GST

Whether GST applicable on contributions from members towards meeting and administrative expenses?

In the case of M/S. Rotary Club of Mumbai Elegant [Advance Ruling Number. GST-ARA-26/2020-21/B-108 dated 9^th December 2021], the Honourable AAR, Maharashtra has held that contributions procured from club members to be spent on regular weekly meetings and similar petty administrative expenditures amount to ‘supply’ under the CGST Act. Furthermore, the activity of collecting contributions and spending them solely on meeting and administrative expenses of the club is construed to be business under the Central Goods and Services Tax Act, 2017 (CGST Act).

Facts of the case – Contributions from members of the club

M/S. Rotary Club of Mumbai Elegant (i.e., the Applicant) is a collection of persons who use donations from members, money obtained through various other means, and accruals from the corpus fund to carry out different charitable causes and activities. These donations & charities received are used solely for the purpose of donation and charity, with no funds used for administration.

Furthermore, sums are recovered from all members for expenses incurred for weekly and other meetings, as well as other petty administrative expenses incurred, such as the costs of the location and refreshments, as well as the facilitation of meetings of its members held for the members to review their existing activities and consider new projects for execution.

During these meetings, charitable proposals of the club are considered, reviewed, and either accepted or rejected for consideration as a likely cause for execution. The club does not provide any facilities or benefits, such as recreation.

What is the issue in the given case?

The applicant, M/s. Rotary Club of Mumbai Elegant has filed an application under Section 97 of the Central Goods and Services Tax Act, 2017 (or CGST Act) and also under the Maharashtra Goods and Services Tax Act, 2017 (or MGST Act^[1]) in order to obtain an advance ruling on certain questions.

It was considered whether or not contributions from members, recovered for use in paying off for weekly and other meetings, as well as other petty administrative costs incurred, such as the cost of the location and refreshments, amounts to or resulted in a supply, within the definition of supply and taxable. Also, it was considered whether the activity of the applicant should be treated as ‘business’ as given under Section 2(17) of the said CGST Act.

Contentions of the applicant regarding contributions from members

The petitioner believes that the doctrine of mutuality applies in this case because the contributions are being collected solely to be spent on the members themselves. There are no other commercial considerations. Two distinct persons are missing, according to the doctrine of mutuality. The process involves no commercial considerations. The money collected from the members is either reimbursement of expenses or a share of the contribution.

The applicant contended that the contributions received from club members do not qualify as a supply within the meaning of the term, as defined by the Act, because there are no two different people and no consideration, as defined by the Act.

The decision held by AAR

The honourable AAR examined Section 7 of the CGST Act and concluded that the applicant and its members are independent individuals and that the contribution received by the applicant from its members is nothing more than a payment for the supply of goods/services as a separate company. Due to the modified Section 7 of the CGST Act, the mutuality principles are no longer relevant, and GST would be levied on the sums received from its members.

With the beginning of July 1, 2017, a new clause (aa) was added retrospectively to Section 7(1) of the CGST Act, providing for the levy of tax on activities or transactions comprising the supply of goods or services by any person, except an individual, to its members or constituents, or vice versa, for cash, deferred payment, or other kinds of valuable consideration.

It was laid out that the modification to Section 7 of the CGST Act explicitly treats the applicant and its members as two separate persons where the applicant supplies services to its members and thus there is a supply by the petitioner to its members and consideration is received in the form of “fees.”

It should be noted that, according to Section 7(1) (aa) of the CGST Act, the term “supply” refers to activities or transactions carried out by a person other than an individual for cash, deferred payment, or other valuable consideration, and that meetings conducted by the applicant, including food, refreshment, and so on, are nothing more than activities carried out by the applicant for its members.

The various clauses in GST, when read together, make it clear that the statute’s rationale was always to treat associations, clubs, etc. and their members as separate entities, which is also strengthened by a Finance Act 2021 amendment.

It was argued that a clear reading of Section 2(17) of the CGST Act shows that the Applicant’s activities fall within the definition of “business.” Hence, it was determined that the contributions from members, which were recovered for use in paying off for weekly and other meetings, as well as other minor administrative costs incurred, such as the cost of the location and accompanying refreshments, amounted to or resulted in a supply.

Conclusion

The aforementioned clause (aa) clearly states that all or any activities or transactions by a person or entity (in this case, the applicant) to their members will be treated as ‘supply.’ The meetings held by the applicant, which include food, refreshments, and so on, are nothing more than activities carried out by the applicant/petitioner for its members, and thus it was held that contributions from members of the club, procured for utilizing the same for the weekly and regular meetings, & other petty administrative expenses incurred, including the costs for the location and refreshments, amount to or result in a supply in the subject case.

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