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Applicability of principle of
mutuality to clubs under
Sales Tax - Clarity needed
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Introduction
I.The scope and meaning of the term "sale" in the context
of taxation has been ever expanding. This has resulted in
several controversies in sales tax laws. It is pertinent to
note that even the Constitution of India (46thAmendment
Act), 1982 amending Article 366 of the Constitution of
India could not render clarity to the concept of "sale".
One of the deemed sale transaction introduced under
Article 366(29A) sub-clause (f) of the Constitution includes
"any supply of goods by any unincorporated association or
body of persons to a member thereof for cash, deferred
payment or other valuable consideration, and such
transfer, delivery, or supply of any good". InState of West
Bengalv.Calcutta Club[2016] 70 taxmann.com 212, a
substantial question of law was raised regarding whether
the principle of Mutuality would be applicable to clubs
supplying food, drinks and refreshments to their
permanent members in the light of the 46 Amendment.
Customer
91-11The
matterCare
has No.
been
referred to a larger bench.

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In this paper, I have attempted to analyse that the principle of Mutuality will not
apply to clubs in the light of the 46thamendment and the decision of the Supreme
Court inBSNLv. Union of India(2006) 3 SCC 1 [Hereinafter, "BSNL"]. Furthermore,
in my opinion the broad meaning of the term "supply" in Article 366(29A)(f) will
preclude the principles of Agency and Mutuality to be applied to the concept of
deemed sale under Article 366(29A).
Question Referred to Larger Bench
II.To briefly recapitulate the facts inState of West Bengalv.Calcutta Club In 2002, the
Assistant Commissioner of Commercial Taxes, Kolkata, issued a notice to the Assessee
[Calcutta Club] for failure to make payment of sales tax on sale of food and drinks to the
permanent members during the quarter ending 30.6.2002. The assessee assailed the notice
before the Tribunal praying for a declaration that it was not a dealer within the meaning of the
Act and that there could be no sale by the Club to its own permanent members as they are
the same persons and there is no exchange of consideration. The tribunal accepted the
contentions of the club. Aggrieved by the same, the Revenue preferred a writ petition. The
High Court upheld the decision of the tribunal. On appeal to the Supreme Court, the court
examined the existing judicial precedents, 46thAmendment Act and the doctrine of mutuality
and finally referred the following three questions to a larger Bench.
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I. Whether the doctrine of mutuality is still applicable to incorporated clubs or any club after
the 46th amendment to Article 366 (29A) of the Constitution of India?
II. Whether the judgment of this Court in CTO v. Young Men's Indian Association [1970] 1 SCC
462 ["Young Men's Indian Association"] still holds the field even after the 46th amendment of
the Constitution of India; and whether the decisions in Cosmopolitan Club v. State of Tamil
Nadu [Civil Appeal No. 3950 of 2002, dated 25-9-2008] ["Cosmopolitan Club"] and Fateh
Maidan Club v. CTO [Civil Appeal Nos. 268-274 & 1501 of 1996, dated 12-9-1998] ["Fateh
Maidan Club"] which remitted the matter applying the doctrine of mutuality after the
constitutional amendment can be treated to be stating the correct principle of law?
III. Whether the 46th amendment to the Constitution, by deeming fiction provides that
provision of food and beverages by the incorporated clubs to its permanent members
constitute sale thereby holding the same to be liable to sales tax?
Judicial Precedents
IV.Before the two Judges Bench of the Supreme Court, the club relied heavily on the judicial
precedents in their favour. The Constitution Bench decision inJt. CTOv.Young Men's Indian
Association[1970] 1 SCC 462 while dealing with the liability of a club to pay sales tax when
there was supply of refreshment to its members held that there would be no liability as there
was no Care
transfer
property. It also held that the club is only acting as an agent
for its members
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No. of
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InFateh Maidan Club,the Courtrelying onYoung Men's Indian Associationheld that the relation
between the club and its members has to be determined and hence remanded the matter. It
further held that if the club acts as an agent of its members in supplying, it cannot be held to be
sale. A similar stand was taken by the Supreme Court inCosmopolitan Club.

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