By Our Correspondent
Kochi: Despite the Indian Medical Association’s (IMA) longstanding argument that it and its members operated under the ‘principle of mutuality,’ essentially viewing them as a single entity for tax purposes, the Kerala High Court ruled on July 23 that the services provided by the Kerala chapter of the IMA to its members fall under the Goods and Services Tax (GST).
The IMA contended in court that since the association and its member doctors were considered one entity, it was unreasonable to treat transactions between them as taxable. The fundamental argument was that a person cannot trade with themselves.
However, the High Court decided that the ‘principle of mutuality’ is overridden by the powers granted to Parliament under Article 246(A) of the Constitution. This article empowers Parliament and state legislatures to enact laws imposing taxes on the supply of goods and services.
In 2021, Parliament amended the Goods and Services Act by adding Section 7(1)(aa), which defines ‘supply’ to include transactions between a club or association and its members. The amendment clarifies that “the person and its members or constituents shall be deemed to be two separate persons,” and transactions between them are treated as occurring from one entity to another.
This amendment enabled the Directorate General of GST Intelligence (DGGI) to investigate the IMA. After a series of inquiries since November 2022, the DGGI found the IMA in breach of GST regulations and sought to impose GST on the association with retrospective effect from July 1, 2017, the date GST was introduced.
In response, the IMA filed a writ petition with the High Court, arguing that Parliament lacked the authority to nullify the ‘principle of mutuality’ through an amendment to the GST Act alone, suggesting that a Constitutional amendment was necessary to eliminate this principle.
The High Court ruled that the amendment to the GST Act was sufficient to override the mutuality principle for tax purposes. The court stated, “The amendment is neither beyond legislative competence nor does it violate any fundamental rights under Part III of the Constitution of India, nor is it manifestly arbitrary or capricious.”
Nevertheless, the court restricted the DGGI from collecting GST dues from the IMA retroactively. It ruled that GST could only be collected from January 1, 2022, when Section 7(1)(aa) was officially notified.
The court noted that the principle of mutuality was applicable until the amendment’s notification on January 1, 2022. During this period, the GST authorities had not issued any notices to the IMA. “Thus, before the amendment introduced Section 7(1)(aa) through the Finance Act, 2021, the law of mutuality was firmly established for taxing the supply of goods and services by clubs and associations to their members,” the court stated.
A top source at the DGGI indicated that the Directorate plans to appeal the court’s decision on the retrospective application of the amendment.
