Non-Applicability of GST on Membership Subscription and Admission fee

Refer order dated 6th. November 2019 issued by The Maharashtra Appellate Authority for Advance Ruling for Goods and Service Tax with respect to the applicability of charging of GST on the Membership Fees being collected by Rotary Club of Mumbai Queens Necklace (The Club).

The club filed an appeal before the Advance ruling authority (Maharashtra) seeking a ruling on the questions as to whether:

The amount collected as membership subscription and admission fees from members is liable to GST as a supply of services?

If the above receipts are liable to GST, can the appellant claim an Input Tax Credit (ITC) paid on Banquet and Catering services for holding members meetings and various events?

After hearing both the parties and based on the written submissions and arguments the advance ruling authority (Maharashtra) came with its ruling on 30th. April 2019 and is reproduced as under:

The amount collected as membership subscription and admission fees from members is liable to GST as a supply of services.

Input credit of tax paid on Banquet and catering services cannot be availed.

Aggrieved by the above order The Club filed an appeal with The Maharashtra Appellate Authority for Advance Ruling for Goods and Service Tax.

Facts of the case:

Nature of The Club:

The Rotary Club of Mumbai is a part of a chain of clubs operating internationally. Every club works independently by electing its own office bearers and have full autonomy within the framework of Rotary’s constitution and bylaws.

The existence of these clubs is grouped as Rotary International districts, led by district office bearers who in turn guide and support the clubs.

Rotary International Board (RI) governed by the RI Board of Directors including the RI president and president-elect, meets quarterly to establish policies. The RI president, who is elected annually, develops a theme and emphases for the year.

The secretariat: Headquartered in Chicago with seven international offices serves clubs and districts in that region.

How is it different from other Clubs and Associations?

The appellant pleaded that the club in question brings together dedicated individuals to exchange ideas, build relationships, and take action. These members come together to form the club. There is an annual budget of expenses and that money is pooled by the members in equal share. It is a non-profit institution. It has neither rendered commercial service to its members nor does it render service to outsiders for a fee.

During the course of organizing meetings and or seminars, the club avails the services of banquet and catering services and pays the bills of vendors which include GST. The other expenses are related to administration like Fees and contributions to District or Secretariat Rotary, other administrative expenses like printing, stationery, audit fee, etc.

Clubs in normal parlance is understood to provide goods or services to its members such as recreation, sports, etc.

However, the appellant does not provide any facilities or benefits in terms of goods or services to its members.

Basis of the order:

Rotary Club Mumbai collects membership fees or admission fees proportionately from its members based on the expected budget and not on a prefixed membership fee rate card. In other words, it is reimbursement of expenses to the club by its members through the pooling of funds. The club is not allowed to claim input credit of GST charged on the expense bills by its vendors. In other words, expense bills are paid by every member individually by depositing the amount with the club officials. The reason for not being allowed to claim input credit is that the payment is being made directly by members in the proportionate manner (through Club) who are the ultimate consumers of services or goods thus the concept of furtherance of business is missing. Under the GST laws, input credit of GST is allowed only on the transactions undertaken for the furtherance of business till the goods or services are consumed. The object of the GST is to charge tax from the end consumer and allow input credit of paid taxes on the transactions traveling from the initial point of creation until it reaches its destination. Allowing input credit means avoidance of the cascading effect of taxes.

The pooling of funds by members of a club proportionately to meet the expenses for carrying out common activities does not give birth to the service providers and service receivers. This principle is called the concept of mutuality. Mutuality is based on the principle that one cannot trade with oneself and cannot make a profit out of oneself.

'Hon. Gujarat High Court in the case of Sports Club of Gujarat Ltd. v. UOI [2013] 40 STT 486 (Guj.) concurred with Hon. Jharkhand High Court and held that club and members are not distinct persons, levy of service tax on such clubs/associations is ultra vires.

View of the Honourable Supreme court on the applicability of Service Tax:

Post 1 July 2012, the definition of 'person' under section 65B (37) of the Finance Act, 1994 was changed to include any association of persons or body of individuals whether incorporated or not. However, the definition of ' service' under section 65B(44) of the Finance Act, 1994 requires the provision of service 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 fours to services'. Consequently, service by a member’s club to its members amounts to services to self and would not qualify as a service that attracts tax. This position was validated for both the pre-and-post-negative list'

Since the concept of mutuality was upheld by the Hon. Supreme Court during the service tax era, the same principle will apply during the current GST regime as there is no change in the legal position.

The Club in question does not own any premises and conducts meetings from the premises of third parties. Also, the club does not offer any facilities to its members like swimming, restaurant, gymnasium, etc. Thus the club in question cannot be covered under the clause ( e ) of section 2(17) of GST Act which 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.

Based on the above facts the appeal was decided in favor of the Rotary Club Mumbai Queens Necklace, I quote:

'We, hereby, hold that the amount collected as membership subscription and admission fee from members is not liable to GST as a supply of services.'

Note: The above article is based on the GST Act and The order issued by The Maharashtra Appellate Authority for Advance Ruling for Goods and Service Tax Act, 2017 dated 06-11-2019