JHARKHAND AUTHORITY OF ADVANCE RULING
GOODS AND SERVICES TAX
DIVISIONAL OFFICE OF STATE TAX, CIVIL COURT COMPOUND,
NEAR JAIPAL SINGH STADIUM, RANCHI, 834001
Joint Commissioner
PO-Ranchi GPO, PS- Kotwali Thana,
Ranchi -834001
Note: Under Section 100 of the JGST Act 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of JGST Act 2017, within a period of 30 days from the date of service of this order.
Order under Section 98 of CGST Act, 2017 and under Section 98 of SGST Act, 2017
M/s Ranchi Club Limited, Main Road, PO- Ranchi GPO, PS- Kotwali Thana, Ranchi - 834001 (hereinafter referred to as "applicant"), having GSTIN ((20AAACR7751E1ZR)), have filed an application for advance Ruling under Section 97 of the CGST Act, 2017 and under Section 97 of Jharkhand GST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Rules 104 of Jharkhand GST Rules, 2017 in Form GST ARA-01 discharging the applicable fee under the CGST Act and Jharkhand GST Act.
2. The applicant is involved in providing/rendering services and made the following submission:-
(i) M/s Ranchi Club Limited (hereinafter referred to as 'assessee/club') is a Not-for- Profit corporate entity registered under the Companies Act, 1956 (now the Companies Act, 2013). The assessee is a limited company which is guaranteed by its members. The assessee is not a company which provides shareholding to its members rather its liabilities/debts are guaranteed by the members.
(ii) As per the memorandum and articles of association there are various categories of persons who may be allowed to use the club. These persons may be defined in the category of permanent members, resident members, corporate members, honorary members, courtesy members and associate members.
(iii) That however it is only the permanent members are deemed to be 'members' of the club thereby meaning that the permanent members are those who have a right to elect the executive committee of the club. They are also those who provide their personal guarantee with regards to the debts and liabilities of the club. It is imperative to mention that they are not part of any income which the club generates.
(iv) That the services provided to the club can be exclusively by the said categories of the members of the club and is not open for outside usage.
(v) That the club and the members of the club are not distinct entity and cannot be treated as two different persons. Hence the provisions of GST are not applicable to the 'Permanent Members' of the club as there is no flow of services from one person to another.
(vi) The permanent members of the club are mutual to the club and cannot be treat as two separate entity.
(vii) That the principle of mutuality is an important principle governing both the realm of indirect and direct taxation. The Goods and Service tax also incorporates the principle of Mutuality.
(viii) That the same exemptions were granted to the assesee for Income Tax Act, Jharkhand VAT and Service Tax laws in the previous regime.
3. The applicant sought Advance Ruling on the following questions/issues:-
(i) Whether the service provided by the assessee to its members come within the definition of 'Supply' as envisaged under the Central/ Jharkhand Goods and Services Tax Act, 2017?
(ii) Whether the assessee is governed by the principal of mutuality?
(iii) Whether the assessee and its members are one and same?
4. Applicant's interpretation of Law:
Issue No. 1- Whether the service provided by the assessee to its members come within the definition of 'Supply' as envisaged under the Central/ Jharkhand Goods and Services Tax Act, 2017?
a. That the assessee is a registered entity under the applicable provision of Central/ Jharkhand Goods and Services Tax Act, 2017. It is also registered with The Companies Act, 2013 (earlier registered under The Indian Companies Act, 1882.) and accordingly has its memorandum and articles of association.
b. That the sole issue before this Ld. Authority is whether the services as provided by the club would fall within the definition of supply as provided in section 7 of the Center/Jharkhand Goods and Services Tax Act, 2017. It is clarified that that in order for 'supply' to happen to separate persons are required. However, in the case at hand where it has been held that the members of the club and the club are not separate entity, the charging Section of GST is not required. It is hereby clarified that any service which the club shall provide to non-members shall come within the purview of GST and the club shall deposit the same to the Government.
c That it is most humbly submitted that the principle of mutuality is an important dictate of taxation wherein it has been held by the Hon'ble Courts that wherever two entities are mutual to one another they shall be deemed to be one and the same. The issue came up before the Hon'ble Supreme Court in the case of Chlemsford v. Commissioner of Income Tax (AIR 2000 SC 1092), wherein the Hon'ble Supreme Court was pleased to lay down the following criteria for the principle of mutuality to exist:-
a) The identity of the contributors to the fund and the recipients from the fund,
b) The treatment of the company, through incorporated as a mere entity for the convenience of the members and policy holders, in other words, as an instrument obedient to their mandate, and
c) The impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.
d. That in the case at hand all the above three criteria are met. The members of the club provide fund to the assessee which is a separate entity incorporated for the convenience of the members and the members cannot derive any profit from any income which is generated by the club. The same principle was held to be applicable in the case of the assessee by the Hon'ble Patna High Court (Ranchi Bench) and was answered in affirmative in the case of Commissioner of Income Tax Vs. Ranchi Club Ltd. ([1992]196ITR137(Patna)), wherein the Hon'ble Court held that the principle of mutuality would be applicable in case of theassessee.
e. That a similar issue was also before the Hon'ble Jharkhand High Court in the matter of Ranchi Club Ltd. Vs. Chief Commissioner Of Central Excise & Services Tax, Ranchi Zone And Others ([2012(3)JCR123(Jhr)]) wherein the Hon'ble Court accepted the principle of mutuality and further held that the members and the club are the same entity and as one person cannot transfer goods or services to oneself that is the case of a transaction two or more people are required and hence the assessee was exempt from the service tax (and VAT). The definition of 'supply' as provided in the Act is an inclusive definition and include any sort of exchange done is due course of business. The definition of business itself has been provided in the Act and includes services provided to members of a club or association for consideration etc. A similar definition was a part of the Finance Act, 1994 wherein under Section 65(105)(zzze) the definition was the same. However, the Hon'ble Jharkhand High Court in the case of Ranchi Club Ltd v. Chief Commissioner of Service Tax and Excise (2012(3)J.L.J.R.l) has clearly stated and specified that the members of Ranchi Club and Ranchi Club are not separate and distinct entity. As in the instant case the members and the assessee are one and same due to the applicability of the principle of mutuality and as 'Supply' has to be from one person to another; the services rendered by the assessee do not come within the purview of supply as provided for in section 7 of The Center /Jharkhand Goods And Services Tax Act,2017. it is imperative to bring to the notice of this Ld. Authority that a similar decision was rendered by the Maharastra Authority for advance ruling in the case of In Re Lions Club Of Poona Kothrut.
f. That the assessee as earlier preferred another advance ruling generated wide application bearing, in which final order was passed vide order detail 6th of September 2018 wherein this Ld. Authority had held that the issue involved in the advance ruling sought under the provisions of the Goods And Services Act, 2017 and the Finance Act, 1994 ( service tax) remains the same. Further this Ld. Authority had in light of the case of Chief Commissioner Of Central Excise and Services & Ors Vs. M/s Ranchi Club Ltd ( CIVIL APPEAL NO. 7497 OF 2012) pending before the Hon'ble Supreme Court was pleased to refrain from passing any order. That since then the Hon'ble Supreme Court has been pleased to adjudicate the issue in the favour of theassessee.
5. Section 97(2) of the CGST Act, 2017 and Jharkhand GST Act, 2017 empowers the Advance Ruling Authority to decide the following issues:-
(a) classification of any goods or services or both;
(b) applicability of a notification issued under the provisions of this Act;
(c) determination of time and value of supply of goods or services or both;
(d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services or both;
(f) whether applicant is required to be registered;
(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term
6. Form the aforesaid provision of Advance Ruling, the applicant is eligible to seek under section of 97(2)______of the CGST Act, 2017.
7. Personal Hearing:
Sri. Parth Jalan, Advocate, duly authorized representative of the applicant has appeared on 11.08.2020 and reiterated the facts narrated in their application and also submitted the additional submission and wherein they submitted that:-
I. the applicant most is deeply obliged for granting the Applicant a hearing on the 11th of August 2020, wherein Your Honor(s) had been pleased to direct the Applicant to submit a written note of argument of the oral argument as advance by the Applicant.
II. That the argument is can be broadly divided into four parts:-
1st. Whether the Principle of Mutuality Apply in case of the Applicant-Club?
1. it is most humbly submitted that the Principle of Mutuality is applicable in the case of the Applicant-Club.
2. That the Hon'ble Jharkhand High Court in the case of Commissioner of Income Tax v. Ranchi Club Limited (1992) 296 ITR 137 (Patna) was pleased to hold that the principle of mutuality shall apply to M/s Ranchi Club Limited as:-
A. The Club was established for Nonprofit motive;
B. The club was and its members were distinct distinguishable, and they do not have any right in any surplus, if generate by the applicant club;
C. None of the activities of the club could be tainted with commerciality.
3. the M/s Ranchi Club Limited is a Section 8 (Nidhi Company) under the Companies' Act, 2013 (earlier registered under Section 25 of the Companies' Act, 1956) which establishes that the Applicant-Club is a Non-Profit Organization. Further, the transactions of the club and its members are distinguishable, and the members of the club have no right on any surplus if generate by the club and the same is again used by the club for the furtherance of the object of the club.
4. any reserves held by the club are also used for the purpose of furtherance of the activities of the club and cannot be used by any member for his/her own benefit.
5. the Memorandum of Association of the club read with applicable provisions of the Companies Act, 2013 mandate that an Annual General Meeting has to be held every year wherein the members of the club participate to discuss the further program and development of the club. The most important exercise held as part of the AGM entrails the election of an 'Executive Committee' in a democratic manner. This 9-member committee is responsible for the day-to-day running of the club and is also tasked with taking any decision regarding the functioning of the club. It is clarified that the committee members serve in an honorary capacity and do not derive any monetary benefit, not even an honorarium for serving as members of the Executive Committee.
6. it of further imperative to bring to the notice of this Hon'ble Authority that the AGM also undertakes the adoption of the accounts of the firm. The Balance sheet and the profit and loss of the firm would reflect that the funds are only utilized for the purpose of furtherance of the purpose of the club.
7. it is further imperative to note that the decision of the Hon'ble Jharkhand High Court (later adopted by the Hon'ble Apex Court) is based on the judgment of the Chlemsford Club v. Commissioner of Income Tax (AIR 2000 SC 102), wherein the Hon'ble Apex Court had laid down three essential for the principle of mutuality to be applicable:-
A. The identity of the contributors of the funds and the recipient of the fund must be distinguishable- in the instant case the contributors of the funds (members) and the recipient (club) is distinguishable and identifiable.
B. The treatment of the company as an instrument obedient to the mandate of their mandate- The club, as explained above functions through an executive committee, which is a democratically elected committee and serves to further the objective of the club. The members of the club retain control over the club through annual AGM and or EoGM which can be called from time to time.
C. The impossibility that the contributors should derive profits from the contributions made by themselves to a fund which could only be expended or returned to themselves- the club is a Non-Profit Entity and any surplus so generated has to be utilized for the furtherance of the activity of the club. The members can in no manner derive an profit from the activities of the club and none of the activity of the club is tainted with commerciality.
8. That it is lastly submitted that the the application of the principle of mutuality in case of the applicant is no longer res integra and has the judicial stamp from the Hon'ble Jharkhand High Court.
2nd. Whether the Principle of Mutuality would apply in the case of indirect taxes?
1. That it is most humbly stated that principle of mutuality would apply in the case of indirect taxes.
2. That the Hon'ble Jharkhand High Court in the case of Ranchi Club Limited v. Chief Commissioner of Central Excise and Service Tax, Ranchi (2012 (3) JLJR 1) had held that any 'sale or service' requires the presence of two parties. The applicability of the principle of mutuality would entail that the 'CLUB' and the 'MEMBERS' of the club are one entity and as no sale or service can be provided by the members to oneself the provisions of indirect taxes including those of the Finance Act, 1994 would not apply.
3. That an appeal was filed against this decision before the Hon'ble Apex Court and was registered as CA 7497 of 2012. The Hon'ble Apex Court affirmed the decision of the Hon'ble Jharkhand High Court. The Hon'ble Apex Court in it is judgement is great detail discussed the implication of the Section 65 of the Finance Act, 1994 with is parimateria to the provision of the Goods and Services Tax Act, 2017.
4. That in light of the above mentioned submission it can be safetly concluded that the 'Scope of Supply' under the definition as provided for under Section 7 of the Goods and Services Act, 2017 would require the existence of any two persons and as the same the 'CLUB' and its 'MEMBERS' and one and same no 'Supply' can take place and hence the applicant company doesn't come with the purview of the Goods and Services Tax for the transaction with its members.
III. That the instant submission has been made in bona fide and in the interest of justice.
IV. That in lights of the above the Applicant shall be grateful if the application as filed is accordingly allowed.
V. That the instant application is being filed by the authorized representatives of the applicant is pursuance of the order of the Hon'ble Authority after due verification from side of the Applicant.
Discussion and Findings:
We have considered the submission made by the applicant in their application for the advance ruling as well as the submission made by the authorized representative of the applicant during personal hearing. We have also considered the questions/issues on which advance ruling have been sought by the applicant and relevant facts, the applicant understanding/interpretation in respect of the issue.
8.1 In view of the above, we proceed to deliver Advance Ruling on the following questions:-
9. On perusal of the application and submission of the applicant we find that the moot issue in the present case is whether the service provided by the assessee to its members come within the definition of 'Supply' as envisaged under the Central/ Jharkhand Goods and Services Tax Act, 2017 or not. In other words, whether the transaction between the applicant and its members can be construed as supply as envisaged under section 7 of the CGST Act, 2017, or otherwise.
9.2 At the outset, we would like to discuss the scope of term "supply" as envisaged under Section 7 of the CGST Act, 2017, the relevant portion of which has been reproduced herein under:
(1) For the purposes of this Act, the expression "supply" includes-
"all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be "made for a consideration by a person in the course or furtherance of business."
Thus, on perusal of the aforesaid definition of supply, it is revealed that for any activity/transaction to be qualified as supply, the same should be undertaken in the course or furtherance of business. Now, before applying the above condition in the context of the impugned transaction, we would like to discuss the meaning of "business" as provided under section 2(17) of the CGST Act, 2017, the relevant extract in the context of the instant case is reproduced herein below:-
(17) "business" includes-
(a) .................................
(b) .................................
(e) provision by club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
.............................
In the instant case, it has been submitted by the applicant that applicant is a Not-for-Profit corporate entity registered under the Companies Act, 1956 (now the Companies Act, 2013) and a limited company which is guaranteed by its members. The applicant is not a company which provides shareholding to its members rather its liabilities/debts are guaranteed by the members.
9.3 Now, once it has been established that the applicant 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 applicant would not come under the scope of supply as envisaged under section 7(1) of the CGST Act, 2017.
10. With regard to the contention that the applicant is governed by the principal of mutuality, the applicant submitted that the Club was established for non - profit motive and the club was and its members were distinguishable, and they do not have any right in any surplus, if any generated, by the applicant club and none of the activities of the club could be tainted with commerciality. Any reserves held by the club are also used for the purpose of furtherance of the activities of the club and cannot be used by any member for his/her own benefit.
10.1 In this regard, we find that the applicant is giving service to its members but the club is formed on the principle of mutuality and, therefore, any transaction by the club to its member is not a transaction between two parties. However, when the club is dealing with its members, it is not a separate and distinct individual. Further, we find that it is a mutuality which constitutes the club and, therefore, supply by a club to its member and its services rendered to the members, is not a supply or service by club to the members.
10.2 The 'Scope of Supply' under the definition as provided for under Section 7 of the Goods and Services Act, 2017 requires existence of two persons and as the applicant and its members are same, thus the services provided by the club cannot be considered as supply.
11. Further, in the matter of Civil Appeal NO.4184 OF 2009 State of West Bengal & Ors. Versus Calcutta Club Limited the Hon'ble Supreme Court in its Judgment held the following:-
"(1) The doctrine of mutuality continues to be applicable to incorporated and unincorporated members' clubs after the 46th Amendment adding Article 366(29-A) to the Constitution of India.
(2) Young Men's Indian Association (supra) and other judgments which applied this doctrine continue to hold the field even after the 46th Amendment.
(3) Sub-clause (f) of Article 366(29-A) has no application to members ' clubs.
50. Having gone through the judgment and order of the West Bengal Taxation Tribunal dated 3rd July, 2006 and the impugned Calcutta High Court judgment dated 1st February, 2008, and in view of the answers to the three questions referred to the present Three Judge Bench (as listed hereinabove), we are of the view that no interference is called for in the findings of fact or declaration of law in this case. Accordingly, C.A. No. 4184 of2009 stands dismissed. C.A. No. 7497 of 2012"
13. Similarly, in the same judgment supra in the matter of Civil Appeal No. 7497 of 2012 Chief Commissioner of Central Excise and Service & Ors. Versus M/s. Ranchi Club Ltd. and other connected matters;-
(i) The Hon'ble Supreme Court has discussed the appeal filed by the revenue and held that Service Tax cannot be levied on member's club in incorporated form.
(ii) The Court has elaborately dealt with the definition of "person" and concluded that the legislature has continued with the pre-2012 scheme of not taxing member's club.
(iii) The Hon'ble Court in arriving at the decision has relied on various cases like Young Men's Indian Association (1970)1SCC 462, DALCO Engineering (2010)4SCC 378, Calcutta Club Ltd, Enfiend India Ltd. (1968)2 SCR 42 etc.
(iv) The Hon'ble Court has upheld the judgment of Jharkhand High Court in the W.P. No. 2388 of 2007 dated 15.03.2012 and judgment of Gujrat High Court dated 25.03.2013. The Hon'ble Supreme Court upheld the Jharkhand High Court Order, wherein it says:
" Since the issue whether there are two persons or two legal entity in the activities of member's club has been already considered and decided by the Hon'ble Supreme Court as well as by the full bench of this Court in the cases referred above, therefore, this issue is no more res integra and issue is be answered in forum of the writ petition... "
(v) Further, the Hon'ble Court held that 2005 onwards the finance Act, 1944 does not purport to levy Service tax on member's club in the incorporated form.
14. The above judgment of the Hon'ble Supreme Court has made the matter clear in all aspects.
15. In view of the above discussions and findings, we pass the following:
RULING
I. The service provided by the applicant to its members do not come within the definition of 'Supply' as envisaged under the Central/ Jharkhand Goods and Services Tax Act, 2017;
II. Yes, the applicant is governed by the principal of mutuality.
III. Yes, the applicant and its members are one and same.
Letter No. 06, Dated 27th July, 2021
NEAR JAIPAL SINGH STADIUM, RANCHI, 834001, JHARKHAND.
From,
RAM CHANDRA PRASAD BARNWAL,
(Member),
Authority of Advance Ruling,
Jharkhand, Ranchi.
To,
M/s Ranchi Club Limited,
GSTIN: 20AAACR7751E1ZR
Main Road, P.O.- Ranchi G.P.O, P.S:- Kotwali, Ranchi, Jharkhand.
Sub:- In Context of Advance Ruling Order No- JHR/AAR/2020-21/02
Ref:- Advance Ruling Order No :- JHR/AAR/2020-21/02 vide Memo No. 01/AAR/JHR/2020-21/08 dated 22.09.2020.
Sir/Madam,
It is to inform you that vide Finance Bill, 2021 Sub-Section (1) of Section 7 of Central GST Act, 2017 was amended with effect from 01sl July 2017, in which the club and its members are deemed two separate persons and the supply of activities or transaction inter se is treated as taxable supply between those. The relevant amendment is quoted hereunder for your reference:
That, vide Finance Bill, 2021, section 7 of CGST Act, 2017 was amendment with effect from 1st July 2017, in which a new clause (aa) was inserted after clause (a) of sub-section (1) of section 7, which reads as under:
"(aa) 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.
Explanation: - For the purpose of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgement, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transaction inter se shall be deemed to take place from one such person to another."
This is for your information and necessary action.
(Ram Chandra Prasad Barnwal)
Member
Authority for Advance Ruling
Jharkhand, Ranchi