05.07.2023: GST Intel says IMA no charitable body, demands tax, Docs move HC fearing attachment

Indian Medical Association's Kerala chapter has always functioned outside the tax network. Now the Directorate General of GST Intelligence (DGGI), after a series of investigations it has been conducting since November 2022 into a series of IMA activities, has pulled up the doctors' body for non-payment of Goods and Services Tax (GST).

Though the liability has not been officially quantified and served to the IMA, sources in the DGGI said the IMA's GST liability in the last five years, without penalty, would be upwards of Rs 50 crore.

Since the IMA had not settled the dues and had instead sought more time to seek legal counsel, the DGGI issued a reminder on June 19 asking the doctors' body to comply. This letter seems to have prompted the IMA to apply for GST registration.

A quick reply was also furnished. In it, the IMA state secretary Dr. Joseph Benaven has sought more time for compliance. Dr. Benaven also made it clear that the IMA was still not certain whether GST applied in IMA's case. “You may kindly appreciate that it has taken some length of time given the number of schemes operated and the complexities involved in ascertaining the applicability of GST for the same,” Dr. Benaven told the deputy director of the DGGI.

On June 23, the DGGI deputy director shot off a mail to the IMA secretary asking for the “complete details of immovable properties registered in the name of IMA Kerala State Branch”.

The IMA saw this as “ominous” and moved the High Court on June 26 to restrain the DGGI from attaching its properties.

According to the IMA, it has always been under the “genuine belief” that their activities did not fall within the purview of the GST. The IMA says its activities are just “mutual selfhelp and charitable”. It is also pointed out that the association has been registered as a charitable organisation.

However, DGGI sources say that more than 90 per cent of the IMA activities are noncharitable. Further, the Central Goods and Services Tax (CGST) Act, 2017, has clearly bracketed the IMA's activities under the purview of “business” and, therefore, taxable.

Under its section 2(17)(e), which defines “business”, the CGST Act includes provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members.

The DGGI's contention is that the IMA conducts insurance, constructs apartments and runs liquor bars for its members.

“Some of the schemes the IMA runs, like insurance, generate profit that it employs to create more assets. This is corporate activity and has nothing to do with charity,” a top DGGI official told Onmanorama. “The IMA's insurance scheme does not have the approval of the IRDA (Insurance Regulatory and Development Authority) as is mandatory. What's more, the IMA has constructed flats in places like Manjeri and Chalakudy for which no taxes have been paid,” he said.

The IMA, on its part, has invoked the ‘principle of mutuality', which essentially means no person can transact with oneself. The IMA says it is an association of individuals serving themselves. “There is identity between the contributors and the participants (all are doctors) – consequently, per the established doctrine of mutuality there can be no service by one person to another,” the IMA says in the writ petition it has filed in the High Court.

However, the Central Goods and Services Act, 2017, was further reinforced in a clarification made in 2021 to include the services among members of a club within the scope of ‘supply', which necessitates the payment of GST. According to the DGGI, the clause (aa) was added to section 7(1) of the CGST to nullify the mutuality doctrine.

Here is the official explanation of the amendment: “For the purposes of this clause, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another.”

This, according to the DGGI, is a clear contradiction of the IMA's contention that there can be no taxable service from one person to another within a club.

The case will be taken up for hearing on July 4.

Source: Onmanorama

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