Principle of Mutuality Still Alive in GST?

In a significant ruling, the Kerala High Court in Indian Medical Association v. Union of India & Ors. [2025]1 reaffirmed the doctrine of mutuality, declaring that clubs and associations are not liable to pay GST on services rendered exclusively to their members. The judgment struck down the retrospective operation of Section 7(1)(aa) of the CGST and Kerala GST Acts (introduced via the Finance Act, 2021), holding it unconstitutional.

The Indian Medical Association (Kerala Branch), a non-profit registered under the Travancore-Cochin Charitable Societies Act, offers welfare and mutual aid schemes such as social security benefits, indemnity protection, pensions, and internal healthcare support. These are entirely funded through member contributions. Upon receiving the GST summons, the association challenged the applicability of GST, invoking the constitutional doctrine of mutuality.

 

The principle of mutuality is a legal doctrine that holds that no one can make a profit out of themselves. In the context of clubs and associations, it means that there is no distinction between the entity and its members, and they are treated as the same legal person. Hence, transactions between them are not considered “supply” or “income,” and cannot be

taxed. This doctrine has long been recognized in Indian law, especially in indirect tax cases.

 

Before the introduction of GST, the principle of mutuality was well-established under both sales tax and service tax regimes. Courts consistently held that clubs and associations were not liable to pay tax on transactions with their own members. This legal stance culminated in the landmark Supreme Court decision in Calcutta Club Ltd. v. Commissioner of CGST, 2019 (29) GSTL 545 (SC).

 

• There can be no sale or service between an association and its members, as they are one and the same person in the eyes of the law.

• Therefore, sales tax and service tax were not applicable to such intra-member transactions. This judgment reaffirmed the doctrine of mutuality as a constitutional limitation on indirect taxation and made it clear that taxing self-supply is legally unsustainable.

 

The Kerala High Court, in Indian Medical Association v. Union of India, delivered a constitutionally grounded and precedent-backed verdict that reaffirms the principle of mutuality and narrows the scope of GST in such contexts.

1. No “supply” between a club and its members: The court held that “supply” necessarily requires two distinct persons. In mutual associations, the club and its members are not separate legal entities; thus, services rendered within this framework do not constitute taxable supply.

2. Mutuality doctrine reaffirmed: Citing binding precedents including JCTO v. YMIA [1970]2, Ranchi Club [2012]3, and Calcutta Club Ltd. [2019]4, the Court confirmed that a person cannot transact with oneself and that mutuality continues under GST unless constitutionally repealed.

3. Legislative overreach not permissible: The Court ruled that Parliament cannot expand the meaning of supply through a statutory deeming provision in Section 7(1)(aa) without a constitutional amendment.

4. Retrospective application held arbitrary: The Court struck down the retrospective effect of the provision from 01.07.2017, observing it to be arbitrary and in violation of the rule of law.

 

The verdict delivered by the Kerala High Court in the Indian Medical Association case stands as a decisive affirmation of constitutional discipline in the realm of taxation. It upholds the doctrinal foundation of mutuality, recognizes the limits of legislative competence, and preserves the sanctity of constitutional terminology. By striking down retrospective taxation on intra-member services and rejecting the expansion of “supply” through statutory deeming, the Court has firmly aligned with the principles of fairness, certainty, and the rule of law.

This case is not merely about GST liability. It is about whether constitutional norms can be reshaped by legislative fiat.

The Court’s answer is a clear and principled no. In doing so, it protects not only the rights of associations and clubs but also reasserts that the boundaries of taxation must remain grounded in constitutional legitimacy. Until the Supreme Court speaks, this judgment offers a persuasive and authoritative guide for those seeking clarity on the limits of GST in the context of mutual benefit societies.