ST - Club or Association Service - principle of mutuality of interest is not applicable to guests/non-members: CESTAT
By TIOL News Service
BANGALORE, JAN 29, 2019: THE Appellant runs a golf course and club house and is registered for payment of service tax, as a club or association, from 30.9.2005.
Alleging that the Appellant have collected amounts, like advance enrolment fee, subscription charges and other sums as mentioned in Annexure to the SCN, from members for the facilities provided to them, their dependents, for the period 16.2.2005 to 28.2.2007 and the same are taxable under Section 65(105) (zzze) read with Section 65(25aa) of the FA, 1994, the Commissioner confirmed the service tax demand of Rs.93,27,626/- along with interest while imposing equal penalty u/s 78 and penalties u/ss 76 and 77 of the Finance Act, 1994.
The appellant is before the CESTAT and submits that the principle of mutuality applies to the case and, therefore, there is no difference between the club and its members who are one and the same and no service can be said to be rendered by the club to its members. Insofar as Application/enrolment fee which is collected, refund is given to unsuccessful applicants. So also, penalties on members (cover charges) for not using the facility cannot be taxed as there is no service. The other collections are for using the facilities by members and cannot be called a service in law due to mutuality principle.
Staff welfare collection refers to Diwali bonus collected from members and distributed to staff, which is not towards any service to members. Green fees/course reservation is collected from non-members for usage of golf course and hence not liable under club or association service. Amounts collected towards sale of application forms are not liable as they are in the nature of sale of stationery (goods) and not towards provision of service. The Appellant submits that in respect of non-members no tax could have been imposed during the relevant period. Only after the following amendment by Finance Act, 2011 - (c) in sub-clause (zzze), after the words "to its members,", the words "or any other person" shall be inserted;" could such sum be taxed.
The ground of the demand being hit by limitation is also taken in appeal.
Following case laws were also cited in supportviz. Sports Club of Gujarat - 2013-TIOL-528-HC-AHM-ST, Green Environment Services Cooperative Society Ltd - 2014-TIOL-2355-HC-AHM-ST, Ranchi Club - 2012-TIOL-1031-HC-JHARKHAND-ST, Gujarat State Federation of Cooperative Sugar Factories - 2016-TIOL-1992-HC-AHM-ST, Federation of Surat Textile Traders Association - 2016-TIOL-459-HC-AHM-ST, Saturday Club Ltd. - 2004-TIOL-48-HC-KOL-ST, Dalhousie Institute - 2005-TIOL-08-HC-KOL-ST, - 2015-TIOL-2817-CESTAT-BANG, Dehradun Club - 2007-TIOL-541-CESTAT-DEL, Indian Banks Association - 2016-TIOL-247-CESTAT-MUM, India International Centre - 2007-TIOL-757-CESTAT-DEL, Cricket Club of India - 2015-TIOL-2062-CESTAT-MUM, DLF Golf Resorts - 2015-TIOL-2971-CESTAT-DEL, Federation of Indian Exporters Association - 2017-TIOL-3699-CESTAT-DEL, Alliance Francoise - 2017-TIOL-939-CESTAT-DEL, Punjab State Federation of Cooperative Sugars - 2014-TIOL-1358-CESTAT-DEL, Federation of Indian Chambers of Commerce - 2014-TIOL-701-CESTAT-DEL, Apsara Co-operative Housing- 2015-TIOL-2606-CESTAT-MUM, Maharatta Chamber - 2017-TIOL-1511-CESTAT-MUM.
The AR reiterated the findings of the O-I-O and submitted that the appeal filed by the Department against the High Court order is pending in Supreme Court.
The Bench observed that the issue is no longer res integra in view of the decision of Gujarat High Court in the case of Sports Club of Gujarat Ltd. (supra) and Jharkhand High Court in the case of Ranchi Club Ltd. (supra) and other decisions of the Tribunal cited by the appellant.
The CESTAT further observed -
+ It has been categorically held that in view of the mutuality of interest and in view of the activities of the club, if the club provides services to its Members that would not constitute service to others. In fact, we find that Gujarat High Court has held the levy itself to be ultra vires of the constitution.
+ We find that various judgments have held that entry fees are subscription fees, mandap charges, charges for common effluent treatment, etc., have been held to be excluded from the purview of taxation. However, with reference to the charges collected from guests and non-members, we find that the ratio of the judgments is against the appellants.
As regards the contention of the appellant that the services rendered to non-members have come to be charged with effect by the Finance Act, 2011 (w.e.f 01.05.2011), the Tribunal observed that it was held by Jharkhand High Court in the case of Ranchi Club Ltd. (supra) that services by club to other than members are chargeable to tax and since this judgment dealt with the period prior to 01.05.2011, the argument of the appellant is untenable and that the principle of mutuality of interest is not applicable to non-members.
Quoting the Tribunal decision in Cricket Club of India Ltd. (supra) that "to the extent that any of these collections are directly attributable to an identified activity, such fee or charges will conform to the charging section for taxability and, to that extent, that they are not so attributable, provision of taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable", the Bench opined that for the purpose of computation of charges collected from non-members and the tax payable on the same, the matter is required to go back to the original authority.
The appeal was allowed by way of remand.
(See 2019-TIOL-321-CESTAT-BANG)
