2024-VIL-744-KER
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SGST High Court Cases

GST - Taxability of services provided by club/association to its members - Principles of mutuality - Challenge to the levy of GST on activities/transactions of the petitioner-association with its members - Validity to provision under Section 7(1)(aa) and explanation thereto r/w Section 2(17)(e) of the CGST Act, 2017 - Petitioner’s contention that unless Article 246A is amended to provide for taxing of services by the club / association to its members, the activities of club/association could not be brought within the ambit of GST – HELD - The judgment in the case of Gannon Dunkerly does not lay down a principle that the Constitution will be required to be amended for bringing every transaction involved in the supply of goods and services. Article 246-A empowers the parliament and State Legislature to enact law(s) with respect to the goods and services tax whether the supply of goods or services or both takes place. The power conferred under Article 246-A is plenary power for making laws by the parliament and State Legislature for imposing tax on the supply of goods and services and without any limitation put by the Parliament in the provision of Article 246-A - a combined reading of Article 246A and Article 366(12A) provides that goods and services tax means any tax on the supply of goods and services or both. The parliament and State Legislature have the power to make laws with respect to supply of goods and services or both - Article 246A or Article 366(12A) does not have any reference to the term Person. The tax is on activities, i.e., the supply of goods and services or both. Therefore, the Parliament as well as the State Legislature, in the exercise of their power under Article 246A r/w Article 366(12A), would be empowered to legislate for imposing tax on the supply of goods and services, irrespective of the person / individual involved - The Constitution does not put any restriction or limitation from defining a person(s) for the purpose of levy of GST. The supply of goods and services may be by club / association to its member and therefore, the principal of the mutuality will not come in a way of the Parliament or the State legislature to enact law for tax on supply of goods and services - the Parliament / State Legislature has amended Section 7(a) by inserting Section 7(aa) by the Finance Act, 2021. The amendment is neither beyond legislative competence nor offends any of the fundamental rights guaranteed under Part III of the Constitution of India nor is manifestly arbitrary or capricious. Therefore, the amendment brought in Section 7(a) by inserting Section 7(aa) is well within the legislative competence and not ultra-vires - the present writ petitions so far as the challenge to the constitutionality of Section 7(aa) is concerned, are dismissed. However, it is held that the provisions of Section 7(aa) will have prospective operation with effect from 01.01.2022 – Ordered accordingly - Whether the amendment in the CGST Act, 2017 by inserting Section 7(1)(aa) is prospective or retrospective – HELD - Before the amendment was brought in inserting Section 7(aa) by the Finance Act, 2021, the law of mutuality was well established in the principle of taxation in case of supply of goods and services by clubs/associations to its members. The GST is an indirect tax to be paid by the recipient of goods and services. When the law of mutuality, as held in the Calcutta club case, was understood by the authorities as well as the petitioner, the petitioner did not collect the GST. However, once the amendment has been brought into statute by inserting Section 7(aa) by the Finance Act 2021, the petitioners have become liable to pay the GST on the supply of goods and services to their members. Therefore, Section 7(aa) should not be given retrospective operation w.e.f. 01.07.2017 but it should be given effect from the date when it was notified i.e., 01.01.2022 - Whether all the activities undertaken by the petitioner-association involve the supply of goods and services to its members – HELD - the assessing authority is required to examine each activity independently to arrive at a conclusion as to whether such an activity involves the supply of goods and services so that the tax may or may not be imposed on such activity.
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