The Kerala High Court has held that no Goods and Service Tax (GST) exemption on mutual beneficial schemes provided by Indian medical associations to its members.
As per Article 366(29A) a levy of service tax on the supply of goods by an unincorporated Association or body of persons to a member for cash, deferred payment, or other valuable consideration would be covered. However, Article 366(29A) does not provide the service tax on incorporated associations. Even otherwise, if it is held that the principle of mutuality is involved in the supply of goods or services by a club/association to its members, the basis of the judgment can be altered or removed by necessary amendments in the legislature.
The Parliament as well as the State Legislature, in the exercise of their power under Article 246A r/w Article 366(12A), would be empowered to Legislate for imposing tax on the supply of goods and services, irrespective of the person / individual involved.
Article 366 (12)(A) defines goods and services tax to mean any tax on the supply of goods and services or both except taxes on the supply of alcoholic liquor for human consumption. Thus, a combined reading of Article 246A and Article 366(12A) provides that goods and services tax means any tax on the supply of goods and services or both. The parliament and State Legislature would have the power to make laws with respect to goods and services tax viz, Tax on supply of goods and services or both.
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The State Government, therefore, in the exercise of the powers conferred by the legislature, considered every branch of Karnataka Bank to be a person and levied a professional tax of Rs.2500/- per branch. This levy on every branch of professional tax was challenged before the Supreme Court on the ground that the Constitution had imposed a maximum limit of Rs. 2500/- as a professional tax, therefore, the State Legislature cannot define a person against the definition contained in the General Clauses Act and levy of tax on every Branch would be unconstitutional.
The various activities undertaken by the petitioner association have been mentioned in previous paragraphs of the judgement. Therefore, the assessing authority is required to examine each activity independently to arrive at a conclusion as to whether such an activity involves the supply of goods and services so that the tax may or may not be imposed on such activity. However, this court would not like to comment on this aspect, and it is left open to the petitioner to satisfy the assessing authority that the particular activity is not involved in any supply of goods and services.
The Parliament / State Legislature has amended Section 7(a) by inserting Section 7(aa) by the Finance Act, 2021. The amendment, as held, is neither beyond legislative competence nor offends any of the fundamental rights guaranteed under Part III of the Constitution of India nor is manifestly arbitrary or capricious. Therefore, the amendment brought in Section 7(a) by inserting Section 7(aa) is well within the legislative competence and not ultra-virus.
The writ petitions so far as the challenge to the constitutionality of Section 7(aa) is concerned are dismissed. However, it is held that the provisions of Section 7(aa) will have prospective operation with effect from 01.01.2022. Petitioners are directed to file their response to its impugned show-cause notices, and the matters are remanded back to respondents 4 and 5 to complete the assessment. The petitioner shall cooperate with the assessment proceedings.
Issue Raised
whether GST was payable by the club or association?
Facts
The petitioner is an association under the provisions of the Travancore – Cochin Literary Scientific & Charitable Societies Registration Act, 1955. Only qualified modern medical practitioners with a valid registration in the State of Kerala under the Travancore Cochin Medical Practitioners Act, 1953 (predecessor Act of the Kerala State Medical Practitioners Act, 2021) are eligible to become members of the petitioner association.
Members are admitted to the petitioner association on payment of one-time admission fee. There are no shareholders. No dividends are declared, and there is no distribution of profits. Membership is not transferable. Membership can be terminated under certain specified circumstances. It is submitted that in the event of dissolution of the petitioner association, the property of the association is not allowed to be distributed among the members of the petitioner association but is to be given to any other non- profit organisation. It is further stated that the admission of a member in the petitioner association does not involve the rendering of any service to attract the GST on the contribution/admission fee.
It is also said that the petitioner association was formed in line with Part II, Rule 6 of the rules of the National Indian Medical Association, which was founded in 1928 and registered as a Society in Calcutta. Each State has its association which is registered under the respective state laws. The petitioner association holds an Income Tax Permanent Account Number and is registered under Section 12AA of the Income Tax Act, 1961.
The petitioner association is like a club formed to promote medical science, upholding the interests of the medical profession, guiding government bodies in evolving a health policy for the state and in implementing it, formulating schemes and projects for the welfare of members of the association, their families and the general public, helping in proper disposal of Biomedical waste, etc.
The petitioner runs various mutual beneficial 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 these Schemes are said to support fellow doctors, while one or two schemes support their immediate family members. Besides the admission fee, the member-doctors contribute annually and in cases of certain schemes (e.g.SSS, PDSS), a fraternity contribution upon the death/disability of a fellow member doctor; the pooled sum is paid out to the widow/dependents of the 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 association are ex officio members. The schemes have separate bank accounts, and accounts of each scheme are drawn up and separately audited.
Case Name : Indian Medical Association V/S Union Of India
Judicial Level & Location : Kerala High Court
Case Number : WP(C) NO. 23853 OF 2023
Date of Ruling : 23.07.2024
Ruling in favour of: Respondent
Judges: Justice Dinesh Kumar Singh
Petitioner Advocate: George Varghese(Perumpallikuttiyil), Manu Srinath, Nimesh Thomas, Sreelakshmi R.Nair
Respondent Advocate: Muhamed Rafiq