2025(04)LCX0049

Kerala High Court

Indian Medical Association

Versus

Union of India

W.A.NO. 1659 OF 2024 decided on 11-04-2025

IN THE HIGH COURT OF KERALA AT E

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT

THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.

FRIDAY, THE 11TH DAY OF APRIL 2025/21ST CHAITHRA, 1947

W.A.NO.1659 OF 2024

AGAINST THE JUDGMENT DATED 23.07.2024 IN W.P(C).NO.21297 OF 2023
OF HIGH COURT OF KERALA

APPELLANT(S)/PETITIONER IN THE WRIT PETITION:

INDIAN MEDICAL ASSOCIATION, KERALA STATE BRANCH,
REPRESENTED BY ITS SECRETARY DR. JOSEPH BENAVEN,
IMA STATE HEAD QUARTERS, BYPASS ROAD, ANAYARA P.O.,
THIRUVANANTHAPURAM -695029. NEW ADDRESS REPRESENTED
BY ITS PRESIDENT DR JOSEPH BENAVEN, IMA STATE HEAD
QUARTERS, BYPASS ROAD, ANAYARA P.O.,
THIRUVANANTHAPURAM, PIN - 695029

BY ADV.SRI.ARVIND P. DATAR (SR.)
BY ADV.SRI.P.R.RENGANATH
BY ADV.SRI.GEORGE VARGHESE(PERUMPALLIKUTTIYIL)
BY ADV.SRI.MANU SRINATH
BY ADV.SRI.NIMESH THOMAS
BY ADV.SRI.LIJO JOHN THAMPY

RESPONDENT(S)/RESPONDENTS IN THE WRIT PETITION:

1 UNION OF INDIA,
REPRESENTED BY THE SECRETARY, DEPARTMENT OF REVENUE,
MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NORTH BLOCK,
NEW DELHI-110001., PIN - 110001

2 STATE OF KERALA
REPRESENTED BY THE SECRETARY, DEPARTMENT OF FINANCE,
GOVERNMENT SECRETARIAT, GOVERNMENT OF KERALA,
THIRUVANANTHAPURAM-695001., PIN - 695001

3 GST COUNCIL,
GST COUNCIL SECRETARIAT, 5TH FLOOR, TOWER-II,
JEEVAN BHARTI BUILDING, JANPATH ROAD, CONNAUGHT PLACE,
NEW DELHI-110001, PIN - 110001

4 ADDITIONAL DIRECTOR GENERAL,
DIRECTORATE GENERAL OF GST INTELLIGENCE, KOCHI ZONAL
UNIT, 1ST FLOOR, CENTRAL EXCISE BHAVAN, KATHRIKKADAVU,
KOCHI-682017., PIN - 682017

5 DEPUTY DIRECTOR,
DIRECTORATE GENERAL OF GST INTELLIGENCE, KOZHIKODE
REGIONAL UNIT, MAHE HOUSE, PANICKER ROAD, NADDAKAVU
P.O., KOZHIKODE-673011, PIN – 673011

BY SRI.AR.L. SUNDARESAN, ADDITIONAL SOLICITOR GENERAL
BY SRI.MOHAMMED RAFIQ, SPECIAL GOVERNMENT PLEADER
(TAXES)

    THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 20.03.2025, ALONG WITH W.A.NO.1487/2024 & W.A.NO.468/2025, THE COURT ON 11.04.2025 DELIVERED THE FOLLOWING:

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT

THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.

FRIDAY, THE 11TH DAY OF APRIL 2025/21ST CHAITHRA, 1947

W.A.NO.1487 OF 2024

AGAINST THE JUDGMENT DATED 23.07.2024 IN W.P(C).NO.21297 OF 2023
OF HIGH COURT OF KERALA

APPELLANT(S)/RESPONDENTS 4, 1, 3 AND 5:

1 ADDITIONAL DIRECTOR GENERAL, DIRECTORATE OF GST
INTELLIGENCE, REPRESENTED BY THE SECRETARY,
DEPARTMENT OF REVENUE, MINISTRY OF FINANCE,
GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI – 110 001.

2 UNION OF INDIA,
REPRESENTED BY THE SECRETARY, DEPARTMENT OF REVENUE,
MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NORTH BLOCK,
NEW DELHI, PIN - 110001

3 GST COUNCIL,
GST COUNCIL SECRETARIAT, 5TH FLOOR, TOWER-II,
JEEVAN BHARTI BUILDING, JANPATH ROAD, CONNAUGHT PLACE,
NEW DELHI, PIN - 110001

4 DEPUTY DIRECTOR,
DIRECTORATE GENERAL OF GST INTELLIGENCE, KOZHIKODE
REGIONAL UNIT, MAHE HOUSE, PANICKER ROAD, NADDAKAVU
P.O., KOZHIKODE, PIN - 673011

BY SRI.AR.L. SUNDARESAN, ADDITIONAL SOLICITOR GENERAL
BY ADV.SRI.P.R.RENGANATH
BY ADV.SRI.SREELAL N.WARRIER, SC, GST INTELLIGENCE
BY ADV.SRI.SHAIJU K.S., CGC

RESPONDENTS/PETITIONER & RESPONDENT 2:

1 INDIAN MEDICAL ASSOCIATION
KERALA STATE BRANCH, REPRESENTED BY ITS SECRETARY
DR. JOSEPH BENAVEN, IMA STATE HEAD QUARTERS, BYPASS
ROAD, ANAYARA P.O., THIRUVANANTHAPURAM, PIN-695029.

2 STATE OF KERALA,
REPRESENTED BY THE SECRETARY, DEPARTMENT OF FINANCE,
GOVERNMENT SECRETARIAT, GOVERNMENT OF KERALA,
THIRUVANANTHAPURAM, PIN - 695001

BY ADV.SRI.ARVIND P. DATAR (SR.)
BY ADV.SRI.P.R.RENGANATH
BY ADV.SRI.GEORGE VARGHESE(PERUMPALLIKUTTIYIL)
BY ADV.SRI.MANU SRINATH(D/1420/2014)
BY ADV.SRI.NIMESH THOMAS(K/1324/2018)
BY ADV.SRI.LIJO JOHN THAMPY(K/1313/2018)
BY SRI.MOHAMMED RAFIQ, SPECIAL GOVT. PLEADER (TAXES)

THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 20.03.2025 ALONG WITH W.A.NO.1659 OF 2024 AND W.A.NO.468 OF 2025, THE COURT ON 11.04.2025 DELIVERED THE FOLLOWING:

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT

THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.

FRIDAY, THE 11TH DAY OF APRIL 2025/21ST CHAITHRA, 1947

W.A.NO.468 OF 2025

AGAINST THE JUDGMENT DATED 23.07.2024 IN W.P(C).NO.21297 OF 2023
OF HIGH COURT OF KERALA

APPELLANT(S)/2ND RESPONDENT IN WPC:

STATE OF KERALA,
REPRESENTED BY THE SECRETARY, DEPARTMENT OF FINANCE,
GOVERNMENT SECRETARIAT, GOVERNMENT OF KERALA,
THIRUVANANTHAPURAM-695001, PIN - 695001

BY SRI.MOHAMMED RAFIQ, SPECIAL GOVT. PLEADER (TAXES)

RESPONDENT(S)/PETITIONER AND RESPONDENTS 1, 3, 4 ADN 5 IN WPC:

1 INDIAN MEDICAL ASSOCIATION, KERALA STATE BRANCH,
REPRESENTED BY ITS SECRETARY DR.JOSEPH BENAVEN,
IMA STATE HEAD QUARTERS, BYPASS ROAD, ANAYARA P.O.,
THIRUVANANTHAPURAM-695029, PIN – 695029.

2 UNION OF INDIA,
REPRESENTED BY THE SECRETARY, DEPARTMENT OF REVENUE,
MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NORTH BLOCK,
NEW DELHI, PIN - 110001

3 GST COUNCIL,
GST COUNCIL SECRETARIAT, 5TH FLOOR, TOWER-II,
JEEVAN BHARTI BUILDING, JANPATH ROAD, CONNAUGHT PLACE,
NEW DELHI-110 001.

4 ADDITIONAL DIRECTOR GENERAL,
DIRECTORATE GENERAL OF GST INTELLIGENCE, KOCHI ZONAL
UNIT, 1ST FLOOR, CENTRAL EXCISE BHAVAN, KATHRIKKADAVU,
KOCHI-682017, PIN-682017.

5 DEPUTY DIRECTOR,
DIRECTORATE GENERAL OF GST INTELLIGENCE, KOZHIKODE
REGIONAL UNIT, MAHE HOUSE, PANICKER ROAD, NADDAKAVU
P.O., KOZHIKODE-673 011., PIN – 673011

BY ADV.SRI.ARVIND P. DATAR (SR.)
BY ADV.SRI.P.R.RENGANATH
BY ADV.SRI.AR. L. SUNDARESAN, ADDITIONAL SOLICITOR
GENERAL

    THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 20.03.2025, ALONG WITH W.A.NO.1659 OF 2024 AND W.A.NO.1487 OF 2024, THE COURT ON 11.04.2025 DELIVERED THE FOLLOWING:

JUDGMENT

DR. A.K. JAYASANKARAN NAMBIAR, J.

These Writ Appeals, one preferred by the petitioner in W.P. (C). No. 21297 of 2023 and the other two preferred by the GST Officials of the Union and the Kerala State, impugn the judgment dated 23.07.2024 of a learned Single Judge in W.P.(C). No. 21297 of 2023.

The Facts in Brief:

2. The essential facts necessary for disposal of these Writ Appeals are as follows:

W.P. (C). No. 21297 of 2023 was preferred by the Kerala State Branch of the Indian Medical Association apprehending coercive action from the Directorate General of GST Intelligence for recovery of tax on various services rendered by it to its members. While it was the petitioner's contention that it was not liable to pay tax on the supply of services to its members, it apprehended coercive action for recovery of tax when it was served with summons requiring it to produce details of the registration taken by it under the GST Act and their audited books of accounts and other financial documents for the financial years from 2017-18 to 2021-22.

3. The petitioner runs various mutual Schemes for the benefit of its member-doctors, e.g. Social Security Schemes or SSS (I, II, and III), Professional Disability Support Scheme (PDSS), Professional Protection Scheme, Kerala Health Scheme, etc. All the Schemes are to support fellow doctors, while one or two Schemes support their immediate family members. The member-doctors contribute an admission/annual fee, and in cases of certain Schemes (e.g. SSS, PDSS) also a fraternity contribution upon the death/disability of a fellow member doctor; the pooled sum is paid out to the widow of deceased doctors, disabled doctors, doctors afflicted with specified diseases, etc. Each Scheme is run by a separately elected committee, in which the Secretary and President of the petitioner are ex officio members. The Schemes have separate bank accounts, and accounts of each Scheme are drawn up and separately audited. A brief description of the Schemes is as given below:

“Social Security Schemes

i) Objects: The objects of the schemes are to provide financial assistance to the families of the medical practitioner in the event of his or her death, or in the event of a member suffering permanent disability that renders the member unfit to practice the profession for life. The objects also encompass undertaking various charitable/philanthropic activities such as providing medical aid to the needy and poor, family welfare programmes independently/jointly with the Government, organising blood donation camps, eye camps, promoting medical education, etc.

ii) Payment: Any doctor who is a member of the petitioner may become a member of these Social Security Schemes upon payment of an admission fee which is graded depending upon the age of the doctor. The member is then required to pay an annual subscription of Rs.300 to Rs. 1,000 for a period of 20 to 25 years.

iii) Death/Permanent disability: Upon the death/permanent disability of a member, every other member of that scheme is to pay a specified “fraternity contribution” ranging from Rs. 100 to Rs.500 depending upon the number of years for which the deceased member had been a member of the scheme. The fraternity contribution (calculated as a product of the individual fraternity contribution and the net membership of scheme concerned, subject to a maximum specified under the bye-laws) is handed over to the family of the deceased/permanently disabled member and the remaining portion, if any, is credited to the corpus of the scheme concerned to be paid out in future.

Professional Disability Support Scheme

i) Object: The object of the scheme is to provide financial assistance to a member of the scheme who has become so temporarily / permanently disabled that it renders him unfit to practice her / his profession.

ii) Payment: Any eligible member of the petitioner may become a member of this scheme upon payment of an admission fee that is graded based on age (Rs. 5,000/- to Rs.15,000)/-. An annual fee of Rs. 1,000/- is also payable by each member of the scheme. A member of the scheme is also required to make a disability contribution (graded) upon any member of the scheme suffering disability.

iii) Benefit: As with the Social Security Schemes above the aggregate disability contribution is a paid out to the disabled member. Further, upon death, a fixed sum of Rs. 50,000/- is also paid to the family of the deceased member of the scheme. The total amount of such death benefits paid each year is also collected equally from the remaining members.

Professional Protection Scheme

i) Object: The two objects of this scheme are: (i) to protect members in the case of harassment, litigation, etc, and provide legal aid; (ii) to promote social service activities such as medical aid to the poor, family welfare programmes, blood donation camps, medical attention, medical aid, etc.

ii) Payment: Any member of the petitioner may become a member of this scheme. ‘upon payment ‘of an annual subscription fee (Rs. 2,000/- for the first year, and decreasing by Rs. 100/- every year, and stabilising at Rs. 1,500/-). This membership is for one unit of PPS membership.

iii) Benefit: If any member of the scheme faces legal action (for acts done/omitted in the course of his profession), the petitioner engages and pays an advocate to provide legal services to the member concerned. Further, if the litigation results in damages being ordered to be paid by a member of the scheme, the petitioner pays such damages up to a maximum of Rs. 10 lakhs for a single case and Rs.20 lakhs for multiple cases in one year.

iv) A member may also opt for enhanced protection under this scheme, upon payment of membership fee of Rs. 10,000/- p.a. The maximum compensation then payable to such a member of the scheme would be an additional Rs.1 crore.

Hospital Protection Scheme

i) Object: The object of the scheme is to protect hospitals, clinics, dispensaries (run by member-doctors/where member-doctors work) from litigation and from harassment by the media for any act of alleged negligence or carelessness or deficiency of service on the part of the doctors/staff. Besides providing legal aid to the member institutions of the scheme, the scheme also aims to undertake social services activities as mentioned in the Professional Protection Scheme above.

ii) Payment: Membership fee ranges from Rs. 5,000/- to Rs. 75,000/- per year depending upon the bed strength of the member institution.

iii) Benefit: The maximum compensation paid by the scheme is Rs. 10.00 lakhs for a single case and Rs. 20.00 lakhs for multiple cases in a year. As with the PPS Scheme above, the petitioner would also engage advocates to act on behalf of member institutions and pay the related legal fees to such advocates.

Kerala Health Scheme

i) Object: The object of the Scheme is to provide financial assistance to members of the scheme and his/her spouse, parents and children in the event of any person being diagnosed with specified diseases.

ii) Payment: The admission fees range from Rs. 800/- to Rs. 6,000/- depending upon the age of the doctor. All beneficiary members are additionally required to pay an annual membership subscription of Rs. 100/- and Advance Finance Assistance Contribution ranging from Rs. 2400/- to Rs. 7500/- p.a.

iii) Benefit: Upon diagnosis/hospitalisation for specified diseases, compensation ranging from Rs. 5,000/- to Rs.5 lakhs is paid.

Pension Scheme

i) Object: The object of this scheme is to provide pension to life members of the petitioner.

ii) Payment: Admission fee is Rs. 3,000/- to Rs. 5,000/-. Every member of the scheme shall also pay an annual membership fee of Rs.500/-. Further, the minimum annual contribution to be made by every member of the scheme is Rs. 12,000/-.

iii) Benefit: The pension is paid when a member of the scheme requests payment after she or he attains 60 years. 30% of the pension corpus of a member may be paid to the member at the time of starting the pension payment, if so requested by the member. The pension is then paid for the rest of the life of the member from the remaining 70% corpus amount of the member. Upon the death of a member, his nominee may similarly take a lump-sum payment from 30% of the corpus. Full maturity amount is paid to the nominee if pension for spouse is not opted for. If death occurs before the age off 60, the scheme provides for stated pay-outs.

Mutual Benefit Scheme

i) Object: The object of the scheme is to provide financial support, encourage the habit of thrift amongst the members, encourage financial planning amongst the members, etc.

ii) There were Schemes A, B and C wherein the monthly payment to be made by the member of such schemes was Rs. 5,000/- Rs. 10,000/- and Rs. 25,000/- respectively. The monthly instalment is payable by the 20th of every English calendar month, upon default of which interest @) 2% per month is payable. Each of the above 3 schemes runs for 20 months.

iii) Beginning from ‘the second month “beneficiary amount" was payable by the scheme and increases every month. The member to whom the beneficiary amount for each month was payable was decided by lots among the members who request to be such beneficiaries. Defaulters were not included in the monthly lot. In the event of consecutive default of monthly instalments, the member would be removed from the scheme and the amount already paid would be vested with the funds of the scheme. The Managing Committee decided what amount was to be deducted as services charges and the balance amount was disbursed to members at the end of the scheme.

Patient Care Scheme

i) Object: The object of the scheme is to institute a corpus fund to provide assistance to deserving patients who seek care in modern medicine, to establish information/assistance centre for patients seeking medical services, to create a network of health care facilities across Kerala to assist poor patients and patients in emergency situation, etc.

ii) Payment: Any member of the petitioner may join as a member of the scheme for a period of 3 years on payment of a membership fee of Rs. 1,000/-. Members of the scheme are entitled to participate in the general body of this scheme and are eligible to cast their votes.

iii) Benefit: The criteria and expenditure of the patient care fund is decided by the managing committee of the scheme from time to time. The payment to deserving patients are made from the corpus of this fund/scheme.”

4. The writ petitioner bona fide believed that it was not liable to pay GST on services rendered by it to its members under the aforesaid Schemes since it was well settled through a line of precedents that the principle of mutuality would insulate services rendered by a Club/Association to its members from the levy of GST on supply of services. The underlying basis for the non-taxability of such services was the concept that when a Club/Association provides services to its members, there is no separate recipient of the services provided by the Club/Association and that the services were effectively provided by the members of the Club/Association to themselves. The said basis of non-taxability was, however, removed by an amendment of the provisions of Section 2 (17) (e) and Section 7 (1) (aa) read with the Explanation thereto of the Central Goods and Services Tax Act, 2017 [CGST Act] and the Kerala Goods and Services Tax Act, 2017 [KGST Act] that introduced deeming provisions making the supply of services by a Club/Association to its members a taxable supply for the purposes of the levy of tax. The amendment that was introduced through the Finance Act, 2021 was also made retroactive with effect from 01.07.2017, thereby adding to the financial woes of the petitioner.

5. In the writ petition preferred by the petitioner, the petitioner sought the following reliefs:

1. declare that the provisions of Section 2 (17) (e) and Section 7 (1) (aa) and the Explanation thereto, of the Central Goods and Services Tax Act, 2017 and the provisions of Section 2 (17) (e) and Section 7 (1) (aa) and the Explanation thereto, of the Kerala Goods and Services Tax Act, 2017 are unconstitutional and void being ultra vires the provisions of Article 246A read with Article 366 (12A), and violative of Articles 14, 19 (1) (g), 265 and 300A, of the Constitution of India;

2. in the alternative; issue a declaration that the phrase “shall be deemed to have been inserted with effect from the 1st day of July 2017”, in S.108 of the Finance Act, 2021 is unconstitutional and void being violative of Articles 14, 19 (1) (g), 265 and 300A of the Constitution of India;

3. issue a writ in nature of a writ of prohibition restraining the respondents, their men and agents from provisionally attaching the properties of the petitioner under Section 83 or any other provision of the CGST or KGST Acts, 2017;

4. The petitioner also prays that this Honourable Court may be pleased to dispense with the translation of the documents produced in the vernacular language;

5. issue such other writ, direction or order as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case, and thus render justice.

The findings of the Single Judge:

6. The learned Single Judge, who heard the matter, found that insofar as the amendment to the CGST/SGST Act through Finance Act, 2021 had the effect of removing the basis of the immunity that was hitherto granted to the petitioner on the principle of mutuality, and there was no merit in the contentions of the petitioner as regards manifest arbitrariness of the statutory provisions, the declaration sought for in the writ petition could not be granted. The learned Judge, however, found that the retroactive operation given to the amendment could not be legally sustained on the principles of fairness and set aside the retroactivity envisaged for the amendment. It is therefore that the writ petitioner is before us impugning that portion of the judgment of the learned Single Judge that dismissed its writ petition, while the Union and the State are before us impugning the latter portion of the judgment that set aside the retroactive operation of the amendment.

The submissions of the learned counsel:

7. We have heard Sri. Arvind P. Datar, the learned senior counsel, duly assisted by Sri. P.R. Renganath, the learned counsel for the appellant in W.A.No.1659 of 2024, Sri. AR. L. Sundaresan, the learned Additional Solicitor General in W.A.No.1487 of 2024 and Sri. Mohammed Rafiq, the learned Special Government Pleader (Taxes) for the appellant in W.A. No. 468 of 2025.

8. The submissions of Sri. Arvind P. Datar, the learned senior counsel, duly assisted by Sri. P.R. Renganath, the learned counsel for the appellant in W.A.No.1659 of 2024, on the unconstitutionality of levy of GST on activities/transactions between a Club and its members are as follows:

A. On the aspect of mutuality, the learned senior counsel would submit as follows:

B. On the aspect of GST being on “supply”, the learned senior counsel would submit as follows:

C. On the aspect of Enlarging scope of “supply” by amending Section 7 of CGST Act without amending the Constitution – impermissible and unconstitutional, the learned senior counsel would submit as follows:

a) Indeed, the very fact that a constitutional amendment was required [46th Amendment] and that statutory definitions did not suffice [struck down in Young Men's Indian Association] its testimony that Section 71(1)(aa) is insufficient for its intended purpose.

b) In fact, the 61st Law Commission expressly recognised that expanding the concept of “sale” for the purpose of legislative power of the States, could “be achieved only by amending the Constitution”.

c) In other words, it would not suffice for statutes to state that club/associations would be deemed to be doing business, or that they and their members were deemed to be two different persons.

D. On the aspect of retrospectivity, the learned senior counsel would submit as follows:

The Committee concluded that retrospective application of tax law should occur in exceptional or rarest of rare cases, and with particular objectives: first, to correct apparent mistakes/anomalies in the statute; second, to apply to matters that are genuinely clarificatory in nature, i.e. to remove technical defects, particularly in procedure, which have vitiated the substantive law; or, third, to “protect” the tax base from highly abusive tax planning schemes that have the main purpose of avoiding tax, without economic substance, but not to “expand” the tax base. Moreover, retrospective application of a tax law should occur only after exhaustive and transparent consultations with stakeholders who would be affected. [Indeed, reflecting the challenges behind just and correct application of retrospective application, there is a constitutional or statutory protection against it in several countries. Countries such as Brazil, Greece, Mexico, Mozambique, Paraguay, Peru, Venezuela, Romania, Russia, Slovenia and Sweden have prohibited retrospective taxation.]

[Emphasis added]

It has often been said that death and taxes are equally undesirable aspects of human life. Yet, it can be said in favour of death that it is never retrospective. Retrospective taxation has the undesirable effect of creating major uncertainties in the business environment and constituting a significant disincentive for persons wishing to do business in India. While the legal powers of a Government extend to giving retrospective effect to taxation proposals, it might not pass the test of certainty and continuity. This is a major area where improvements should be attempted sooner rather than later …

[Emphasis added]

● Not “small repairs” or “play in the joints” or “greater leeway”: It cannot be contended that the impugned amendment makes only “small repairs” or that the legislature is entitled to “play in the joints” or to “greater leeway in tax legislation”, at least in the present case. Clearly, it is not “small repairs”, “play in the joints”, etc. when the well-established law of mutuality is sought to be abolished, or when a Supreme Court judgment is sought to be reversed, or when a liability of enormous proportions is sought to be imposed.

● Department’s arguments invalid: The above being so, the Department’s arguments for back dating are dealt with below:

a) Existence of Section 7 (1) (a) and Section 2 (17) (e) of no matter: The Department contends that Section 7 (1) (a) and Section 2 (17) (e) existed effective 01-Jul-17 and that by itself made supplies of goods/services by clubs/associations to its members taxable effective 01-Jul-17 irrespective of the newly introduced Section 7 (1) (aa) notified on 01-Jan-22. The argument is manifestly incorrect since a plain reading of the Section 7 (1) (a) & Section 2 (17) (e) on the one hand, and of the new Section 7 (1) (aa) and Explanation on the other, would make it clear that the latter are plainly wider in scope. It is the latter which seek to nullify the long-established principle of mutuality. Verily this scenario was considered in Calcutta Club where Article 366 (29A) (f) akin to Section 7 (1) (a) and Section 2 (17) (e) was held insufficient to nullify mutuality. It is recognising this that Parliament itself has sought to introduce an expansive 7 (1) (aa) and Explanation. [Incidentally, in this context, it may be mentioned that it is submission of the respondent herein (IMA KSB) that such a specific provision as Section 7 (1) (aa) & Explanation ought to have been brought in through a constitutional amendment. This has been argued in detail in W.A. 1659 of 2024.]

b) No demand raised earlier: The contention that the levy was always in existence from 01-Jul-14, even when Section 7 (1) (aa) was absent, is also incorrect. Till 2022, no demand was raised as the Department was fully aware that these transactions are not taxable. The amendment is attempted to apply GST to medical associations for the first time through Section 7 (1) (aa) and the Explanation thereto. Further, the present appeal involves welfare schemes for doctors where neither supply of goods nor supply of services is made.

c) Other assessee’s acts cannot/do not determine constitutionality/statutory meaning: The Department contends that most clubs/associations in the country had taken registration and started paying GST even before the insertion of Section 7 (1) (aa) without any doubt as to the liability to pay GST even going by Section 7 (1) (a). Such an argument needs to be stated only to be rejected. The action of assessees cannot determine the interpretation of taxation provisions. Indeed such a dare is dangerous even for the broader interests of the Revenue, for, if this proposition were to be accepted, it would, simply put, mean that henceforth all batch tax litigations ipso facto ought to be ruled in favour of the assessees.

d) Income Tax PAN in the name of the respondent does not nullify mutuality: The contention of the Department that the respondent and its members have all along been different persons since the respondent association had obtained an income-tax PAN is bewildering. The reference to income-tax is – thankfully for IMA KSB – self-defeating for the Revenue. Indeed, income tax law has always recognised mutuality and continues to do so till date. PAN is obtained by clubs/associations only because there is non-mutual income such as interest on deposits, consideration paid by non-members, etc.

9. The submissions of Sri. AR. L. Sundaresan, the learned Additional Solicitor General in W.A. No. 1487 of 2024, briefly stated, are as follows:

● Retrospective effect

a) In so far as Section 7 (1) (aa) is concerned, it comes to effect from 01.07.2017.

Such retrospectivity is valid and the contention against the same deserves to be rejected for the following reasons:-

(i) The Legislature has power to make laws prospectively and retrospectively.

(ii) Clarificatory amendments are always retrospective in operation.

(iii) The present amendment introducing Section 7 (1) (aa) and the explanation are clarificatory. The liability was always there even under Section 7 (1) (a).

(b) So far as the arguments of the appellant that the amendments cannot given retrospective effect, the same is untenable and deserves to be rejected. It is settled law that the Parliament has got the authority to make laws prospectively and retrospectively. Only limitation can be that a vested right cannot be taken away by the retrospective enactment in the present case. The appellant relied upon the judgment in Jayam & Co. v. State of Tamil Nadu - [(2016) 15 SCC 125] wherein the entitlement of input tax was reduced to the extent tax collected at the time of sale of the goods if the goods are sold at a discount. It was contended that such a reduction of the entitlement of availing in the tax credit cannot be given retrospective effect. That was on the basis of the principle of law that a vested right cannot be taken away by retrospective amendment. That is when the assessee had the right to adjust the entire tax credit in full, by an amendment it cannot be retrospectively reduced and that a vested right was sough to be curtailed. The said ratio will not apply since there is no vested right of the appellant association which is being taken away. It is only the liability which was always on them is sought to be enforced by way of the amendment.

(c) In the alternative, the respondents submit that after the (2019) 19 SCC page 107 judgment of the Hon'ble Supreme Court in State of West Bengal & Ors. v. Calcutta Club Ltd., a doubt arose with regard to the correct position and hence the amendment was made by the Parliament to remove any such doubt on the basis of the judgment in Calcutta Club was corrected and hence it was made with retrospective effect and the respondents are entitled to make it with retrospective effect.

(d) Retrospectivity cannot be a ground of attack if it is within the power of Legislature and such retrospective law is not manifestly arbitrary and confiscatory in nature.

(e) In the present case, the entire community has understood the fact and purpose of Section 7 (1) (a) and almost all the Associations / Clubs / Incorporated Bodies and un-Incorporated Bodies have been collecting and paying service tax for the supply of goods and services to their members. Hence, appellant cannot contend that they are taken by surprise or that the imposition was unforeseen and could not have been anticipated by them.

Respondents rely upon the following judgments to justify the retrospective effect:-

1. 1965 SCC Online SC 39 – Para 18 and 25 (Jawaharlal v. State of Rajasthan)

2. (1985) 2 SCC 197 – Para 28 nd 29 (Lohia Machines Ltd. v. Union of India

3. (1989) 3 SCC 488 – Para 65, 66 (Ujar Prints and Others v. Union of India)

4. (2005) 7 SCC 725 – (RC Tobacco Pvt. Ltd. v. Union of India)

5. (2020) 20 SCC 57 – Para 21. & 24 (Union of India v. Exide Industries Ltd.)

6. (2020) 5 SCC 274 – Para 44 (Union of India v. Exide Industires Ltd.)

7. (2020) 14 SCC 785 – Para 30 (Prashanti Medical Services and Research Foundation v. Union of India and Others).

So far as retrospective effect is concerned, respondents submit that the provisions as they stood even prior to the amendment enabled levy of tax on supply of goods and services from an association to its members. The amendment was only clarificatory in nature. Other clubs and associations have subjected themselves to GST regime in respect of supply of goods and services to its members. Hence IMA is not taken by surprise and the demand of GST are not unconscionable and they could have well been contemplated. Under such circumstances the judgment of the Ld. Single Judge holding that the provisions will only have prospective effect is incorrect and that part of he judgment deserves to be set aside and W.A. No. 1487/2024 deserves to be allowed.

10. The submissions of Sri. Mohammed Rafiq, the learned Special Government Pleader (Taxes) for the appellant in W.A. No. 468 of 2025, briefly stated, are as follows:

Discussion and Findings:

(i) On the constitutionality of the impugned amendments.

11. We have considered the rival submissions and have gone through the pleadings as well as the precedents cited across the bar. At the very outset we might observe that considerable time was spent by the learned counsel for the Union and the State to argue that it was well within the powers of the Parliament and the State legislatures to overcome the basis of earlier judgments of the Supreme Court on the aspect of mutuality, by introducing a new definition of supply through a legislative exercise and clarifying that a supply would also include a supply from a club to its members. Under ordinary circumstances, we would have had no reservations to the said settled position in law. Indeed the legislature has the power to enact validating laws that remove the basis of invalidity pointed out by the courts in relation to the earlier unamended law. However, we are in these proceedings concerned with a slightly different issue viz. whether it would be competent for a legislature to levy tax on a transaction when the taxable event in relation to the subject of taxation has not been recognised as such by the Constitution ? In other words, when the Constitution has understood a taxable transaction as necessarily involving two persons, can a legislature deem a transaction that does not involve two persons as a taxable transaction ? This is the limited point on which we find ourselves at variance with the views of the learned Single Judge in the impugned judgment, who found no merit in the argument of the writ petitioner that the amendments had to be invalidated for the reason that it was ultra vires the Constitutional provisions.

12. The thrust of the arguments of Sri. Datar, the learned senior counsel appearing for the appellant in W.A. No. 1659 of 2024 is that notwithstanding the amendments effected to Sections 2 (17) and Section 7 (1) of the CGST Act, it’s activities in relation to those Schemes that it runs as a self help group, where the members help each other and their families to tide over difficulties such as disabilities, death, legal action etc, will not be liable to tax under the GST Act. The contention, in other words, is that on account of the principle of mutuality that informs the actions of the Club/Association towards its members, the mere fact that statutory amendments have been made to the concept of “supply” under the GST Acts will not suffice to make their activities liable to the levy of GST; that their activities cannot be treated as ‘service’ since the concept of service under the GST law itself contemplates the existence of two entities viz. a service provider and a service recipient, and excludes the concept of self service for the purposes of the levy.

13. When we analyse the Scheme of levy of GST under the Constitution, we find that GST is envisaged as a levy of tax on the “supply” of “goods or services or both”. The words “goods”, “supply” and “services” are understood in a particular sense under the Constitution. When the words used in the Constitutional text have acquired a meaning through judicial interpretation over the years, one must assume that that is the same sense in which the word is used when inserted into the Constitution through a later amendment. While “goods” is a standalone concept, meaning thereby that it is not something that requires a plurality of persons to infer its existence, the concepts of “supply” and “service” do require a plurality of persons to infer their existence. This aspect was recognised in Ranchi Club v. Chief Commissioner of Central Excise & Service Tax - [2012 SCC Online SC 306], where it was laid down that the basic feature common in sale and services was that both required the existence of two parties. The decision in Ranchi Club [supra] was quoted with approval by the Supreme Court in Calcutta Club also. Therefore, it can be safely assumed that the Scheme of GST under the Constitution also contemplates the existence of at least two persons - a provider and a recipient before one can infer either a “supply” or a “service” for the purposes of the levy. In other words, the concepts of self-supply or self-service are not envisioned under the Constitution for the purposes of the levy.

14. Article 246A of the Constitution, that confers simultaneous legislative powers on the Union and the States to make laws with respect to goods and service tax, uses the word “supply” without giving it an artificial meaning that would take in even a “deemed supply”. In fact, even by the Constitution [46th Amendment] Act, 1982 when a deeming provision was introduced to bring transactions, that did not fit into the traditional concept of sale of goods, to sales tax, the exercise that was done was to amend the Constitution to deem those transactions as “Sales” or “Purchases”. Thus, under Article 366 (29A), a tax on the “supply of goods” by an incorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration, was deemed to be a “tax on the sale or purchase of goods”. In contrast to the above, what has been done through the present amendment to the CGST/SGST Act is merely to amend the definition of “supply” to include “activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration”. Significantly, such supply has not been deemed to be a “service”, and the concept of “service” itself has not undergone a change, to include within its fold such activities or transactions.

15. We cannot therefore find it in ourselves to accept the contention of the learned Additional Solicitor General Sri. AR. L. Sundaresan, appearing on behalf of the Union of India, and relying on the decisions in Karnataka Bank v. State of Andhra Pradesh – [(2008) 2 SCC 254] and Ramanlal Bhailal Patel v. State of Gujarat – [(2008) 5 SCC 449] that it is always open to the legislature to provide an artificial meaning to a word for the purposes of the Statute, and that the mere fact that the said meaning of the word in the Statute differs from its popular meaning can be of no avail. While we do not doubt the correctness of the proposition laid down in the aforecited precedents, the factual situation that obtains in the instant case, as already noticed, is slightly different. We are not presently considering the legality of a legislative exercise that gives an artificial definition to a word/concept that differs from it’s accepted or popular meaning. What we are confronted with in these proceedings is a situation where the statutory exercise undertaken by the legislative body has given a meaning to a word/concept therein that differs from the accepted meaning of the same word/concept under the Constitution. We are of the view that when a word/concept in the Constitution has been interpreted by the Supreme Court in a particular manner, a legislative body, that derives its legislative competence to enact a Statute from the Constitution, cannot give to the word/concept a meaning that goes against the meaning assigned to the same word/concept by the Supreme Court in the context of its setting under the Constitution. This is especially so because, when used in the Constitution in a particular sense, it is that sense of the word/concept that determines the very competence of the legislature to enact a law in relation to the subject represented by that word/concept.

16. The levy of GST is on the “supply” of taxable “goods” or “services” or both for a consideration. The concept of “supply” and “service” as understood under the Constitution and the CGST/SGST Acts (before their amendment) both excluded transactions informed by the principle of mutuality ie. a supply/service from one entity to itself (self supply/self service). Thus, even if there is now a deemed “supply”, based on the amendments effected to the CGST/SGST Acts, there is no deemed “service” in circumstances where the service is rendered by a club or association to its members, since the definition of service has not been amended.

17. It is also significant, as pointed out by the learned senior counsel Sri. Datar, that the Constitution has not been amended to deem a supply of service by a club or association to its members as a taxable service for the purposes of GST. The decision of the Supreme Court in State of West Bengal and Others v. Calcutta Club Ltd. – [(2019) 19 SCC 107] is authority for the proposition that the principle of mutuality has survived under the Constitution even after the 46th Amendment. If that be so, then the amendment exercise carried out by the Parliament would itself have to be seen as unconstitutional since it incorporates a definition of supply that militates against the constitutional understanding of the term. For reasons that we have already stated while considering the arguments of Sri. Sundaresan on behalf of the Union of India, we find ourselves in agreement with the argument of Sri. Datar that a phrase as understood under the Constitution cannot be statutorily expanded by any legislature since the power to legislate is itself one that is conferred by the Constitution.

18. It is worth recalling that when similar situations arose in the past where various State legislatures attempted to broaden the tax net by statutorily expanding the definition of “sale”, the Supreme Court struck down such amendments as being beyond the meaning of the word ‘sale’ in Entry 54 of List II of the Seventh Schedule to the Constitution. To get over the said decisions of the Supreme Court, the Constitution had to be amended to add six sub-clauses [(a) to (f)] to the newly inserted Article 366 (29A) of the Constitution. Accordingly:

i. Article 366 (29A) (a) was inserted to get over the decision in New India Sugar Mills Ltd v. CST - [1963 (14) STC 316] that held that a compulsory sale through Control Orders was not a sale;

ii. Article 366 (29A) (b) was inserted to get over the decision in State of Madras v. Gannon Dunkerley & Co. - [AIR 1958 SC 560] that held that a works contract is not a sale;

iii. Article 366 (29A) (c) was inserted to get over the decision in K.L. Johar and Co. v. CTO - [AIR 1965 SC 1082] that held that a hire-purchase was not a sale;

iv. Article 366 (29A) (d) was inserted to get over the decision in A.V. Meiyappan v. CCT - [1967 (20) STC 115 (Mad)] that held that a transfer of the right to use goods was not a sale;

v. Article 366 (29A) (e) was inserted to get over the decision in CTO v. Young Men’s India Association (Regd) – [(1970) 1 SCC 462] that held that there could be no sale between a club/association and its members; and

vi. Article 366 (29A) (f) was inserted to get over the decision in Northern India Caterers (I) Ltd v. Lt. Governor of Delhi – [(1980) 2 SCC 167] that held that supply of food and beverages in restaurants was not a sale.

19. We might also refer to the decisions in [(1965) 56 ITR 198 (SC)] – Navnit Lal C. Javeri v. K.K. Sen, Appellate Assistant Commissioner of Income-Tax, Bombay and [(2021) 15 SCC 667] - Skill Lotto Solutions Pvt. Ltd. v. Union of India and Others – relied upon by Sri. Mohammed Rafiq, the learned Special Government Pleader for the State, to contend that it is open to a legislature to define a word in a taxing Statute in a sense different from its popular meaning or a meaning that is given to it through judicial interpretation of the same word as used in the constitutional text. In Navnit Lal C. Javeri [supra], a Constitution Bench of the Supreme Court considered a challenge to the validity of Section 12 (1B) read with Section 2 (6A) (e) of the Indian Income-Tax Act, 1922. The appellant before the Court was a shareholder in a Private Limited Company and he impugned the statutory provisions that treated a loan advanced to him by the Company as a dividend for the purposes of taxation. His contention that Entry 82 in List I of the VIIth Schedule to the Constitution that dealt with “taxes on income other than agricultural income” did not justify the impugned provision because a loan advanced to a shareholder by a company cannot be treated as an 'income' in any legitimate sense, was rejected by the Supreme Court. The Court held that entries in the List had to be construed widely and when so construed the word 'income' could be interpreted to include within its ambit even a loan advanced to a shareholder. The Court went on to find as follows @ p. 208 as follows:

“The question which now arises is, if the impugned section treats the loan received by a shareholder as a dividend paid to him by the company, has the legislature in enacting the section exceeded the limits of the legislative field prescribed by the present entry 82 in List I ? As we have already noticed, the word "income" in the context must receive a wide interpretation; how wide it should be it is unnecessary to consider, because such an enquiry would be hypothetical. The question must be decided on the facts of each case. There must no doubt be some rational connection between the item taxed and the concept of income liberally construed. If the legislature realises that the private controlled companies generally adopt the device of making advances or giving loans to their shareholders with the object of evading the payment of tax, it can step in to meet this mischief, and in that connection, it has created a fiction by which the amount ostensibly and nominally advanced to a shareholder as a loan is treated in reality for tax purposes as the payment of dividend to him. We have already explained how a small number of shareholders controlling a private company adopt this device. Having regard to the fact that the legislature was aware of such devices, would it not be competent to the legislature to device a fiction for treating the ostensible loan as the receipt of dividend ? In our opinion, it would be difficult to hold that in making the fiction, the legislature has travelled beyond the legislative field assigned to it by entry 82 in List I.”

20. What is significant is that the interpretation of the word 'income' as contained in earlier precedents was in the context of the Income Tax Act and not in the context of the Constitution itself. The Court held that the use of the word 'income' in the Entry in List I was sufficiently wide to take in loans advanced to a shareholder by a Company. The Court did not have to deal with a situation where the words in the Entry itself had acquired a definite meaning through judicial interpretation. Interestingly, the Court did observe that there had to be some rational connection between the items taxed and the concept liberally construed.

21. Similarly in Skill Lotto Solutions Private Limited [supra], the Court considered the validity of Section 2 (52) of the CGST Act that defined “goods” to include actionable claims. The contention that an artificial definition of goods to include actionable claims could not withstand the test of constitutionality when the word “goods” was defined differently under the Constitution, was rejected by holding that “The Constitution-framers were well aware of the definition of goods as occurring in the Sale of Goods Act, 1930 when the Constitution was enforced. By providing an inclusive definition of goods in Article 366(12), the Constitution-framers never intended to give any restrictive meaning of goods.” Thus, the Court did not find any contradiction between the meaning of the word as used in the Constitution and the meaning given to it under the Statute concerned.

22. The issues considered in the aforesaid judgments are clearly distinguishable from the issue that confronts us in these proceedings. The concepts of “supply” and “service” having been judicially interpreted as requiring at least two persons – a provider and a recipient, for inferring their existence, and the Supreme Court having held in Calcutta Club [supra] that the principle of mutuality has survived the 46th amendment to the Constitution, so long as the said judgment holds sway as a binding precedent and/or the Constitution is not amended suitably to remove the concept of mutuality from the concepts of supply and service thereunder, the impugned amendment to the CGST/SGST Acts must necessarily fail the test of constitutionality.

23. We are also conscious of the decisions in State of Madhya Pradesh v. Rakesh Kohli – [(2012) 6 SCC 312] and Parmar Samanthsingh Umedsingh v. State of Gujarat & Others – [(2022) 15 SCC 364] that postulate that a legislature has to be accorded a greater degree of latitude in laws relating to economic activities, and that no statute should be struck down unless it is vitiated by a constitutional infirmity. 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.

(ii) On the validity of retrospective/retroactive operation of the impugned amendments:

24. In the light of our above finding with regard to the unconstitutionality of the impugned statutory provisions, it is unnecessary for us to go into the validity of the retrospective/retroactive operation given to the said provisions. However, we might record our agreement with the findings of the learned Single Judge that held the said retrospective operation to be illegal. The principle of fairness is one that must inform all actions of a State, including legislation, since it is an essential aspect of the Rule of Law that is recognised as a basic feature of the Constitution. 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. On its part, the State too would be found wanting in offering a valid justification for it’s legislative action. Over the last seven decades since the adoption of our Constitution the guarantees therein have been ensured to our citizenry through progression from a culture of authority to a culture of justification. Accordingly, in modern times the State is obliged to offer justification for all its actions that touch upon the constitutional rights, fundamental and otherwise, of its citizens. We do not find any such justification for the retrospective operation of the impugned statutory provisions.

25. The upshot of the above discussion is that W.A.No.1659 of 2024 is allowed with consequential reliefs to the appellant therein, and W.A.No.1487 of 2024 and W.A. No. 468 of 2025 are dismissed. No Costs.

Sd/-                     
DR. A.K.JAYASANKARAN NAMBIAR
JUDGE                   

Sd/-         
EASWARAN S.
JUDGE