WHETHER A CO-OPERATIVE SOCIETY WILL COME UNDER GST REGIME?
No. Supply of service or goods provide to the members by a co-operative society registered under any co-operative law will not come under the provisions of the GST Act. Why? We shall look into the statutory provisions of the law and the Constitution of India.
ARTICLE 366(29-A) OF THE CONSTITUTION OF INDIA
"366. (29-A) "tax on the sale or purchase of goods" includes-
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system of payment by installments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;"
SUPREME COURT DECISION
The Hon'ble Jharkhand High Court in Ranchi Club Ltd. vs. Chief Commissioner Of Central Excise [2012(26) S.T.R. 401 (Jhar.)] held that the admitted position of law remains that the petitioner's club is not liable to pay service tax for the services provided to its members under the Act and this position of law does not require any clarification. Similar view was taken by the High Court of Gujarat in Sports Club of Gujarat Ltd. vs. Union of India, 2013 (31) S.T.R. 645 (Gujarat).
Finally, the issue came up before the Hon'ble Supreme Court of India and the Court in the judgment dated 03/10/2019 in the case State of West Bengal & Ors. vs. Calcutta Club Limited [Civil Appeal NO.4184 of 2009] adverting to the Article 366(29A) (e) held as follows:
"73. It is, thus, clear that companies and cooperative societies that are registered under the respective Acts, can certainly be said to be constituted under those Acts.………….82. We have already seen how the expression "body of persons" occurring in the explanation to Section 65 and occurring in Section 65(25a) and (25aa) does not refer to an incorporated company or an incorporated cooperative society. As the same expression has been used in Explanation 3 post-2012 (as opposed to the wide definition of "person" contained in Section 65B (37)), it may be assumed that the legislature has continued with the pre-2012 scheme of not taxing members' clubs when they are in the incorporated form. The expression "body of persons" may subsume within it persons who come together for a common purpose, but cannont possibly include a company or a registered cooperative society. Thus, Explanation 3(a) to Section 65B (44) does not apply to members' clubs which are incorporated."
The Hon'ble Apex Court also held that the expression "body of persons" may subsume within it persons who come together for a common purpose, but cannot possibly include a company or a registered cooperative society.
Though the judgment of the Hon'ble Apex Court relates to applicability of erstwhile service tax law on the transactions between members of clubs, associations or a Cooperative society, the ratio decidenti in the Decision is equally applicable for taxation under GST law also. The Government of India, Ministry of Finance, Department of Revenue, Tax research Unit in its Circular No. 35/9/2018-GST dated 05/03/2018 has endorsed this view as follows:
"…….. supply of services by an unincorporated association or body of persons (AOP) to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of services. The above entry in Schedule II is analogous to and draws strength from the provision in Article 366(29A) (e) of the Constitution according to which a tax on the sale or purchase of goods includes a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration."
AMENDMENT IN SECTION 7(1) (aa) of GST ACT
The Parliament amended the Act by Finance Act 2021 by inserting Section 7(1) (aa) and an explanation thereto to the effect that, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another. Needless to say that the intention of the amendment brought into the GST law was to overcome the Decision of the Hon'ble Supreme Court of India in State of West Bengal & Ors. vs. Calcutta Club Limited [CIVIL APPEAL NO.4184 of 2009] Now the Section (as amended) remains as follows:
"Section 7. Scope of supply.-
(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, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;1[(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Explanation.-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]"
DECISION OF KERALA HIGH COURT
The Hon'ble High Court of Kerala in the Indian Medical Association, Kerala State Branch vs. Union of India [W.A.Nos.1659 & 1487/24 & 468/25] declared that the provisions of Section 2(17)(e) and Section 7(1)(aa) and the Explanation thereto of the CGST Act, 2017 and the provisions of Section 2(17)(e) and Section 7(1)(aa) and the Explanation thereto of the KGST Act are unconstitutional and void being ultra vires the provisions of Article 246Aread with Article 366 (12A) and Article 265 of the Constitution of India observing as follows":
"22. The issues considered in the aforesaid judgments are clearly distinguishable from the issue that confronts us in these proceedings. The concepts of "supply" and "service" having been judicially interpreted as requiring at least two persons - a provider and a recipient, for inferring their existence, and the Supreme Court havingheld in Calcutta Club [supra] that the principle of mutuality has survived the 46th amendment to the Constitution, so long as the said judgment holds sway as a binding precedent and/or the Constitution is not amended suitably to remove the concept of mutuality from the concepts of supply and service there under, theimpugned amendment to the CGST/SGST Acts must necessarily fail the test of constitutionality."
It seems apposite to mention here that the judgment of the High Court of Gujarat in Sports Club of Gujarat Ltd. vs. Union of India, 2013 (31) S.T.R. 645 (Gujarat) passed in the context of Service tax wherein the Court declared that Section 65(25a), Section 65(105) (zzze) and Section 66 of the Finance (No.2) Act,1994 as incorporated/amended by the Finance Act,2005 to the extent that the said provisions purport to levy service tax in respectof services purportedly provided by the petitioner club to its members, to be ultra vires.
Now, it can be construed that so far as the constitutional mandate under clause 29A (e) of Article 366 of Indian Constitution is in existence GST cannot be charged on the supply of services or sales provided by a Co-operative Society to its members.
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