MUMBAI: Yet another club affiliated to Rotary International, has obtained an unfavourable ruling from the GST-Authority for Advance Rulings (Maharashtra), which has held that fees collected by it from its members will be subject to goods and services tax.
Rotary International is a global organisation, which brings together members to provide humanitarian service and advance the concept of peace around the world. It has over a million members worldwide and more than 35,000 clubs which work for promoting peace, fighting diseases, providing sanitation, supporting education, etc.
‘Rotary Club of Mumbai – Western Elite’, which was the applicant in this case, pooled the amounts collected from its members (such as annual membership fees and entrance fees from new members) in a single bank account for paying expenses relating to meetings, communication expenses, per capita dues to Rotary International, and subscription to the Rotary magazine.
The club pointed out that there was no profit motive, surplus if any was used for charitable activities. These funds were not used to provide members any facilities such as those related to sports, fitness, lifestyle, entertainment, or even personal transportation.
It further explained that participating members contributed separately to activities such as training programs, workshops or cultural programs, on which GST was paid, if it exceeded the exemption thresholds under the GST Act.
However, The Authority for Advance Rulings (AAR) bench, did not deviate from its earlier decision, taken in similar cases of Rotary Club of Queens Necklace and Rotary Club of Nariman Point. It held that the amount collected as membership subscription and admission fee from members is liable to GST as supply of services.
“In order to come within the ambit of GST, the supply should be ‘in the course of, or in the furtherance of business’. Whilst, the term business includes any provision of facilities or benefits to its members by a club, association, society or any such body, for a subscription or any other consideration, the AAR ruling does not give any specific finding on this critical aspect,” says Yusuf Hakim, tax partner at CNK & Associates.
In its order, dated October 4, the AAR bench pointed out that the case of Lions Club of Kothrud was different. Here the membership fees recovered from members was held to be not subject to GST as it was spent only towards meeting administrative expenses. Whereas, Rotary Club of Mumbai – Western Elite had used the membership fees of Rs. 70.95 lakh collected during financial year 2017-18, for expenses other than administrative, such as for club events.
“The reasoning that only membership fees recovered for meeting administrative expenses, for exemption from GST, is difficult to understand,” states another chartered accountant.
There is also a larger issue on hand. To impose a tax liability there must be two parties – one a service provider and the other a service receiver. A club and its members are the same and transactions between them cannot be treated as an income or provision of service. “To overcome this, an amendment was made in the service tax regime, to provide that an unincorporated association (say club) and its members would be distinct persons. No such specific provision is contained in the GST laws. The AAR appears to have ignored this facet, in its final analysis,” says Hakim.
Source- Times of India.