GST on members contribution to Clubs/Associations: Whether Ultra virus?


GST on members contribution to Clubs/Associations: Whether Ultra virus?



Readers may recall that the Finance Act, 2021 has introduced GST on all activities or transactions between members and respective clubs and associations.

The amendment has far reaching consequences on all associations which are formed to pool the receipts and incur common expenses. One may note that there is no element of service by such associations.  Rather, it is by the member, for the member and of the member. Take for example – a housing society or a club wherein members based on estimated expenditure contribute a sum periodically to incur common expenditure. Can it be said that housing society is rendering services to members in the course of business. These associations/clubs are not for profit institution and neither do they render commercial service to its members nor do they render services to outsiders for a fee.


More importantly, the said amendment by FA -2021 is retrospective in nature and will be applicable from 1st July 2017 i.e., from the inception of the GST.


The said amendment has arisen due to the judgement of Honorable Supreme Court in the case of Calcutta Club Limited wherein it had been held that no service tax/VAT will be applicable on supplies made by club/associations to its members due to the principles of mutuality.


Even prior to the amendment by the FA -2021, there have been various Advance Rulings decisions wherein it has been held that transactions between members and clubs/associations will not be liable to GST.


The amendment by FA – 2021 seeks to nullify all the judgments passed till date.
The legislative competence of Parliament to enact the said levy is derived from Article 246A of the Constitution of India. The substance of the said Article in respect of chargeability of goods and services tax is trade and commerce.

Is the said levy ultra vires and unsustainable as there is no provision in the Constitution to support the concept of deemed service?

It is also evident from the provision of Section 7(1)(a) which requires supply of goods and services to be in the course of or in furtherance of business. However, by the impugned provision, legislature has done away with the fundamental requirement of the supply of goods and services being in furtherance of or in the course of business. The impugned provision therefore appears inconsistent with the substratum of the CGST Act.


Let us wait and watch for the constitutional validity of above amendment by the FA-2021.