Kerala AAR Rejects Advance Ruling Application of Indian Co-operative Credit Society — GST on Member and Facilitator Transactions
Background and Overview
The Kerala Authority for Advance Ruling (AAR) was recently called upon to examine an advance ruling application filed by M/s Indian Co-operative Credit Society Ltd. (ICCSL), a Multi-State Co-operative Credit Society incorporated under the Multi-State Co-operative Societies Act, 2002, having its registered head office in Bengaluru and operating across Karnataka, Tamil Nadu, Kerala, and Andhra Pradesh.
The Society holds GST registration in Kerala under GSTIN 32AABAI2063F1Z9 and exclusively provides credit and deposit facilities to its members. Membership is conditioned upon holding shares in the Society, meaning all financial activities — whether lending or deposit acceptance — are confined strictly to the membership pool.
The AAR, after careful deliberation, rejected the application as inadmissible at the threshold itself under Section 97(2) and Section 98(2) of the Central Goods and Services Tax Act, 2017 (CGST Act), without proceeding to examine the substantive legal issues raised by the applicant.
This ruling holds significance for co-operative credit societies, particularly those operating under the Multi-State framework, as it highlights the procedural bars that can prevent advance rulings from being issued even where genuinely contested legal positions exist.
Nature of the Applicant's Business and the Role of Facilitators
ICCSL described itself as engaged in both short-term and long-term interest-bearing credit operations, along with acceptance of deposits, entirely within the membership. The Society also collects membership fees and processing charges in the course of its lending operations.
A notable feature of ICCSL's operations is the existence of a category of members designated as "facilitators." These are members who voluntarily assist the Society in promoting lending activities and encouraging deposit habits among fellow members. The Society shared certain monetary amounts with these facilitators in recognition of their role in expanding loan and deposit operations.
This arrangement formed the crux of the GST dispute — specifically, whether amounts shared with facilitators constituted consideration for a taxable supply, or whether they fell outside the GST net by virtue of the doctrine of mutuality.
Questions Raised Before the Kerala AAR
The applicant presented the following four questions for advance ruling:
Whether the sharing of amounts by ICCSL with its facilitator members constitutes a "supply" as defined under
Section 7of the CGST Act, 2017, attracting levy of GST underSection 9of the CGST Act read with the Kerala State GST Act, 2017?Whether any GST is leviable on transactions between ICCSL and its members, including those acting as facilitators?
If the answers to questions (i) and (ii) are in the affirmative, what is the classification of such services?
If the answers to questions (i) and (ii) are in the affirmative, whether GST is exempt on such transactions under Sl. No. 39 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017?
Contentions Advanced by the Applicant
Doctrine of Mutuality — Transactions Not a "Supply"
The primary contention of ICCSL rested on the well-established principle of mutuality, under which a society and its members are treated as a single composite entity. Relying on this doctrine, the applicant argued that transactions between itself and its members — including those acting as facilitators — could not be regarded as "supply" within the meaning of Section 7 of the CGST Act, and consequently, no GST could be levied under Section 9.
In support of this position, ICCSL placed reliance on the landmark judgment of the Hon'ble Supreme Court in State of West Bengal v. Calcutta Club Ltd. [(2019) 19 SCC 107], wherein the Apex Court authoritatively held that a club or association and its members are not distinct persons in the eyes of law, and that internal transactions among them cannot be subjected to tax. ICCSL submitted that the same principle applies with equal force to co-operative societies, including those that are incorporated bodies.