Applicability of GST to Mutual Society
Meaning and purpose of Mutual Society:
The term mutual society has not been defined in the GST Act. In common parlance a mutual society implies that the contributors and the recipients are one and the same. Such societies are not normally subjected to tax on the principle that a person cannot make a profit from himself.
Concept and Mechanism:
The important aspects to understand in this regard are:
Mutuality is a principle and it can be found in any organisation, it simply implies that a group of persons contribute for their own purposes.
The Supreme Court clearly provides that there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves.
A licensed club where there are both membership fees and, where prices charged for club services are greater than their cost, additional contributions. It is these kinds of prices and/or additional contributions which constitute mutual income.
Services of a mutual society to its member which are subject to GST:
GST is levied on the event of a ‘supply’, the issue is whether an association can be supplying services to its own members. Under Section. 7(1) for the purposes of GST, 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’
Therefore the following conditions must be fulfilled:
- There must be supply of goods or services or both for a
- And such supply must be in the course or furtherance of business
The term ‘business’ is defined u/s 2(17)(e) and which is relevant in this regard reads as under:
‘(17) “business” includes––
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members’
From the above definition it is clear that the term “business” includes services by a mutual society of facilities or benefits to its members. Hence if the transaction between an association and its members satisfies the other condition that it is a supply of goods or services for a consideration, then the same will be taxed.
Collection of Fees/subscription from the members against which there are no direct facility/benefit to the members can be subject to GST:
The term ‘Business’ is defined under section 2(17)(e) and it includes provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. However, the Maharashtra Advance Ruling Authority in the case of Lions Club of Kothrud Pune Charitable Trust, vide its order No.GST-ARA-15/2018-19/B-71, Mumbai 25/07/2018 has held that there is no GST liability for the amount collected by individual Lions club and Lions District as these collections are for the convenience of Lion members and pooled together only for paying Meeting expenses and communication expenses.
In other words any services provided by the mutual society in the normal course to all the members is not treated as facility or benefit for the purposes of section 2(17)(e).
In the light of the above we need to distinguish supply between a mutual society and its members into two categories;
- services which are available to the members in the normal course, for example security services in housing society,
- services which are in the nature of benefit or facility which may or may not be availed by the members, for example restaurant or accommodation facility offered by a club to its member which may not be uniformly availed by all the members