Top Stories No GST applicable on Clubs’ Services to its Members: Kerala HC declares S. 7(1)(aa) and S. 2(17)(e) Unconstitutional [Read Order] The insertion of a statutory provision that alters the basis of indirect taxation with retrospective effect, so as to tax persons for a prior period when they had not anticipated such a levy and, consequently, had not obtained an opportunity to collect the tax from the recipient of their services, militates against the concept of Rule of Law By Avinash Kurungot – On April 11, 2025 10:39 pm – 4 mins read The Kerala High Court has declared the Sections 7(1)(aa) and 2(17)(e) of the Goods and Services Tax Act, 2017 (GST Act ) unconstitutional and void being ultra vires the provisions of Article 246A read with Article 366 (12A) and Article 265 of the Constitution of India. In a writ appeal filed by the Indian Medical Association (IMA), Kerala, a Division Bench comprising Dr. Justice A.K. Jayasankaran Nambiar and Justice Easwaran S. held that the principle of mutuality remains intact post the 46th Constitutional Amendment, as upheld by the Supreme Court in the Calcutta Club case. The Court observed that unless the Constitution is suitably amended to explicitly exclude mutuality from the concepts of ‘supply’ and ‘service,’ the contested amendment to the CGST/SGST Acts cannot withstand constitutional scrutiny. Accordingly, the Bench struck down the provision that sought to override the doctrine of mutuality, declaring it unconstitutional. Step by Step Handbook for Filing GST Appeals Click Here The issue arose when the Directorate General of GST Intelligence initiated proceedings against the IMA, Kerala State Branch, by issuing summons seeking extensive details of financial records, membership contributions, and benefits provided under various schemes. The schemes in question included the Social Security Scheme, Professional Disability Support Scheme, Professional Protection Scheme, Kerala Health Scheme, and the Pension Scheme, among others.

The authorities maintained that the above services amounted to taxable supplies under the Central Goods and Services Tax Act, 2017, and thereby sought to recover GST on the amounts collected by IMA from its members since the inception of GST on July 1, 2017. New to GST? This book is your shortcut to expertise! Click Here Facing the prospect of tax recovery proceedings, the IMA proceeded to file a Writ Petition before a single-judge Bench of the Kerala High Court, challenging the applicability of GST on its services to members. The single-judge dismissed the petitioner’s claims of immunity on the basis of the principle of mutuality, while dismissing IMA’s claims of manifest arbitrariness of the statutory provisions. Consequently, IMA filed appeal against the adverse order impugning the operative portion of the judgment, while the Union and State sought to impugn their inability to retroactively recover GST from 2017 onwards. Senior Advocate Arvind P. Datar, along with P.R.Renganath, George Varghese (Perumpallikuttiyil), Manu Srinath, Nimesh Thomas and Lijo John Thampy appearing for the IMA, submitted that the 2021 amendment to Section 7 of the CGST Act, which sought to deem members and their clubs as distinct entities, was an unconstitutional legislative overreach. One Judgment Can Change Everything! Stay ahead of GST laws: Click Here Relying on the principle of mutuality and the Supreme Court’s decision in State of West Bengal v. Calcutta Club Limited (2019) the IMA contended that the association and its members were the same entity in law, and therefore no supply took place to attract GST. It was further argued that the retrospective application of the amendment from July 1, 2017, was manifestly unjust, oppressive, and violated fundamental principles of taxation law.

Conversely, Additional Solicitor General A.R.L. Sundaresan, and the State of Kerala, represented by Special Government Pleader (Taxes) Mohammed Rafiq, defended the validity of the 2021 amendment. They further pointed to the 46th Constitutional Amendment, which inserted Article 366(29A) to show that the Constitution itself recognized the principle that clubs and their members could be treated as distinct persons for the purposes of taxation, breaking the classical doctrine of mutuality for sales tax by permitting the levy of tax on supplies of goods by a club to its members. Read More: No Service Tax on Services by Incorporated Clubs to Members, rules Supreme Court IMA, bona fide,  felt that it was not liable to pay GST on services provided to its members under its welfare schemes, based on well-settled judicial precedents supporting the principle of mutuality. Based on this doctrine, services of a club or an association to its members were not to be taxed because there was no distinction between the provider and recipient, the members effectively served themselves. Nevertheless, this basic premise was reversed by the introduction of deeming provisions under the Finance Act, 2021, that modified Sections 2(17)(e) and 7(1)(aa) of the CGST and KGST Acts. The modifications deemed such transactions as taxable supplies and were made retrospective with effect from July 1, 2017, putting a huge financial burden on the IMA.

With regards to the constitutionality of the impugned amendments, after analyzing the submissions, the bench observed that “ We do however find that the statutory provisions impugned in these proceedings suffer from a definitive lack of legislative competence. Accordingly 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 declared as unconstitutional and void being ultra vires the provisions of Article 246A read with Article 366 (12A) and Article 265 of the Constitution of India.” Read More: Kerala HC Upholds GST on supplies by Clubs, Associations to its Members With regards to the retrospective application of the amendment, the bench stated that it is unnecessary for us to go into the validity of the retrospective/retroactive operation given to the said provisions as it declared unconstitutional. However, the bench concurred with the finding of the single bench which held that  the said retrospective operation to be illegal. Read More: Entire Amount of Assessed Tax has to be Paid In Absence of Amnesty Schemes: Kerala HC It added that “The insertion of a statutory provision that alters the basis of indirect taxation with retrospective effect, so as to tax persons for a prior period when they had not anticipated such a levy and, consequently, had not obtained an opportunity to collect the tax from the recipient of their services, militates against the concept of Rule of Law.” Accordingly, the Court, upholding the principle of mutuality, declared both GST provisions unconstitutional, thereby ruling that no GST is applicable on services provided by a club or association to its members. To Read the full text of the Order CLICK HERE