AAR cannot rule on taxability of inward services rendered by facilitators to applicant.

By | June 24, 2026
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AAR cannot rule on taxability of inward services rendered by facilitators to applicant.

Issue

  • Whether an application for advance ruling is maintainable under Section 97(2) of the CGST Act when the question raised seeks to determine the GST liability on a transaction where the applicant is the recipient of services (inward supply) rather than the supplier (outward supply).

Facts

  • The applicant is a cooperative society engaged in providing interest-bearing credit facilities to its members and accepting deposits from them.

  • Only shareholders of the society can become members and participate in these financial lending and borrowing activities.

  • Certain members who voluntarily assist in promoting the society’s objectives are designated as “facilitators” to help arrange lending and encourage savings habits.

  • The applicant shares specific financial amounts with these facilitators as compensation for their promotional and organizational assistance.

  • The applicant filed an application for an advance ruling to clarify whether sharing these amounts with facilitator members constitutes a “supply” under Section 7 and attracts GST.

Decision

  • Held, the financial amounts shared by the applicant are clearly paid in consideration for the independent promotional services rendered by the facilitators to the society.

  • Held, the transaction represents an inward supply of services to the applicant, rather than an outward supply of goods or services by the applicant.

  • Held, under Section 97(2) of the CGST Act, an applicant can only seek an advance ruling in relation to the supply of goods or services being undertaken or proposed to be undertaken by the applicant themselves.

  • Held, since the query pertains to an inward supply of service, the application does not fall within the legal scope of Section 97(2) and is rejected as inadmissible under Section 98(2) without any ruling on merits.

Key Takeaways

  • Outward Supply Restriction: The Authority for Advance Ruling (AAR) lacks the statutory jurisdiction to answer questions regarding the taxability or classification of inward supplies where the applicant is the receiver of the service.

  • Recipients Cannot Apply: A tax recipient cannot use the AAR mechanism to determine the tax liability of their vendors or facilitators; the query must strictly relate to a supply generated by the applicant’s own business setup.

AUTHORITY FOR ADVANCE RULING , KERALA
Indian Co-Operative Credit Society Ltd., In re*
Jomy Jacob and Mansur M.I., Member
KER No. 02 of 2026
MARCH  23, 2026
 Finance Act, 2021 to tax transactions between clubs/associations and their members, the Kerala High Court in the case of Indian Medical Association v. Union of India 96 GSTL 532 (Kerala)/[2025 (4) TMI 872], struck down the amendment as ultra vires. The Court reaffirmed the doctrine of mutuality under GST and held that an association and its members cannot be treated as distinct persons for levy of GST and ruled that the deeming fiction introduced to tax intra-member transactions is invalid, and GST cannot be imposed on transactions occurring within a mutual association.
4.3. ICCSL also contended that consideration and a transaction between distinct persons are essential elements under Section 7 defining scope of supply and both are absent in the present case. Membership fees, processing charges and other amounts collected from members are stated to be internal allocations and not consideration for any supply. Payments made to facilitators who are also members are surplus distributions permissible under Section 63 of the Multi-State Co-operative Societies Act, 2002, rather than commission or service fees.
4.4. On these grounds, the Applicant contended that the Society and its members constitute a single entity for internal transactions, and therefore no supply takes place, and no GST is leviable on amounts recovered from or distributed to its members, including facilitators.
Contention with respect to applicability of exemption under Sl. No. 39 of Notification No. 12/2017 CT (R), dtd 28.06.2017
4.5. The Applicant contended that without prejudice to the plea of mutuality, even if the Society and its members are treated as distinct persons for GST purposes, the services rendered by facilitator (who are also members) in rural areas qualify for exemption under Sl. No. 39 of Notification No. 12/2017-CT(Rate), dated 28.06.2017.
4.6. They contended that a harmonious reading of Section 3(f) of the Multi-State Co-operative Societies Act, 2002 together with Sections 5(b), 5(c), 6(a) and 56 of the Banking Regulation Act, 1949, and Section 45A of the RBI Act, 1934 indicates that the Society, for all practical purposes, qualifies as a “Banking Company.” The Applicant relied on the decision of the Hon’ble Apex Court in the case of Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd. (SC)/[2020 (5) TM1148 (SC)], wherein it was held that the SARFAESI Act, 2002 applies to Co-Operative banks, including multi-state Co-Operative banks. Reliance was also placed on the decision of the Hon’ble ITAT in The Citizen Co-operative Society Ltd. v. Addl. CIT, Range 9, Hyderabad [2010]  (Hyderabad)/(Hyderabad ITAT, ITA Nos. 1156-1159/Hyd/2009), wherein a multi-state co-operative credit society was treated as a banking company. These decisions, according to the Applicant, lend support to their contention that the Society is treated on the same footing as any other banking company.
4.7. Further, the Applicant submitted that the facilitators, who are also members act as intermediaries or business facilitators under a recognised model facilitating deposit and loan operations for members, predominantly in rural areas. Since GST law does not define “account” or “rural area,” any facilitation of deposit/loan operations in rural locations should qualify as services relating to rural “accounts,” and therefore fall within the scope of SI. No. 39. Accordingly, such services should be held exempt from GST.
5. Comments of the Jurisdictional Officer:
5.1. The application was forwarded to the jurisdictional officer as per provisions of section 98(1) of the CGST Act. The jurisdictional officer reported that the Applicant had earlier been subjected to proceedings under the GST Act on a substantially similar issue. It was reported that a show cause Notice (SCN No. 02/AC/2022 (Central Tax)) dated 16.02.2022 was issued alleging failure to obtain GST registration for the period 01.07.2017 to 06.10.2017. The Applicant, in response, contended that its activities were confined to members and hence not liable to GST in view of the Supreme Court’s decision in Calcutta Club Calcutta Club Ltd. . (supra). The adjudicating authority vide CIO No. 21/2023-24-GST(ADJ) dated 26.03.2024 rejected this contention but, since the tax dues for the relevant period had already been voluntarily paid, imposed only a penalty of ?10,000 for non-registration vide OIO dated 26.03.2024.
5.2. The Applicant later filed an appeal against the imposition of penalty, reiterating that its activities were not taxable in light of Calcutta Club. The Joint Commissioner (Appeals), however, rejected the appeal vide OIA No. 164-2025-26-JC dated 25.09.2025. Although the Kerala High Court’s subsequent judgment in Indian Medical Association (supra) was not invoked in these proceedings, the jurisdictional officer noted that the core question whether GST applies to transactions between the Society and its members has already been adjudicated in the above appellate order issued under the GST Act.
6. Personal Hearing:
6.1. The applicant was granted an opportunity for personal hearing on 26.11.2025. Shri Saurabh Dixit, Advocate, appeared on behalf of the applicant and explained the nature of the activities undertaken. He also reiterated the submissions made in the written application. During the course of the personal hearing, it was informed that the Directorate General of GST Intelligence (DGGI) had issued notices to certain facilitators of the applicant. In the said notices, the department had submitted that the consideration received by the facilitators from ICCSL for promoting loans and deposits of ICCSL to its members was liable to GST as “Services auxiliary to financial services”.
6.2. Comments were also called for from the jurisdictional officer on the advance ruling application, and also to ascertain whether the issue raised had been decided or was pending in any proceedings under the provisions of the GST Acts. The Superintendent, Chembukavu Range, vide letter dated 01.12.2025, furnished comments in this regard. Along with the said communication, copies of Order-in-Original No. 21/2023-24-GST (ADJ) dated 26.03.2024 and Order-in-Appeal No. 164-2025-26-JC dated 25.09.2025 pertaining to the applicant were also submitted to the Authority.
7. Discussion and Findings:
7.1. We have carefully examined the statements of facts, the questions raised by the Applicant, the submissions made during the personal hearing, and the comments furnished by the jurisdictional officer.
7.2. The questions raised by the Applicant for advance ruling are reproduced below:
(i) Whether the sharing of amounts by the Applicant to its members who act as facilitators constitutes a “supply” as defined under Section 7 of the CGST Act, 2017, and accordingly attracts levy of GST under Section 9 of the CGST Act, 2017 read with the Kerala State GST Act, 2017?
(ii) Whether any GST is leviable on any transactions made between the Applicant and its members including those who act as facilitators?
(iii) What is the classification of service if the answer to (i) and (ii) is in the affirmative?
(iv) If the answer to (i) and (ii) is in affirmation, whether the GST is exempt on transactions between the Applicant and its members, including facilitators?
7.3. The questions at Sl. Nos. (iii) and (iv) raised by the applicant appear, prima facie, to fall within the scope of clauses (a) and (b) of Section 97(2) of the CGST Act, 2017, respectively. However, these questions can be examined only in conjunction with questions (i) and (ii) raised by the applicant, as they are intrinsically linked to the determination sought therein. On examination of questions (i) and (ii), it is observed that the same are not framed with sufficient specificity and appear to be ambiguous in nature. It is evident that the said questions do not fall within the ambit of clauses (a), (b), (c), (d), or (f) of Section 97(2). Further, the questions may or may not fall within the scope of clauses (e) or (g) of Section 97(2), depending upon the exact nature and intention of the subject matter on which the ruling is sought. In this regard, it is pertinent to note that rulings under the aforesaid clauses can be rendered only in respect of the supply of goods or services undertaken by the applicant. It is observed that the questions raised do not relate to supplies undertaken by the applicant but rather to services allegedly rendered by facilitators to the applicant. The Authority is not empowered to pronounce a ruling on supplies made by other persons to the applicant or to any third party. The applicant has also not raised any specific question regarding liability under reverse charge mechanism or admissibility of input tax credit in respect of any inward supply.
7.4. In question (i), the applicant seeks a ruling on the taxability of the sharing of amounts by the applicant with its facilitators. From the submissions made, it is observed that the facilitators, who are also members of ICCSL, assist in arranging lending transactions and in facilitating the acceptance of deposits from other members. For such facilitation, a portion of the amount is shared by the applicant with the said facilitators. Thus, the amount shared by the applicant is evidently in consideration of services rendered by the facilitators to the applicant. Consequently, the transaction in question pertains to the supply of services by the facilitators to the applicant, and not to any supply made by the applicant. Therefore, as discussed in the preceding paragraph, since the amount shared is not in respect of any supply of goods or services made by the applicant, the question raised does not fall within the scope of Section 97(2) of the CGST Act, 2017. Accordingly, no ruling can be issued on question (i).
7.5. In question (ii), the applicant seeks a ruling on whether GST is leviable on any transactions between the applicant and its facilitators. In this regard, it is pertinent to note that a ruling under Section 97(2) of the CGST Act, 2017 can be issued only in respect of supplies of goods or services undertaken by the applicant. The Authority is not empowered to pronounce a ruling on transactions wherein the facilitator acts as the supplier of services to the applicant. Further, from the submissions made by the applicant, it is observed that the applicant has not specified or illustrated any transaction wherein the applicant provides any goods or services to the facilitators. In the absence of any such factual matrix demonstrating a supply made by the applicant, the question appears to relate only to transactions where the facilitators may be rendering services to the applicant. Therefore, in line with the discussion in the preceding paragraphs, the question raised does not fall within the scope of matters specified under Section 97(2) of the CGST Act, 2017. Accordingly, no ruling can be issued on question (ii) as well.
7.6. During the course of the personal hearing and in the written submissions, the applicant contended that, being a society, the principle of mutuality is applicable, and therefore the applicant and its facilitator members cannot be regarded as distinct persons for the purpose of levy of GST. In this context, the applicant has relied upon the doctrine of mutuality and the judgment of the Hon’ble Supreme Court in Calcutta Club Ltd. (supra). However, it is observed that Section 7(1)(aa) was inserted in the CGST Act, 2017 with effect from 01.01.2022, whereby activities or transactions by a person, other than an individual, to its members or constituents for consideration are deemed to constitute a supply. It is true that the Hon’ble Kerala High Court, in the case of Indian Medical Association(supra), held the said amendment to be ultra vires. However, it is noted that the Department has challenged the said judgment before the Hon’ble Supreme Court of India by filing SLP (Civil) No. 55454 of 2024, and the matter is presently sub judice. The Department continues to maintain the position that transactions between a society and its members are liable to tax by treating them as distinct persons. Further, even assuming, arguendo, that the principle of mutuality is applicable and that the activities between the applicant and its members are not to be treated as supplies between distinct persons, the present application still cannot be admitted in view of the bar contained in Section 98(2) of the CGST Act, 2017. From the comments furnished by the jurisdictional officer, it is evident that the issue relating to the taxability of transactions between the applicant and its members has already been examined in adjudication proceedings culminating in Order-in-Original No. 21/2023-24-GST (ADJ) dated 26.03.2024, wherein the adjudicating authority rejected the applicant’s contention that transactions between the society and its members are not liable to GST in light of the judgment of the Hon’ble Supreme Court in Calcutta Club Ltd. (supra). Accordingly, since the question raised in the present application pertains to an issue that has already been decided in proceedings initiated against the applicant under the provisions of the Act, the application is not admissible in terms of Section 98(2) of the CGST Act, 2017.
7.7. As discussed, questions (iii) and (iv), which relate to the classification of services and the availability of exemption under Sl. No. 39 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, are purely consequential in nature and would arise for consideration only upon determination of Questions (i) and (ii) on merits. Since the primary questions themselves have been held to be inadmissible in view of the provisions of Sections 97(2) and Section 98(2) of the CGST Act, 2017, the said consequential questions also cannot be admitted or examined by this Authority.
7.8. In view of the foregoing, this Authority is of the considered opinion that the present application is not admissible in terms of Sections 97(2) and 98(2) of the CGST Act, 2017. In view of the above findings, the application is liable to be rejected at the threshold without entering into the merits of the issues raised. Accordingly, this Authority refrains from examining the matter including the applicability of the doctrine of mutuality, the effect of the judgment of the Hon’ble Kerala High Court in IndianMedical Association (supra), and the eligibility to exemption under Sl. No. 39 of Notification No. 12/2017-Central Tax (Rate). In view of the above findings, the application is liable to be rejected at the threshold without entering into the merits of the issues raised.
8. In the light of the facts and legal position as stated above, the following ruling is issued:
RULING
The application for advance ruling filed by M/s Indian Co-operative Credit Society Ltd. is rejected as not admissible in terms of Section 97(2), and Section 98(2) of the CGST Act, 2017 and No ruling is issued on the questions raised in the application.