Doctrine of Mutuality under GST

Doctrine of Mutuality - Young Men’s Case & Constitutional Amendment

Indirect taxes, in general, are transactional taxes. This necessarily means that a tax can be levied only when two people exist in a transaction, since a person cannot transact with himself. The Constitution Bench upheld this legal position in the case of Jt. Commercial Tax Officer vs. Young Men’s Indian Association [(1970) 1 SCC 462]. The issue before the Court was the applicability of sales tax on supplies made to member clubs. In this case, the Court concluded that:

•  In the case of member clubs, the members are the joint owners. The agency theory would apply in such cases, and the club shall be treated as acting as an agent. It cannot be said that a transfer of property in goods takes place from the club to the members and hence, no sales tax can be levied on the recoveries made by the club from its’ members.
•  This principle will not apply in the case of proprietary clubs, where not all the members are the shareholders, and vice versa, all the shareholders are not members. In such cases, the members are not the owners or interested in the club’s property.

Subsequently, Article 366 (29A) was inserted to the Constitution in 1983 (46th Constitutional Amendment) to provide that th