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Judgment
A members club seeks a declaration that a members club is not a "club or association" within the meaning of Chapter-V of the Finance Act, 1994 as amended by the Finance Act, 2005 and is therefore, not liable to pay any service tax under such Act.
Learned Senior Advocate for the petitioners submits that, there are distinctions and differences between a members club and a proprietary club. A members club functions on mutuality. Such mutuality is not available in the case of proprietary club.
Learned Senior Advocate for the petitioners draws the attention of the Court to Sections 66 and 67 of the Finance Act, 1994 as amended by the Finance Act, 2008. He submits that, Section 66 provides for the charge of service tax. Section 67 lays down the valuation of taxable services for charging service tax. He contends that, Section 67 sub-section (1)[i],[ii] and [iii] requires a consideration to be passed. In the case of a members club, by reason of the concept of mutuality, the question of passing on consideration between the member and its club does not arise. Since one of the essential ingredients to attack service tax being consideration specified in Section 67 being absent in a transaction between a member and its club, the provisions of Section 67 or for that matter Section 66 of the Act are not attracted. He contends that, a member of a members club reimburses the expenses to the club which such club has expended on account of a member. The realization of such expenses by the club from the member cannot be construed to be a consideration. He draws the attention of the Court to the definitions of club or association as appearing in Section 65[25(a)] and taxable service at Section 65 (105) particularly to clause (zzze) thereof. He also draws the attention of the Court to the explanation given to Section 65(121) and submits that, the explanation also speaks of valuable consideration.
Relying upon 1970 (26) STC 241 (Joint Commercial Tax Officer- Versus- Young Mens Indian Association), 14 VST 499 (Cal) (State of West Bengal & Ors.-Versus-Calcutta Club Limited & Another), 153 ITR 675 (Commissioner of Income Tax-Versus-Darjeeling Club Ltd.), 2005(180) E.L.T. 437 (Cal) (Saturday Club Ltd.-Versus-Assistant Commissioner Service Tax Cell, Calcutta), 2005(180) E.L.T.18(Cal.) (Dalhousie Institute-Versus-Assistant Commissioner Service Tax Cell) he submits that, a members club has been exempted from payment of sales tax on the ground of mutuality. Referring to 2012(26) S.T.R.401 (Ranchi Club Ltd.-Versus-Chief Commissioner of Central Excise and Sales Tax, Ranchi Zone) he submits that, Jharkhand High Court has exempted a members club from payment of service tax. Referring to 2013 (31) S.T.R. 645 (Gujarat) (Sports Club of Gujarat-Versus- Union of India) he submits that, the Gujarat High Court has also taken a similar view as that of the Jharkhand High Court and has exempted a members club from purview of service tax after taking into consideration the relevant provisions of the Finance Act.
Learned Advocate appearing for the Department submits that, the Sports Club of Gujarat Limited (supra) is pending consideration before the Honble Supreme Court.
I have heard the rival contentions of the parties and the materials made available on record.
The first petitioner is admittedly a members club. The concept of mutuality applies with regard to transactions between a member and the members club. A members club is considered as a one legal entity of the member involved irrespective of the member of members or the legal entity that the members seek to clothe the club with, in so far transactions between the club and its members are concerned. When food or drinks are consumed by a member, this transaction is not considered as a sale by the club to its member as on the anvil of mutuality, a member and the club being the same, a member cannot be said to selling anything to itself for the transaction to qualify as a sale. The concept of mutuality has been accepted and applied in Young Mens Indian Association, Calcutta Club Limited (supra), Darjeeling Club Limited (supra), Saturday Club Limited (supra). In Dalhousie Institute (supra) the Court was considering service tax vis-?-vis a members club being treated as a mandap keeper. Applying the principles of mutuality, the Court has held that, a members club is outside the purview of such taxation. The issue as to whether a members club is liable to pay service tax under Sections 65, 66 and 67 of the Finance Act, was considered by the Jharkhand High Court. In Ranchi Club Limited (supra) it has held that, a members club is not liable to pay the same. A similar view was taken in Sports Club Limited (supra). The view expressed in Sports Club of Gujarat Ltd (supra) is pending consideration before the Honble Supreme Court. Nothing has been placed on record to suggest that, the Honble Supreme Court has taken any view which is contrary to that expressed in Sports Club of Gujarat Ltd.(supra) or Ranchi Club Ltd.(supra).
I find no reason as to why a view contrary to that of Ranchi Club Ltd. (supra) and Sports Club of Gujarat Ltd. (supra) is required to be taken in the facts of the present case. In such circumstances, the first petitioner being a members club, it is not liable to pay the service tax under the Finance Act, 1994 as amended by the Finance Act, 2005.
By virtue of an order dated April 13, 2006 passed in the present writ petition, the first petitioner has obtained a registration and has been depositing service tax with the authorities. The interim order dated April 13, 2006 provides that, in the event of the petitioners succeeding, the respondents will be under obligation to refund the amount deposited and with the interest that may be fixed by the Court. The petitioners having succeeded in the present writ petition, it would be appropriate to direct the respondents to refund the amount along with the statutory interest of 6% from the relevant dates of deposits till the date of refund. It is expected that, the authorities processes the refund as expeditiously as possible and that, the same is made over to the petitioners within a period of six weeks from the date of communication of this order to them.
WP No. 534 of 2006 is disposed of. No order as to costs. GA NO. 1539 of 2015:
In view of the declaration in the writ petition, the authorities will not proceed with the show cause notice which is a subject matter of the interim application. The show cause notices issued by the authorities with regard to service tax against the petitioners are quashed.
GA No. 1539 of 2015 is disposed of. No order as to costs.