November 2019

CALCUTTA CLUB CASE: PRINCIPLE OF MUTUALITY AND ITS RELEVANCE UNDER GST REGIME

V.Raghuraman | C.R. Raghavendra | J.S. Bhanumurthy
Advocates

INTRODUCTION

‘No man, in my opinion, can trade with himself; he cannot, in my opinion, make, in what is its true sense or meaning, taxable profit by dealing with himself ’.1

 

The principle of mutuality is a concept borrowed from the ‘English decisions’ and has been adopted and refined over a long period of time by the courts in India. The principle of mutuality has been mainly held to be applicable in the context of levy of income tax as well as the erstwhile sales tax regimes.

 

In a landmark decision by the larger bench of the Supreme Court in the case of State of West Bengal & Ors. vs. Calcutta Club Limited, Civil Appeal No. 4184 of 2009 [reported in 2019-TIOL-449-SC-ST-LB], it was held that the supply / sale of goods or rendering of services by incorporated / unincorporated associations or clubs to their members are not liable to sales tax / service tax by application of the principle of mutuality even after the 46th Amendment to the Constitution. Further, the Supreme Court also held that the judgement in C.T.O. vs. Young Men’s Indian Association (1970) 1 SCC 462 which applied the doctrine of mutuality continues to hold the field even after the 46th Amendment.

 

BACKGROUND: West Bengal & Ors. vs. Calcutta Club Limited (Supra)

The Assistant Commissioner of Commercial Taxes issued a notice to the respondent club (assessee) proposing to demand sales tax on the sale of food and drinks to the permanent members during the quarter ending 30th June, 2002. The demand was contested on the ground of principles of mutuality. The matter was carried to the Tribunal which held that there is no supply or sale of goods by the club to its members as members and the club are the same persons and there is no exchange of consideration. The issue was contested before the High Court by the Revenu

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