Taxation cannot arise where legal duality is absent. Mutuality is not a loophole—it is a constitutional truth."
Case Title: Indian Medical Association (Kerala Branch) v. Union of India & Ors.
Key Issue: Constitutional validity of retrospective GST on services rendered by clubs/associations to their own members under Section 7(1)(aa) of the CGST Act
Outcome: Retrospective operation of Section 7(1)(aa) struck down; doctrine of mutuality upheld
Backdrop: IMA’s Challenge Against GST on Member-Welfare Services
The petitioner, Indian Medical Association – Kerala Branch, is a non-profit entity registered under the Travancore-Cochin Charitable Societies Act. It operates welfare schemes exclusively for its members, including:
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Medical indemnity protection
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Family pension and social security cover
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Health emergency support and internal healthcare assistance
These schemes are funded purely by member contributions and involve no third-party transactions or commercial elements.
Upon being served GST summons under Section 7(1)(aa) of the CGST Act—retrospectively taxing services provided by clubs to their members—the Association challenged the constitutional validity of the provision, relying on the doctrine of mutuality and binding precedent.
Understanding the Doctrine of Mutuality: Legal Identity Over Fictional Separation
The doctrine of mutuality, long recognised in Indian and common law jurisdictions, asserts that:
“No person can make a profit out of themselves. Where there is identity between contributors and participants, mutual dealings are not income or supply.”
In the context of clubs and associations:
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There is no legal separation between the entity and its members.
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Therefore, transactions within such mutual structures are not “supply” under indirect tax laws.
Judicial Foundation of the Doctrine
| Case | Citation | Legal Holding |
|---|---|---|
| JCTO v. YMIA | (1970) 1 SCC 462 | Sales tax not leviable on member-based mutual services |
| Ranchi Club Ltd. v. CCE | [2012] 26 taxmann.com 400 (Jharkhand HC) | Service tax not applicable where mutuality exists |
| Calcutta Club Ltd. v. Commissioner of CGST | 2019 (29) GSTL 545 (SC) | No supply between club and members; mutuality upheld post-GST |
Statutory Conflict: Section 7(1)(aa) of the CGST Act
Introduced via the Finance Act, 2021, Section 7(1)(aa) was intended to nullify judicial rulings on mutuality by creating a statutory deeming fiction:
“Activities or transactions by a person (other than an individual) to its members… shall be deemed to be a supply.”
Crucially, this was given retrospective effect from 01.07.2017, the very date of GST’s inception.
Kerala High Court: Key Constitutional and Legal Findings
No ‘Supply’ Absent Legal Duality
The Court held that under Section 2(84) (definition of ‘person’) and Section 2(93) (definition of ‘recipient’), supply requires two distinct persons. Mutual associations fail this test.
“A transaction cannot be taxed in the absence of duality—one cannot trade with oneself.”
This interpretation is also consistent with Article 246A, which authorises GST only on actual supplies between separate legal persons.
Doctrine of Mutuality Is a Constitutional Constraint
The Court reaffirmed that mutuality is not a tax planning device, but a constitutional limitation on the scope of indirect taxation:
“Unless explicitly abrogated by constitutional amendment, mutuality continues to operate under GST.”
Legislative Fiction Cannot Override Judicial Finality
Parliament cannot legislate in a manner that defeats binding Supreme Court precedent under Article 141.
“Section 7(1)(aa), in attempting to nullify Calcutta Club Ltd., engages in impermissible legislative overruling.”
The Court reiterated that a statutory fiction cannot create jurisdiction where none exists in constitutional law.
Retrospective Taxation from 01.07.2017 is Arbitrary
Applying the provision retrospectively:
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Shattered the legitimate expectations of taxpayers who complied with law as interpreted by the courts.
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Violated Article 14 (equality before law) and Article 265 (no taxation without authority of law).
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Breached the rule of law by disturbing settled legal positions.
“Taxing conduct retrospectively, especially where judicial clarity existed, is an affront to constitutional order.”
Wider Implications: Who Else Stands Protected by This Ruling?
The judgment does not merely benefit the IMA—it extends to all entities structured around mutuality, such as:
| Category | Examples | GST Elements Likely Exempt |
|---|---|---|
| Resident Welfare Associations | Apartment societies, co-op housing | Maintenance charges, water/electricity pooling |
| Medical, Legal, and Professional Bodies | ICAI branches, IMA, Bar Associations | Membership fees, internal welfare funds |
| Trade and Industry Chambers | FICCI, CII, Builders’ Association, Co-operative federations | Member subscriptions, policy events |
| Legal Aid or Bar Councils | Bar Council welfare funds | Pension schemes, family aid |
| Alumni & Educational Societies | Alumni networks, campus trusts | Reunion/event fees, welfare donations |
| Recreational and Sports Clubs | Member-only gyms, sports associations | Facility usage, tournaments |
| Spiritual & ReligiousSanghs | Satsang groups, temple member trusts | Internal bhajan events, religious travel |
| Co-operative Finance Societies | Mutual credit societies, SHGs | Lending benefits, internal pooling |
| Cultural Societies | Language promotion sabhas, art councils | Member-exclusive festivals, workshops |
Compliance Advisory: Action Points for Mutual Entities
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Review past tax assessments where GST was levied on internal contributions or services.
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Contest pending demands citing this ruling before adjudication or appellate forums.
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Structure welfare schemes to clearly reflect mutuality—internal members only, non-profit pooling.
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Avoid intermediation of third-party service providers that could break the chain of mutuality.
Constitutional Themes Reinforced
| Principle | Explanation | Article |
|---|---|---|
| Rule of Law | Retrospective tax laws must not defeat settled expectations | Art. 14, 265 |
| No Tax Without Legal Authority | Supply must exist in law—not just in fiction | Art. 265 |
| Finality of Supreme Court Law | Judicial declarations cannot be legislatively overturned | Art. 141 |
| Scope of GST | GST can only tax genuine commercial supplies | Art. 246A |
Conclusion: A Judgment Anchored in Constitutional Discipline
This landmark decision by the Kerala High Court reaffirms that taxation must operate within constitutional bounds. It rejects:
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Deeming fictions that override legal identity
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Retrospective imposition that unsettles judicial certainty
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Attempts to equate internal welfare activity with commercial supply
"Revenue imperatives cannot eclipse constitutional limitations. The doctrine of mutuality is not a relic of the past—it is the enduring firewall against unjust taxation of shared internal purpose."
