One Entity, One Soul: Unravelling the GST Puzzle around Clubs and Associations
Ashwarya Sharma, Advocate, Co-Founder & Legal Head, RB LawCorp
Taxing Mutuality: Constitutional Challenges to Section 7(1)(aa) of the CGST Act.
I. Introduction
The GST regime, empowered by Article 246A of the Constitution, redefined taxation in India. However, the Finance Act, 2021 introduced Section 7(1)(aa) into the CGST Act—retrospectively deeming services between clubs/associations and their members as taxable “supplies.” This raised constitutional concerns, particularly in light of the doctrine of mutuality, which treats such entities and their members as a single legal person.
II. Constitutional Issue
The core issue: Can Parliament, via statute, deem a self-transaction between a club and its members as a “supply” under GST, when the Constitution implies the need for two distinct persons? Article 366(12A) and Article 246A do not support such deeming fictions, putting the provision’s constitutional validity into question.
III. The Doctrine of Mutuality
The mutuality principle—”one cannot trade with oneself”—has been consistently upheld in both Indian and English law. Key cases, including Calcutta Club Ltd. (2019) and Young Men’s Indian Association (1970), affirm that a club and its members are not separate entities. Thus, internal transactions lack the duality required for taxation under GST.
IV. Judicial Interpretation and the Kerala High Court Ruling
In Indian Medical Association v. Union of India (2025), the Kerala High Court declared Section 7(1)(aa) unconstitutional. It held that statutory fiction cannot override constitutional interpretation, reaffirming that “supply” under GST must involve two distinct persons.
Section 7(1)(aa)’s retrospective application from 1 July 2017 violates legal certainty and the rule of law. Entities operating under mutuality were unfairly burdened without prior warning, undermining predictability and fairness.
VI. Broader Implications: Intra-Entity Transactions
The article also questions whether other deeming provisions, such as those taxing intra-entity branch transfers under Schedule I, might similarly be unconstitutional—since they involve no actual supply between separate persons.
VII. Conclusion
The Kerala High Court’s decision restores constitutional balance, reaffirming that legislation cannot override judicially-settled doctrines. Future changes to GST’s scope must align with the Constitution. Until then, mutuality remains a constitutional shield against self-supply taxation.
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