Though this is not explicitly stated in the definition of ‘supply,’ the presence of two distinct persons is required, as is evident by the references to supplier and recipient in various provisions. Unlike Central Excise, captive consumption is not taxable under GST.
CBIC has, in fact, clarified this through FAQs on Goods and Services Tax (GST), 3rd edition, dated 15 December 2018. Inter-state supplies such as stock transfers, branch transfers, or consignment sales are taxable under IGST. However, such supplies within the state are not taxable unless registration is obtained for each unit in the state that is involved in such transactions.
Deeming Provision—Associations, Housing Societies and Clubs
An interesting exception to this is Section 7(1) aa, which specifically includes transactions between an association or club and its members. It also includes an explanation that overrides anything to the contrary contained in any other law or even any judgement by any Court, Tribunal or Authority. The person (i.e., association or club) and its members are deemed to be two separate persons.
This clause and the explanation were inserted retrospectively from 1 July 2017 vide The Finance Act 2021. This basically nullifies the earlier Supreme Court judgement in State of West Bengal v. Calcutta Club Ltd. & Ranchi Club Ltd., a landmark ruling on the principle of mutuality in indirect taxes. It was delivered in the context of pre-GST indirect tax laws.
The ruling stated that the 46th Amendment to the Constitution, which was introduced to expand the scope of “tax on sale of goods” under Article 366(29A), does not abolish mutuality.
Now, fast forward to 11 April 2025. The Kerala High Court, in a landmark ruling in Indian Medical Association vs. Union of India, reaffirmed the doctrine of mutuality and ruled that Sections 2(17)(e) and 7(1)aa and the explanation thereto under the CGST and KGST Acts are unconstitutional and ultra vires Articles 246A (GST Power), 366 (12A) (definition of supply), and 265 (no taxation without authority) of the Constitution and that the mutuality doctrine continues to shield member-only schemes from GST, even after statutory amendments.
An SLP filed by the Department is pending with the Supreme Court.
Conclusion
The general rule is a supply will involve two distinct persons which would include even different registered units with the same PAN. The only exception to this rule is the deeming provision under Section 7(1)aa and the explanation thereto as well and 2(17)e which includes such transactions under the definition of business.
We will have to wait for the final ruling by the Supreme Court on whether the doctrine of mutuality still holds or not.
While the Kerala High Court has held GST on member contributions to be unconstitutional, the matter is currently pending before the Supreme Court. Hence, discontinuing GST entirely involves litigation risk. A balanced approach with continued compliance or protective litigation is advisable.
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