a consideration is involved in a transaction, recipient is the “person” who pays consideration to the “supplier”. Hence two different persons have been envisaged in law to tax a transaction as a supply made for a consideration.
2.13 From the forgoing analysis, applicant prays that transaction between the applicant, Rotary Club of Mumbai Elegant and its members will not be covered within the scope of supply u/s 7 of the CGST Act, 2017. Hence the same will not be liable for GST.
Applicant Submission in Final Hearing dt.29.10.2021
2.14 If applicant’s activities are held to be supply, then membership fees collected by the Applicant, which is purely in the nature of a reimbursement for the meetings and administrative expenditures incurred to sustain and propagate their inherent programs, would be subject to double taxation as the amount spent towards meetings and administrative expenditures is already subjected to GST at the hands of the suppliers of these input services or goods used in the meetings, events and other administrative functions of applicant. In this regard, reliance is placed on the finding of Hon ‘ble Maharashtra Appellate Authority for Advance Ruling for GST, in the cases of Rotary Club of Mumbai Queens Necklace (Order 06.11.2019) and Rotary Club of Mumbai Nariman Point (Order No. MAH/AAAR/SS-RJ/20/2019-20, dt. 11.12.2019)
2.15 No effect of new clause (aa) in sub-section (1) of Section 7 of the CGST Act
A new clause (aa) was inserted in Section 7(1) of the CGST Act, with retrospective effect from 1st July, 2017, to provide levy of tax on activities or transactions involving supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
2.16 Applicant submits that insertion of said clause doesn’t alter case of Rotary Club, because of ‘Agency principle’ and reasoning of AAAR in the cases of in the cases of Rotary Club of Mumbai Queens Necklace and Rotary Club of Mumbai Nariman Point.
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CONTENTION — AS PER THE CONCERNED OFFICER:
The submissions made by the officer are as under:-
3.1 As to applicant, it is noticed that collection is made separately for administrative expenses as
Subscription dues. Further social services are funded separately by raising separate fund for the projects. Major portion of Administrative expenses spend from Subscription dues is for providing facility of meetings to members. Direct purpose of meetings & gatherings as per information on website of Rotary seems to facilitate personality development of members through opportunities of better communication, promoting friendship, trainings, entertainment, activities participation etc. These facilities are not available to non-members. Certainly personality development of members indirectly supports a service which is main objective of Rotary Hence it is incorrect to say that Rotary doesn’t provide any facility to members.
3.2 The term ”business” under Section 2(17) (e) of the GST Act includes, ”provision by a club association, society or any other body (for a subscription or any other consideration) of the benefits to its members. It is, thus, clear that the Applicant is doing “business” as defined under section 2(17) (e) of the GST Act. And subscription dues are to be considered as consideration for the supply of such services, which are classifiable under SAC Heading 99959 under the category ‘Services furnished by other membership organization’.
As per the definition of the term “business” under the GST Act, subscription and fellowship dues are to be considered as consideration for the Taxable supply of such services.
3.5 The activity of the Applicant, therefore, is to be considered in the light of Section 7(1)(a) of the GST Act. The language used therein is forms of supply of goods or services or both such as ‘ The expression ‘such as’ is meant to illustrate and covers the supplies made by club to its members even though a specific mention was not made therein.
3.6 The various provisions in GST read collectively makes it clear that the legislature’s intention was always to treat association and its members as different entities which is also endorsed by amendment in Finance Act 2021.
3.7 Subscription & Fellowship dues collected from members for activities of applicant are in the furtherance of “business” as termed in section 2(17) and taxable as “supply of services” in section 7(1)(a) of GST act.”
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HEARING
4.1 Preliminary e-hearing in the matter was held on 13.07.2021. Authorized representative of the Applicant, Shri. Sheetal Prakash Khandelwal was present. Jurisdictional officer was absent. The Authorized representative made oral submissions with respect to admission of their application.
4.2 The application was admitted and called for final e-hearing on 29.10.2021. The Authorized
representative of the applicant, Shri. Sheetal Prakash Khandelwal, CA was present. The Jurisdictional officer Smt. Neeta Kadam, STO, MUM-VAT-C-137, Nodal-9 was also present. The Applicant made oral and written submissions. The jurisdictional officer requested for time file written submissions and was allowed three working days.
4.3 The matter was heard.
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DISCUSSIONS AND FINDINGS:
5.1 We perused the documents on record, facts of the matter and submissions made by the application as well as the jurisdictional officer.
5.2 The applicant also collects fees from its members which is used for its own administration purposes well as for facilitation of meetings of its members.
5.3 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.
5.4 In view of the above we now take up both the questions raised by the applicant.
5.5 The first question is 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. The second query of the applicant is whether contributions from its members, recovered for expending the same for the weekly and other meetings and other petty administrative expenses amounts to or results in a supply, within the meaning of ‘supply’.
5.6.1 The term “supply” is defined under Section 7 of the CGST Act and was last amended in the Budget 2021. Prior to the amendment “supply” was defined as :
7 (I) For the purposes of this Act, the expression “supply” includes—
(a) 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;
(b) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(c) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
(3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated
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a supply of goods and services not as a supply of goods; or
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a supply of services and not as a supply of goods.
