The Kerala High Court while declaring the section 7(1)(aa) of CGST Act as unconstitutional held that no GST is payable on services provided by clubs/associations to their members.
The bench of Justice A.K.Jayasankaran Nambiar and Justice Easwaran S. has allowed the writ appeal filed by the Indian Medical Association (IMA) and struck down the constitutional validity of the amendments inserting Section-7(aa) of the Finance Act, 2021 that nullified the principle of mutuality that was expounded in the case of State of West Bengal vs Calcutta Club Limited which effectively made services to members by a club non-taxable.
The Supreme Court in the State of West Bengal & Ors. v. Calcutta Club Ltd. emphatically held that the principle of mutuality continued even after the 46th Amendment. The said decision also recognises that the law has always been that the principle of mutuality extends even to incorporated clubs and not just to unincorporated clubs and that the 61st Law Commission Report which preceded the 46th amendment had not appreciated this.
The petitioner, Indian Medical Association runs various mutual Schemes for the benefit of its member-doctors, e.g. Social Security Schemes or SSS (I, II, and III), Professional Disability Support Scheme (PDSS), Professional Protection Scheme, Kerala Health Scheme, etc. All the Schemes are to support fellow doctors, while one or two Schemes support their immediate family members.
The member-doctors contribute an admission/annual fee, and in cases of certain Schemes (e.g. SSS, PDSS) also a fraternity contribution upon the death/disability of a fellow member doctor; the pooled sum is paid out to the widow of deceased doctors, disabled doctors, doctors afflicted with specified diseases, etc. Each Scheme is run by a separately elected committee, in which the Secretary and President of the petitioner are ex officio members. The Schemes have separate bank accounts, and accounts of each Scheme are drawn up and separately audited.
The petitioner bona fide believed that it was not liable to pay GST on services rendered by it to its members under the aforesaid Schemes since it was well settled through a line of precedents that the principle of mutuality would insulate services rendered by a Club/Association to its members from the levy of GST on supply of services. The underlying basis for the non-taxability of such services was the concept that when a Club/Association provides services to its members, there is no separate recipient of the services provided by the Club/Association and that the services were effectively provided by the members of the Club/Association to themselves.
The said basis of non- taxability was, however, removed by an amendment of the provisions of Section 2(17)(e) and Section 7(1)(aa) read with the Explanation thereto of the Central Goods and Services Tax Act, 2017 [CGST Act] and the Kerala Goods and Services Tax Act, 2017 [KGST Act] that introduced deeming provisions making the supply of services by a Club/Association to its members a taxable supply for the purposes of the levy of tax. The amendment that was introduced through the Finance Act, 2021 was also made retroactive with effect from 01.07.2017, by adding to the financial woes of the petitioner.
The Single Judge found that insofar as the amendment to the CGST/SGST Act through Finance Act, 2021 had the effect of removing the basis of the immunity that was hitherto granted to the petitioner on the principle of mutuality, and there was no merit in the contentions of the petitioner as regards manifest arbitrariness of the statutory provisions, the declaration sought for in the writ petition could not be granted.
The Judge, however, found that the retroactive operation given to the amendment could not be legally sustained on the principles of fairness and set aside the retroactivity envisaged for the amendment. It is therefore that the writ petitioner is before us impugning that portion of the judgment of the learned Single Judge that dismissed its writ petition, while the Union and the State are before us impugning the latter portion of the judgment that set aside the retroactive operation of the amendment.
The writ petition was preferred by the Kerala State Branch of the Indian Medical Association apprehending coercive action from the Directorate General of GST Intelligence for recovery of tax on various services rendered by it to its members.
The petitioner contended that it was not liable to pay tax on the supply of services to its members, it apprehended coercive action for recovery of tax when it was served with summons requiring it to produce details of the registration taken by it under the GST Act and their audited books of accounts and other financial documents for the financial years from 2017-18 to 2021-22.
The court struck down the GST levy on Indian Medical Association’s services to member Doctors.
Case Details
Case Title: Indian Medical Association vs. UOI & Ors.
Case No.: W.A.NO.1659 OF 2024
Date: 11/04/2025
Counsel For Petitioner: Senior Advocate Arvind P. Datar Alongwith Advocates P.R.Renganath, George Verghese And Manu Srinath
Counsel For Respondent: L. Sundaresan
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