In Re: Lions Club of Poona Kothrud
GST
2018 (12) TMI 590 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (20) G. S. T. L. 625 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 28-8-2018
GST-ARA-33/2018-19/B-100
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
RULING
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by LIONS CLUB OF POONA KOTHRUD, the applicant, seeking an advance ruling in respect of the following ISSUE.
Since the amount collected by individual Lions clubs and Lions District is for convenience of Lion members and pooled together only for paying Meeting expenses & communication expenses and the same is deposited in single b
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ices.
2) These services are executed through various districts comprising of many Clubs.
3) In order to facilitate the meetings and administration fees are collected from members.
4) These amounts are then used for administration and meetings.
5) In some cases the amount so collected is likely to exceed Rs. 20 lacs, being the threshold for registration under GST Act, 2017.
Clarification as regards to “Nature of are three administrative layers:
1. Clubs in Lions
2.District of Lions:-Comprises Of many Clubs, normally 100 & above where district policies for the clubs are formulated.
3.Cabinet of District:- Comprises Of various member from Lion fraternity, who are head of various committee that conduct social activities.
Receipts of Lions Club cab be broadly divided into following categories-
1) Club receiving Fees from its members. These can be purely said to be collected to defray its expenditure on meetings and communication. No facilities/ benefits are provided su
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2(84) of the CGST Act 2017. As per said definition, there is no deeming fiction to treat association and members as different persons. Hence the key condition to tax a transaction u/s that supplier and recipient must be different, is not satisfied. Hence the transaction of providing services by an association to its members should not be taxed u/s 7(1)(a). Earlier in Service Tax regime Court in several cases held that in absence of deeming fiction, treating club/association & its members as distinct person, service tax shall not be payable. Thereafter to nullify the above decision w. e. f. clause (a) to Explanation 3 to Sec. 65B provided that an unincorporated association or body of persons, as the case may be and a member thereof shall be treated as distinct persons. Such deeming fiction is not provided under the current GST regime.
WRITTEN SUBMISSION MADE BY applicant at the time of hearing on 08/08/2018
ISSUE UNDER CONSIDERATION:-
Lion Clubs are autonomous units those collect
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the recent Malin, rune, landslide, helping over 50,000 people see again or taking over the education of abandoned families, Lions have created a huge impact on Indian society. The Lions Clubs International Foundation has provided US$ 901 million in grants globally of which India is the recipient of USS 84 million for 1535 projects. Through programs like Sight-First, Lions Quest and Opening Eyes, the Foundation provides essential grant funding to Lions Clubs so they can carry out ambitious projects.
Currently the three major projects running in India are Measles & Rubella, Diabetes and Sight First. India is the home to the most diverse of cultures, but each one of them has one thing in common- acceptability. Naturally, Lions India has been successful in building symbiotic growth systems among Lions across the country. As a result, strenuous activities such as raising awareness, organising camps, fundraising etc. have become simpler.
* Membership is open to all people of the community
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t the administration and working of the Association and implementation of policies are established and are implemented on the concept of mutuality. Each member is equally represented with individual identity and status thereby, establishing the fact of complete transparency i.e. the identity between the contributors and the participators of the Association and Foundation.
Facts and Background –
1. The International Association of Lions Clubs also known as Lions Clubs International (LCI) is a non-profit making organization registered in Ilions, United States of America (USA) and has many members all over the globe.
2. Lions Club International Foundation (LCIF), charitable grant making arm of LCI is also a non-profit making charity organization registered in the State of Ilinois USA.
3. LCI pursues its charitable objective through LCIF in multifarious ways by building / running hospitals, clinics, schools, playgrounds, etc. other health care, charitable activities.
4. LCI and all i
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of mutuality:-
The three conditions stipulated by the Judicial Committee in the case of English and Scottish Joint Co-operative Wholesale Society Ltd. v. Commr. Of Agrl. I.T. (1948) 16 ITR 270 (PC) = 1948 (4) TMI 2 – PRIVY COUNCIL; existence of which establishes the doctrine of mutuality. They are as follows (page 559):
“(1) the identity of the contributors to the fund and the recipients from the fund,
(2) the treatment of the company, though incorporated, as a mere entity for the convenience of the members and policyholders, in other words as an instrument obedient to their mandate, and
(3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.”
In the case of CIT vs. Bankimpur Club Ltd. 226 ITR 97 = 1997 (5) TMI 392 – SUPREME COURT also the Hon'ble Court discussed the principles of mutuality and at page 103 held as follows:
It should be noticed that in the case of a “mut
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d should willy-nilly distribute the surplus amongst themselves : it is enough if they have a right of disposal over the surplus, and in exercise of that right they may agree that on winding up the surplus will be transferred to a similar association or used for some charitable objects.”
SUPPLY:-
As per Sec. 9 of the Central Goods & Services Tax (“CGST”) Act, 2017, levy of tax is on an event called 'supply', Scope of supply is stated u/s 7. Relevant portion of said provision is reproduced below for ready reference:
'Sec. 7. (1) For the purposes of this Act, the expression “supply” includes
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration'
To tax the transaction between an association or club and its members,
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benefits to its members;'
From the above definition it is Clear that for getting satisfied under the term “business”, there must be facilities or benefits to its members.'
In case of Lions Clubs, as we have discussed above, the members of the club come together only for social cause and there is neither furtherance of any business benefits or facilities to the members.
From the above it can be interpreted that, to satisfy the definition of “Business”, there must be some benefit / facility to its members.
In our case there is no benefit facility to the members of the lions club.
Further it can be seen whether the supply of services between club and its members is for a consideration.
CONSIDERATION:-
It is worthwhile to refer to the definition of “supplier” as provided u/s 2(105) & “recipient” as provided u/s 2(93).
Both the definitions are reproduced below:
Sec. 2(105) “supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or se
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ransaction, the recipient is the “person” who pays the consideration to the “supplier”. Hence two different persons have been envisaged in the law to tax a transaction as a supply made for a consideration.
Now the question remains that whether the club and its members can be treated as different persons?
Recent Circular:-
“GST is levied on intra-State and inter-State supply of goods and services. According to section 7 of CGST Act, 2017, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, and includes activities specified in Schedule II to the CGST Act, 2017, definition of “business” in section 2(17) of CGST Act states that “business” includes provision by a club, association, society, or any such body (for a subscription or any other consideration) oi the facilities or benefit
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on the supply of goods by any association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.”
Following observations may be noted in reference to the above circular:
a. Above circular has not considered the definition of “supplier” as well as “recipient” before taxing a transaction u/s 7(1)(a). There must be two different persons to tax a transaction under said provision. Merely because an association of person has been included as person u/s 2(84) does not imply that members of such association are different persons.
b. Circular has invoked the concept of deemed sale as provided under Article 366(29A) of the Constitution. It must be noted that clause (e) of said Article only enables to tax supply of goods by an association to its members as deemed sale. It does not enable to tax supply of service as a deemed service. Even para 7 of Schedule II only covers supply of goods by any unincorporated association. It does not cover supply o
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nct person. Hence only thing to be checked is whether an association and its members are related person.
Explanation u/s 15 of CGST Act, 2017 defines related person. Said explanation is also reproduced below for ready reference:
Explanation.- For the purposes of this Act,
(a) persons shall be deemed to be “related persons” if
(i) such persons are officers or directors of one another's businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are
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Charitable activities.
In the context of GST, definition of persons is provided u/s 2(84) of the CGST Act, 2017. As per said definition, there is no deeming fiction to treat association and members as different persons. Hence the key condition to tax a transaction u/s. 7(1)(a), that supplier and recipient must be different, is not satisfied. Hence the transaction of providing services by an association to its members should not be taxed u/s 7(1) (a).
Earlier in Service Tax regime Court in several cases held that in absence of deeming fiction, treating club/association & its members as distinct person, service tax shall not be payable. Thereafter to nullify the above decision w. e. f. 01.06.2012 clause (a) to Explanation 3 to Sec. 65B provided that an unincorporated association or body of persons, as the cast may be and a member thereof shall be treated as distinct persons. Such deeming fiction is not provided under the current GST regime.
Further, the said transaction between the c
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ns Districts is for convenience of Lions members & pooled together only for paying Meeting expenses & communication expenses & the same is deposited in a Single bank account. As there is no furtherance of business in this activity and neither any services are rendered nor any goods are being traded. Whether registration is required?”
Legal position upto from 01-07-12 to 30-06-17: There seems to be a fact that the club and members are not distinct persons, levy of service tax on such clubs/ associations may not be warranted. Principally, there should be existence of two sides/entities for having transaction as against consideration. in u members club, were is no question of two sides – Members and club, both are same entity. With effect from 1-7-2012, the word “service” has also been defined under Section 65B (44) of the Finance Act, 1994. Explanation 3a) to said Section states that for the purposes of this Chapter, an unincorporated association or a body of persons, as the case may b
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under-,
“all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.”
Therefore, there is no force in the submission of the Applicant that there is no furtherance of business in the activity and neither any services are rendered nor any goods are being traded. Consequentially, a prayer that there is no registration is required, has no leverage and legal backing.
Para No. 16 Statement containing the applicant's interpretation of law and or facts, as the case may be, in respect of the aforesaid questions.
As the activity is more appropriately covered, as explained above, under “scope of supply”, Applicant's plea is not acceptable as the same is not supported by the statutory provision.
Also the term “person” is defined in section 2(84) of the CGST Act, 2017 to include an association of persons or a body of individual
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Club. Hence no comments are offered.
Para No.2 and Para No. 3: The documents show the Club Constitution, i.e. club's vision, mission, procedure for membership, their mode various activities etc. Hence no comments are offered.
Para No. 4: The said set of document was perused by this office. The Applicant has relied upon the Circular No. 35/9/2018-GST dated 05-03-2018, The circular is applicable to “Joint Venture- taxable services provided by the members of the Joint Venture (JV) to the JV and vice versa and inter se between the members of the JV”. The relevant portion of the circular is reproduced below:
“GST is levied on intra-State and inter-State supply of goods and services. According to section 7 of CGST Act, 2017, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the c
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y of persons (AOP) to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of services.”
Therefore, the above said circular is irrelevant and inapplicable in the present situation. Hence the instructions in the said circular claimed to be applicable to them by applicant, is incorrect.
Para No. 5 – It is also submitted that the Applicant have nowhere expressly submitted and committed that they are not engaged in the activities which may amount to '(facilities” or “benefits” to its members. This is very much essential to decide whether the Applicant falls in/out of purview of the definition under “business”, as envisaged under section 2(17) of CGST Act, 2017. On the contrary, the written submission States that the Seminars and Institutes for Leadership Development and other forums only for Lion members and non lions are not allowed to take part. Thus, funds received from members are utilized for mutual benefit of members” / last para of
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made written submissions. The applicant has filed revised application on 18.07.2018.
The application was admitted and called for final hearing on 08.08.2018, Sh. Abhay Shatri, C.A. Vice District Governor of the club, duly authorized appeared and stated that they are not providing any facilities to their members and made written submissions. Jurisdictional Officer, Sh. P.C. Gotkhinde, Asstt. Commr, Cental Tax, (DIV -IV) Pune-II CGST COMMM'RATE, Pune appeared and made written submissions.
05. OBSERVATIONS
We have gone through the facts of the case. The issue before us is the requirement of registration and the applicability of the GST Act quo the receipt of fees from members by the Lions Club of Poona, Kothrud the applicant. We reproduce herein the purpose and activities as seen in their Constitution and by laws as below:
Article II- Purposes:
The purpose of this club shall be:
a) To create and foster a spirit of understanding among the peoples of the world.
b) To promote the
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from interest must also be returned to public use.
Section 2. ADMINISTRATIVE FUNDS.- Administrative funds are supported through contributions from members through dues, fines and other individual contributions.
As per the Standard District constitution of the clubs, the fallowing purposes are,
Article II – Purposes,
The purposes of this district shall be:
a) To provide an administrative structure with which to advance the Purposes of Lions Clubs International in this district.
b) To create and foster a spirit of understanding among the people of the world.
c) To promote the principles of good government and good citizenship.
d) To take an active interest in the civic, cultural, social and moral welfare of the community.
e) To unite the members in the bonds of friendship, good fellowship and mutual understanding.
f) To provide a forum for the open discussion of all matters of public interest; provided, however, that partisan politics and sectarian religion shall not be
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roster of each club as of the first days of September and March, respectively. Any club which is chartered or recognized in a current fiscal year shall collect and pay said convention tax for said fiscal year on a pro-rata basis from the first day of the second month following the date of its organization, as the case may be. This tax shall be collected from the clubs by, and be remitted to, the cabinet secretary or cabinet treasurer (or secretary-treasurer), who shall deposit the monies so collected in a special account in a bank or other depository chosen by the district governor. The fund so collected shall be used exclusively for defraying expenses of district conventions and shall be expended only by district checks drawn and signed by the cabinet treasurer and countersigned by the district governor.
Section 2. REMAINING FUNDS. In any fiscal year, any balance remaining in the convention fund after payment of all convention administrative expenses in that year shall remain in sai
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eriod July 1 to December 31; and (value in national currency __) per club member on March tenth of each year, to cover the semi-annual period January 1 to June 30, with billings of the same to be based upon the roster of each club as of the first days of July and January, respectively. Said tax shall be paid to the cabinet secretary or cabinet treasurer (or secretary-treasurer), by each club in the district, except newly chartered and reorganized clubs, which shall collect and pay said tax on a pro-rata basis from the first day of the second month following the date of their organization or reorganization, as the case may be. Said tax shall be disbursed only for administrative expenses of the district and only upon approval by the district governor's cabinet. Disbursement therefrom shall be by checks drawn and signed by the cabinet treasurer and countersigned by the district governor.
Section 2. REMAINING FUNDS. In any fiscal year, any balance remaining in the district administrative
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l check-up camps, Blood donation camps,
9. Motivating leos for activity for the public.
10. Distribution of Jaipur foots to the handicapped
We have been informed of the activities carried on by the applicant. These have been reproduced hereinabove. These purpose of receipt of subscription fees and the utilization thereof has to be interpreted in terms of the provisions of the GST Act. Does the applicant club engage in any form of supply of goods or services to its members? Whether the collection of 'fees' from the members is for any supply by the Club to the members? We have seen the earlier submission where the applicant has extensively argued against the applicability of the provisions of the GST Act. A look at the above along with the earlier submission makes us observe that the question put forth for our consideration would have to be answered in the negative.
We proceed to record our reasons.
We restrict our discussion herein below to the activities of the applicant in rel
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8]
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
We see that clause (e) speaks about subscription. But this subscription is for the facilities or benefits that would be provided. The definition requires that the club, association, society, or any such body has to provide facilities or benefits to its members. And these facilities or benefits are to be provided for a subscription or any other consideration. In the facts of the instant case, the amounts collected as 'fees' from the members are not for the purposes of making any 'supply'. All are aware that the definition of 'supply' under the provisions of the GST Act is an inclusive one. However, it is one for 'supply' and the 'supply' is of goods or services. The definition of 'supplier' under section 2 (105) of the GST Act would help clear what we intend to put across –
“Supplier” in relation to any goods or services
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ot supply any facilities or benefits in terms of goods or services to its members. At the cost of repetition, we reproduce herein the clauses relating to the use of funds-
i) Meeting Expenses
ii) Printing of Circulars
iii) Stationery
iv) Postage
v) Greetings
vi) Fees payable to International office
vii) Fees payable to Multiple office.
As can be seen, the club is not formed to provide any supply of goods or services to its members qua the fees received from them. There being no supply qua the fees received, there arises no occasion for us to visit the definition of 'Supply' under the GST Act. The applicant club as per the facts put up before us does not render any 'Supply' for the purposes of the CST Act. Having observed so, we refrain from any further discussion.
We find that the Departmental officer holds a different opinion. We would want to deal with one aspect discussed by the official about seminars for Leadership Development as organized for the members. Such acti
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