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 Bombay Queen City, 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 in the Administration Account, 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.

2. FACTS AND CONTENTION – AS PER THE APPLICANT FACTS:

2.1 ‘Rotary’ is an International organization engaged in humanitarian and charitable services and one of its member clubs is the applicant i.e. M/s. Rotary Club of Bombay Queen City. The applicant arranges meetings for its members and in order to defray its expenditure for such meetings, communications and administration, fees are collected from members. No facilities/benefits are provided such as recreation, etc by the applicant. The applicant also sends fees to International Institution at USA for service activities and International administration. The applicant further sends fees to its District Clubs.

2.2 A separate Administration Account is maintained by the club, wherein sums are recovered from all members for using the same for meetings and other petty administrative expenses and also include expenses for location and light refreshments. Meetings are held for members to review existing activities and consider new projects for execution. In these meetings the charitable proposals are considered, discussed and approved or rejected for being taken up. The Admin Account is being managed as if it is purely an agent of the members and no actual service is being extended to the members.

2.3 Furthermore, the administration and working of the applicant and implementation of policies are on the concept of mutuality.

2.4 The applicant maintains two separate bank accounts, one for administrative expenses and other for donations/charity. The receipts in donations/charity account are used exclusively for the purpose of donation/charity and no amount is utilized for administration purposes.

2.5 Amounts collected as fees are only pooled together for the sake of convenience. Applicant is not recovering any taxes on the member’s contribution received

2.6 Advance ruling is being sought about taxability or otherwise under the Act, of contributions received from the members in the Administration Account for expending the same for the weekly and other meetings and other petty administrative expenses.

2.7 Applicant believes that the doctrine of mutuality applies in the present case. There is no other commercial consideration whatsoever. Going with doctrine of mutuality, two distinct persons are missing. Even in case of a visiting guest at the meetings, estimated amount of expense recovered from the Guest in the form of Guest Fees, thus ensuring the collections on this account are spent entirely on the members only.

2.8 The amount being collected from the members is reimbursement of expenses or share of contribution. The common pool is being spent back on the members only. In absence of two distinct persons and also in absence of consideration, contributions received from the members does not qualify as a Supply. as defined under the Act.

2.9 In the case of CIT vs. Bankinipur 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.

2.10 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 3^rd 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 lax for supplies to members, was equally applicable “on all fours to services.” Consequently, services by a members’ club to its members amounts to services to self.

2.11 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.

2.12 The term “business” is defined u/s 2(17) (e) includes: 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,

2.13 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.’.

2.14 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.

2.15 From the forgoing analysis it is prayed to submit that transaction between the applicant, and its members will not be covered within the scope of supply u/s 7 of the CGST Act, 1017. Hence the same will not be liable for GST.

Applicant Submission in Final Hearing di. 29.10.2021.

2.16 Applicant is a Charitable Trust, separate from the AOP in structure. 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-R1/20/2019-20, dt. 11.12.2019)

No effect of new clause (aa) in sub-section (1) of Section 7 of the CGST Act

2.17 A new clause (aa) has been inserted in Section 7(1) of the CGST Act retrospectively, with effect from the 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.

2.18 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.

03. CONTENTION – AS PER THE CONCERNED OFFICER:

3.1 The concerned jurisdictional officer submitted and referred to provisions of law and facts of present case mainly to contend that, from the definitions it is clear that the member and the club are two distinct persons and hence, any activities and transactions between them will be deemed as supply between to separate persons. So as per jurisdiction officer, in view of the above the amount collected as membership subscription and admission fees from members is liable to GST as supply of services.

04. HEARING

4.1 Preliminary e-hearing in the matter was held on 29.06.2021. Authorized Representative of the applicant, Shri. Sheetal Prakash Khandelwal, CA, appeared. Jurisdictional officer Shri. Vivek Ghodke, MUM-VAT-D-851, Nodal-1 was also present. The Authorized Representative made oral submission with respect to admission of the 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, learned CA was present. The Jurisdictional officer was absent. But certain submissions as mentioned above are produced on record.

4.3 The case was heard.

05. OBSERVATIONS AND FINDINGS:

5.1 We have perused the documents on record, facts of the matter and submissions made by the applicant as well as the jurisdictional officer.

5.2 It is admitted fact that the Rotary Clubs and Rotary Districts consists of an association of persons, who undertake certain social activities. The applicant collects fees from its members which are used for its own administration purposes as well as for facilitation of meetings of its members. The applicant is one of the many clubs in a Rotary and forms a District of Rotary along with other clubs. The applicant also makes payment to the District of Rotary (DOR) which is used to run the administration of the DOR.

5.3 The fees collected from members are 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 from different fields and industry working towards the betterment of the society by carrying out various charitable causes and activities through a Charitable Trust. The applicant also receives amounts as donations/charity which are used exclusively for the purposes of the said donation/charity and no amount is utilized for administration purposes. Thus, charitable activities are carried out from the amounts received as donation/charity whereas 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 it case and therefore tax is not leviable on the fees received from members for carrying out meeting and for administration expenses.

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 amended last, in the Budget 2021. Prior to the amendment “supply” was defined as :

7 (1) 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 as-

1. a supply of goods and not as a supply of services; or

2. a supply of services and not as a supply of goods.

5.6.2 Vide clause 99, an amendment was proposed in the CGST Act, 2017, whereby, in section 7, in sub-section (1), after clause (a), the following clause was to be inserted and deemed to have been inserted with effect from the 1st day of July, 2017, namely:

“(aa) the activities or transactions, by a person, other than an individual, to their members or constituents or vice versa, for cash, deferred payment or other valuable consideration.

Explanation.-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and their members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place front one such person to another;”.

5.6.3 The Amendment mentioned above has received the assent of the President of India on the 28^th March 2021 and in view of the same the issue of principles of mutuality in the case of cooperative societies like the applicant has been settled.

5.6.4 As per section 2(84) the term “person” includes

(a) an individual

……………………..

(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India.

5.6.5 Therefore, in view of the amended Section 7 of the CGST Act, 2017, we find that the applicant society and its members are distinct persons and the fees received by the applicant, from its members are nothing but consideration received for supply of goods/services as a separate entity. The principles of mutuality, which has been cited by the applicant to support its contention that GST is not leviable on the fees collected from its members, is not applicable in view of the amended Section 7 of the CGST Act, 2017 and therefore, the applicant has to pay GST on the said amounts received from its members.

5.7.1 According to applicant, there is no commercial consideration involved in the process, just that the funds are collected in a common pool for meeting the expenses for the weekly meetings and other petty expenses incurred in meeting the common objective of betterment of society. According to applicant, the amount being collected from the members is reimbursement of expenses or share of contribution. According to applicant, it does not function on commercial basis. The common pool is being spent back on the members only. According to applicant, in the absence of two distinct persons and also in absence of consideration, as defined under the Act, contributions received from the members in the Administration Account does not qualify as a Supply within the meaning of the term, as defined under the Act.

5.7.2 We find that the entire dispute raised by the applicant in respect of fees received from its members is settled by the above mentioned amendment made to Section 7 of the CGST Act, 2017 and therefore, fees received by the applicant from its members 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 ‘supply’ as defined under the GST Act.

5.8.1 As per clause (aa) of Section 7 (1) of the CGST Act, expression “supply” includes the activities or transactions, by a person, other than an individual, to their members or constituents or vice versa, for cash, deferred payment or other valuable consideration.

5.8.2 The said clause (aa) clearly specifies that all or any activities or transactions by a person (in this case the applicant) to their members will be treated as ‘supply’. The meetings conducted by the applicant which includes food, refreshment, etc. are nothing but activities carried out by the applicant for its members and therefore in view of the amended provisions of Section 7 mentioned above, we hold that the 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, in the subject case.

5.9.1 We further refer to Section 2(102) of the CGST Act which defines “services” to mean anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. The impugned activities performed by the Applicant for the welfare activities of its members which includes meetings with food and refreshment, etc., is a service rendered by the Applicant to its members as per the definition of the term ‘services’ mentioned above.

5.9.2 To be taxable under GST laws, the services must be supplied in the course or furtherance of their business. The term ‘business’ is defined under Section 2(17) of the CGST Act includes,-

…………………………..

e) 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;

…………………………

5.9.3 Clause (e) of the above said definition is relevant and it is clear from the said clause that the activity of providing facilities or benefits by an association to its members for a subscription is a business under GST Act. Hence the transactions between the association and its members is a service.

5.9.4 Further, Section 2(31) of the CGST Act states that ‘Consideration’ in relation to the supply of goods or services includes,-

(a) any payment made or to be made, whether in money or otherwise, in respect of in response to, or for the inducement of the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

PROVIDED that a deposit, given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies the deposit as consideration for the said supply ;

5.9.5 In the instant case, the monthly contribution made by the members to the association is in return for receiving the services of the Applicant Club. The money collected by the Appellant from its members is used to procure services and goods from a third party and provide the benefits of such procured goods and services to the members of the association. Under GST, the term ‘person’ has been defined in Section 2(84) of the CGST Act, 2017, to include an ‘individual’ as well as an ‘association of persons or a body of individuals, whether incorporated or not. Therefore, the individual members who are members of the Applicant Club are beneficiaries and the contribution made by them is to be considered as consideration for the services received.

5.10 From the above facts, the definitions and the legal provisions, it is clear that the member and the club are two distinct persons and hence, any activities and transactions between them will be supply between separate/distinct persons. After the retrospective amendment as mentioned above, there remains no doubt that the activities involved in present case are nothing but ‘supply’, as defined under the Act. Thus, in view of the above the amount collected as membership subscription and admission fees from members is liable to GST as supply of services. The reliance placed by the applicant on order of Hon AAAR in the cases of in the cases of Rotary Club of Mumbai Queens Necklace and Rotary Club of Mumbai Nariman Point is not proper as said order was passed prior to the afore mentioned amendment to Section 7 of the CGST Act, 2017. The words the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration cover all types of activities/transactions of the present applicant. There is no list or limit or any restriction prescribed in this respect in this amendment. The fees/donation/subscription/ amount (by whatever name called), collected by the applicant, is nothing but the “consideration” for the such “supply” and is covered by the scope of the term “business”. The club and the member are two distinct persons. The principle of mutuality has no application after this amendment. The applicant merely contended that the position does not change after the amendment but failed to explain the said proposition of law. The applicant has further failed to explain as to for what purpose or to remove which particular mischief or cover which particular aspect or transaction was the said amendment brought about. All the other case laws relied, also do not provide any guidance on the legal situation, particularly after the amendment.

5.11.1 Further, the applicant has also submitted that a Co-joint reading of the definitions of a “supplier” and “recipient” as per the GST Act provides that, where a consideration is involved in a transaction, the recipient is the “person” who pays the consideration to the “supplier” and hence two different persons have been envisaged in the law to tax a transaction as a supply made for consideration.

5.11.2 The amendment to Section 7 (mentioned above) clearly treats the applicant and its member as two different persons where there is a supply of services from the applicant to its members and thus as per the applicant’s own submission that two different persons have been envisaged in the law to tax a transaction as a supply made for a consideration, we find that in the instant case there is a supply by the applicant to its members and consideration is received in the form of “fees”.

5.12.1 The applicant further submitted that they are also doing charitable activities. However applicant’s questions do not pertain to the so called charitable activities done by them and the same are not discussed.

06. In view of the extensive deliberations as held hereinabove, we pass an order as under :

ORDER

(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

For reasons as discussed in the body of the order, the questions are answered thus –

Question 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?

Answer:- Answered in the affirmative.

Question 2:- Whether contributions from the members in the Administration Account, 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:- Answered in the affirmative.