In the present matter, the Indian Medical Association filed a Writ Petition before the Hon’ble High Court of Kerala, seeking a declaration that the retrospective amendment to Section 7(1)(aa) is unconstitutional and violative of Articles 14, 19(1)(g), 265, and 300A of the Constitution of India.
The petitioner, an association of medical professionals, argued that its members pool resources, and the common funds are utilized for various schemes for the benefit of the members. It was contended that the doctrine of mutuality should apply in this case, as the association merely constitutes a group of individuals serving themselves, and under the doctrine of mutuality, there is no service rendered by one person to another. Consequently, the petitioner asserted that the activities conducted by the association do not constitute a supply of goods or services, and therefore, no GST is payable on the activities of the petitioner association.
The Hon’ble High Court, placing reliance on Karnataka Bank Ltd v. State of Andhra Pradesh[1], observed that amending the definition of the term ‘person’ to include any Society, Club, or Association falls squarely within the legislative competence and does not necessitate a constitutional amendment. The Court dismissed the petitioner’s reliance on State of West Bengal v. Calcutta Club[2], noting that while Article 366(29A) does not expressly provide for the levy of service tax on incorporated associations, the legislature is empowered to alter or remove the basis of a judicial decision by appropriate amendments. Thus, the Court held that the impugned insertion of Section 7(1) (aa) is within the legislative authority of the State.
However, the High Court further noted that the doctrine of mutuality was a well-established principle in the context of taxation on the supply of goods and services by clubs or associations to their members prior to the amendment to Section 7. The Court held that the amendment could not have been given retrospective effect and that its application is limited to the date it was notified, i.e.,01.01.2022.
W&B Comments: In the Calcutta Club judgment, the Hon’ble Supreme Court held that transactions between a club and its members are essentially transactions with oneself, thereby not constituting a “service” as contemplated under the law. Consequently, it was held that an incorporated club rendering services to its members was not liable for service tax. Furthermore, a plain reading of Article 366(29A) indicates that the provision does not extend the scope of taxation to include an incorporated association or body of persons. However, the present case underscores that the amendment to the statute, redefining the term ‘person’ to include societies, clubs, or associations, falls within the legislative competence of the State and is not ultra vires the Constitution. This represents a novel approach to interpreting the provision of services rendered by an association to its members. Nonetheless, the Hon’ble High Court has emphasized that the supply of services by an association or club has traditionally been governed by the doctrine of mutuality. Accordingly, the Court held that it is impermissible to apply the amendment to Section 7(1)(aa) retrospectively, and that such an amendment should only have prospective effect from the date of its notification.
[1] (2008) 2 SCC 254
[2]2019 (29) GSTL 545 (SC)