Recently, the Maharashtra Appellate Authority for Advance Rulings (AAAR) issued a contradictory verdict against its state’s AAR ruling. It has declared that no GST is charged on the membership fee paid towards admission into the club. It further justified that the membership or admission fee collected by clubs cannot be a supply of service and, hence, is not liable to GST.
The appealing body said that since the appellant’s membership fee – the Mumbai Queens Necklace Rotary club – is used to meet administrative expenditure and is not charged for any particular facilities or benefits being offered. It does not come within the scope of taxation and, therefore, no tax credit can be set off against it.
Earlier, in the case of Lion’s Club membership fee, the state’s appellate body gave a similar order and held the same rationale in this case. However, in a separate instance of India’s Inner Wheels Clubs on a related matter, West Bengal’s AAAR ruled that GST was liable for membership dues, once again posing the question of opposing state-level appeal bodies rulings.
Indirect tax expert, Harpreet Singh, quoted to the Economic Times that although the said ruling offers relief to clubs founded for charitable purposes, the problem remains unsettled across the industry because of AAR and AAAR’s contradictory rulings and claims in other states.
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GST will apply if the transaction can be termed as ‘supply’ under section 7 of the CGST Act. Supply includes various activities done for consideration in the course or furtherance of business. Business if also defined to include the provision of benefits or facilities by club or association to its members.
In the Mumbai Queen Necklace Rotary Club’s case, the authority claimed that the membership fee was collected towards meeting and general administrative expenditure of the club. It did not categorically or specifically benefit the members. Hence, it could not be classified as ‘business’ and accordingly was outside the scope of supply.
The authority further held that the organisation of any meetings and services used concerning the administrative arrangements itself would already have been subject to GST and paid by the club. Hence, GST cannot be charged from the members again on this as it would amount to double taxation.
On the other hand, the Inner Wheels club’s case took a different view. The membership privilege was going to help the club to conduct business. Moreover, it emphasised that Schedule II of the CGST Act specifically covers this transaction. It states that the supply of goods by any unincorporated association or body of persons to its member for any mode of consideration will be the supply of service. Thus, GST would apply to the membership fee as there was no specific exemption.
The CBIC must come out with a detailed clarification about the taxability of membership or admission fee collected by clubs so that the law is interpreted uniformly across the nation.
For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.
