The life membership fee are chargeable to Service tax unless the same are substantiated that the same is refundable.

PJ/Case Laws/2012-13/1231

Case: -BUILDER’S NGV CLUB V/S COMMISSIONER OF CENTRAL EXCISE, BANGALORE

Citation: - 2012(27) S.T.R. 384 (Tri.-Bang.)

Brief Facts: - The appellant filed this appeal for waiver of pre-deposit and stay of recovery in respect of Service tax of Rs. 3195283/- confirmed as demand against them in adjudication of show cause notice and service tax of Rs. 1535439/- confirmed as demand towards Service tax in adjudication of another show-cause notice. The period of dispute covered by the two show-cause notices are June, 2005 to May, 2007 and June, 2007 to March, 2008 respectively. Waiver and stay are also sought in respect of penalties imposed on the appellant. The appellant is registered with the Department since August, 2006 as provider of 'club or association service' and 'Mandap keeper service'. A major part of the demand raised in the first show-cause notice is beyond the normal period of limitation.
Towards demand of Service tax of Rs. 30.9 lakhs, an amount of Rs. 17.3 lakhs is within the normal period. Further told that an amount of Rs. 6,18,788/- was paid by the appellant and the same stands appropriated towards the demand confirmed against them.
The appellant has claimed prima facie case both on merits and on limitation. He has particularly referred to the first show-cause notice covering the period from 16-6-2005 to 31-5-007. The demand covered by this show-cause notice is over Rs. 30.9 lakhs which is on total taxable value of over Rs. 2.66 crores, out of which an amount of Rs. 1.98 crores is the life membership fees collected by the appellant from the members during the said period.

Appellant’s Contention: - The appellant contended that the life membership fee collected from a member being refundable as per the relevant by-laws cannot be chargeable to service tax under the head 'club or association service'. It is submitted that only the periodical subscriptions collected from members by the club can be brought to levy under the above head and that they has paid service tax on such subscriptions. In relation to the demand of service tax on refundable life membership fees, they has also referred to a stay order passed by this Bench vide Adarsh Realty & Hotel Pvt. Ltd. v. CST, Bangalore [2010 (17) S.T.R. 569 (Tri.-Bang)]. In relation to the demand of service tax on guest charges totaling to over Rs. 6.5 lakhs, they submit that service tax cannot be levied on amounts collected from guests who are not members of the club. With regard to tennis court/karate coaching/swimming pool/shuttle cock/basket ball court collections, the submission is that these collections relating to immovable property cannot be charged to levy under the above head. With regard to health club charges and body massage charges, it is submitted that these are not chargeable to service tax under the head 'club or association service' even though they may be charged under other heads. Similar submissions have been made in respect of the demand covered by the other show-cause notice also.
Further they submit that the relevant facts were known to the Department at the time of their registration for service tax purpose. Therefore, the show-cause notices issued beyond the normal period of limitation for recovery of service tax on the ground that facts were suppressed with intent to evade payment of service tax cannot be upheld.
They have also submitted that their plea for treating the taxable value as cum-tax value was not considered by the original authority. The Commissioner (Appeals) granted the relief but without separately indicating the extent of relief granted. They held that they are eligible for the benefit to the extent of about Rs. 5 lakhs. If this benefit is given, the demand of service tax will stand reduced by nearly Rs. 5 lakhs.

Respondent’s Contention: - The respondent argued that as per the definition of the taxable service (club or association service), the appellant was liable to pay service tax on all amounts of whatever nature collected from members and other persons. In this connection, he has referred to the relevant amendments brought to the definition from time to time. He submitted that no evidence whatsoever was produced by the appellant to show that life membership fee was refundable. In the circumstances, the life membership fees collected by the appellant during the material period cannot be excluded from levy of service tax under "club or association service". They has also adverted to various other components of the gross taxable value determined by the authorities and has endeavored to show that all such amounts were correctly brought to levy of service tax under the said head. Regarding the plea of limitation, they submits that the crucial facts were not disclosed by the appellant even during the stage of investigations and therefore the larger period of limitation has been correctly invoked in this case.

Reasoning of Judgment: - The CESTAT held that they have not found prima facie case for the appellant insofar as the demand of service tax on life membership fees is concerned. Though it has been claimed that such fees are refundable as per the by-laws of the appellant, the claim is yet to be substantiated. They have not been shown a copy of the by-laws. Hence, prima facie, service tax is leviable under the head "club or association services" on life membership fees collected by the appellant from the members. Other small components of the taxable value determined by the lower authorities have also been examined by them. In respect of certain minor components, perhaps, the appellant can claim prima facie case on the ground that such components (example health club collections) could not have been charged to service tax under the above head though they might be chargeable under other heads. As regards the decision cited by the appellant, they note that the question whether refundable membership deposits should be excluded from levy of service tax under "club or association service" was not decided upon in the case of Adarsh Realty & Hotel Pvt. Ltd. (supra). The cited stay order is, therefore, of no support to the appellant. Moreover, waiver and stay were granted in that case in view of a deposit of over Rs. 10 lakhs already made by the party. As regards the plea of limitation, they are not impressed with the submissions of the appellant. They have perused the statement recorded from the appellant by the investigating officers. The replies given to the relevant queries have been noted and the same do not indicate disclosure of all crucial facts to the Department. Admittedly, the appellant got registered with the Department as early as in August, 2006 as providers of "club or association service" and "mandap keeper service", but they did not choose to pay service tax on their collections which were, by virtue of the definition of the service, prima facie taxable under the above heads. There is no valid explanation for this omission. Hence, it appears, the allegation of suppression of facts with intent to evade payment of service tax is also tenable.
Decision: - Stay partly granted.

Comment:- this is important case law for club and membership. The assessee has contended that the life membership fee charged by them is refundable. If the club contends the same, it has to be substantiated by him with bye-laws or any other authoritative document. It cannot be pleaded just on the basis of saying. Hence, it is very good decision.

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PJ/Case Laws/2012-13/1231

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