Additional Director General, Directorate Of GST Intelligence vs. Indian Medical Association

Facts

The Indian Medical Association (IMA), Kerala State Branch, filed a writ petition apprehending coercive action from the Directorate General of GST Intelligence for recovery of tax on services rendered to its members. The IMA contended it was not liable for tax on these services. The Directorate had issued summons requiring the IMA to produce registration details and financial documents for financial years 2017-18 to 2021-22. The IMA runs various mutual benefit schemes for its member-doctors, funded by contributions, with separate committees and bank accounts for each scheme. The writ petition was dismissed by a Single Judge, leading to the present appeals.

Held

The Court held that Section 2(17)(e) and Section 7(1)(aa) of the CGST Act, 2017, and the corresponding provisions of the KGST Act, are unconstitutional and void. The reasoning was that the principle of mutuality, as established in Calcutta Club Ltd., has survived constitutional amendments and remains a valid concept. The Court found that the statutory provisions, by including services supplied by a member to an association as 'supply', infringe upon this principle. The Court distinguished the present case from precedents like Skill Lotto Solutions, where inclusive definitions were upheld, by noting that the core concepts of 'supply' and 'service' inherently require at least two distinct persons. The Court concluded that the impugned amendments lack legislative competence as they are ultra vires Article 246A read with Article 366(12A) and Article 265 of the Constitution. Regarding the retrospective operation of the amendments, the Court agreed with the learned Single Judge that it was illegal, citing the principle of fairness and the rule of law, and found no justification for such retrospective taxation.

Key Issues

1. Whether Section 2(17)(e) and Section 7(1)(aa) of the CGST Act, 2017, and corresponding provisions of the KGST Act, which include services supplied by a member to a club, association, or body of persons for cash, kind, or otherwise, are constitutionally valid, particularly in light of the principle of mutuality as interpreted in Calcutta Club Ltd. v. State of Punjab (2019 SCC OnLine SC 1302), and whether these provisions are ultra vires Article 246A read with Article 366(12A) and Article 265 of the Constitution of India? Petitioner's arguments: The petitioner argued that the principle of mutuality, which exempts transactions between members of a mutual concern from taxation, has survived the 46th Constitutional Amendment and continues to be valid. They contended that the impugned amendments, by deeming services provided by members to their associations as 'supply', violate this principle and lack legislative competence. The revenue/State argued that the amendments were within the legislative competence and that the definition of 'supply' and 'service' under GST is broad enough to encompass such transactions, citing precedents like Skill Lotto Solutions Private Limited v. Union of India (2020 SCC OnLine SC 707) and the broad interpretation of 'income' in constitutional entries.