In a landmark judgment, the Kerala High Court has declared unconstitutional the provisions of the Central Goods and Services Tax Act, 2017, which allowed the levy of GST on supplies by clubs and associations to their members. The case, titled Indian Medical Association Kerala Branch vs Union of India (W.A. No. 1659 OF 2024), was decided on April 11, 2025.
Facts of the Case:
The Indian Medical Association (IMA) filed a writ appeal against the recovery of GST on services provided to its members. The IMA argued that the services rendered by a club or association to its members are not taxable based on the principle of mutuality. However, the 2021 amendment to the CGST Act, which came into effect retrospectively from July 1, 2017, removed the non-taxability of such services by introducing deeming provisions that made the supply of services by a club/association to its members taxable.
Issues:
- Constitutionality of the Amendment: Whether the amendments to Section 2(17)(e) and Section 7(1)(aa) of the CGST Act and the KGST Act, which introduced the deeming provisions, are constitutional.
- Retrospective Effect: Whether giving retrospective effect to these provisions, making them applicable from July 1, 2017, is legal and fair.
Held:
The Kerala High Court, comprising Justice Dr Jayasankaran Nambiar and Justice S Easwaran, held that:
- The provisions of Section 2(17)(e) and Section 7(1)(aa) and the Explanation thereto of the CGST Act, 2017, and the KGST Act are unconstitutional and void. They were found to be ultra vires the provisions of Article 246A read with Article 366 (12A) and Article 265 of the Constitution of India.
- The retrospective effect given to these provisions was also declared illegal. The court reasoned that altering the basis of taxation with retrospective effect, when parties had not anticipated such a levy for the past period, is against fairness and the rule of law.
- The court emphasized that the Constitution defines “supply” in a specific manner, and the legislative body cannot ascribe a different meaning to it that goes against the Supreme Court’s interpretation. The principle of mutuality, which holds that services rendered by a club or association to its members are not taxable, was reaffirmed.
Conclusion:
The Kerala High Court’s judgment in Indian Medical Association Kerala Branch vs Union of India has significant implications for clubs and associations across the country. By striking down the provisions that allowed GST to be levied on supplies to members, the court has upheld the principle of mutuality and reinforced the rule of law. The decision highlights the importance of adhering to constitutional definitions and principles in legislative actions, ensuring fairness and justice in taxation policies.
Kerala HC – Indian Medical Association Kerala Branch vs Union of India [W.A. No. 1659 OF 2024]
