Umed Club

CASE STUDY

BRIEF FACTS OF THE CASE:

M/s Umed Club (appellant) filed a refund for service tax paid on various services provided to its members. This claim was rejected by the adjudicating authority in his order on the ground of unjust enrichment under Section 11B of Central Excise Act 1944 read with Section 83 of Finance Act 1944. Thereafter, appellant preferred an appeal before Commissioner (Appeals), however, the appeal was dismissed by the Appellate Authority on the ground that refund was inadmissible. Being Aggrieved by the Order-in-Appeal, an appeal was moved before the Tribunal (New Delhi).

CA Pradeep Jain, authorised representative of the Appellant appeared for the personal hearing to present the submissions and relevant explanations on behalf of the Appellant.

Key issues covered in the case:

• Whether principle of mutuality can be applied on club and its members?

• Whether service tax is chargeable after 01.07.2012 on services provided by a registered club under any law to its members?

• Whether unjust enrichment is applicable where refund is sought for service tax paid on services provided by club to its members?

• Whether “body of persons” definition can encompass registered/incorporated club and its members?

Submissions by Appellant:

CA. Pradeep Jain submitted the following contentions: -

• The service tax was paid mistakenly on restaurant and accommodation services as service tax was not payable on the ground that the aforementioned services are covered under the ‘principle of mutuality’.

• In continuation of above, that the club and its members are same persons and not distinct persons. Hence, services rendered by a club to its members cannot be considered as provision of service from one legal entity to another.

• Reliance was placed upon the judgement of Supreme Court in the case of State of West Bengal vs. Calcutta Club Limited as it covers the legal position which existed prior to 01.07.2012 and after also. Therefore, the contention of Commissioner (Appeals) cannot be held valid.

• Regarding unjust enrichment, the appellant submitted that the Apex Court has held that the club and its members are one and same person and hence passing on the incidence to any other person does not arise. Reliance was placed on Gujarat High Court in case Karnawati club wherein it was held that concept of unjust enrichment is not applicable in case of club.

• Based on the above contentions, refund application should be allowed.

Submissions by Revenue Department:

Revenue Department contended the following:

• That the disputed period belongs to the period after introduction of negative list regime i.e. 01.07.2012. Therefore, the matter should be examined in view of new provisions effective from 01.07.2012.

• Reference to the definition of Service under Section 65B(44) and definition of Person under Section 65B(37) was made. Further, w.e.f. 01.07.2012 Explanation 3(a) was inserted to above sections in which it was mentioned that unincorporated association or a body of persons and its members shall be treated as distinct persons. Based on explanation 3(a) it can be held that the club and its members shall be treated as distinct persons.

• That based on above contention, services provided by club to its members not covered under negative list and exemption notification does not applies. Hence, services provided by club to its members are covered in the definition of service and therefore, service tax is chargeable thereon.

• Reliance was placed upon the judgement given by the Supreme Court in the case of ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV, refund application could not be entertained unless the self-assessment made by the appellant has been challenged by the appellant himself. Since, in the instant case, the appellant has not filed any appeal to assail the self-assessment order, the appellant could not have directly asked for refund.

Judgement & Findings:

Based on the submissions given by legal counsel of both the parties, the Appellate Authority observed the following findings: -

• That the only reason assigned by the Revenue Department for holding that the appellant was not entitled to refund of service tax was that the appellant was required to pay service tax w.e.f. 01.07.2012.

• Hence, it is necessary to examine the judgement of Hon’ble Supreme Court in the case of Calcutta Club wherein the Supreme Court examined whether the service tax would be leviable on a club for the services rendered to its members both prior to 01.07.2012 and w.e.f. 01.07.2012.

• Definition of “club or association” under Section 65(25aa), “Taxable Service” as per Section 65(105)(zzze), “Club or association” as per Section 65(2aa) of Finance Act which was introduced w.e.f. 16.06.2005, were referred. Further, w.e.f. 01.05.2011 as per Section 65(105)(zze) the expression “or any other person” was added which clearly implies that the tax coverage was widened such that the non-members of clubs or associations gets included.

• Further, Section 66 specifically states that service tax shall be levied on the value of taxable services as defined in Section 65(105)(zzze). Further, reference was made to definition of Valuation of taxable services and Payment of Service Tax as per Section 67 and Section 68 respectively.

• It was observed that definition of “club or association” under Section 65(2a) upto 01.07.2012 did not included “established or constituted” by or under any law for the time being in force is not included. Hence, services by incorporated clubs or associations were not chargeable to tax before 01.07.2012.

• Further, that Section 65B came into existence and the older Section 65 and Section 65A were made inapplicable which led to introduction of Section 65B(37), Section 65B(44) and Section 66B. Thus, based on definitions, service tax was leviable on all services as defined which are not covered by negative list of services as per Section 66D.

• Based on the above observations and findings, Tribunal decided on the question of the difference in the taxability before and after 01.07.2012. It was held that definition of Section 65B(44) is very wide and Section 65B(37) also covers a society, artificial judicial person not falling in any of the preceding sub-clauses, association of persons or body of individuals whether incorporated or not.

• Further, Section 65 was inserted by Finance Act 2006 which states that taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration.

• In continuation of above, Tribunal observed that Article 366(29A)(e) which is inline with above, it is already held that expression “body of persons” will not include an incorporated co., nor it will include any other form of incorporation including an incorporated cooperative society.

• Furthermore, the definition of “club or association” as per earlier defined under Section 65(25a) and Section 65(25aa) to mean any person or body of persons providing service. Body of persons cannot include persons who are incorporated entities, as such entities have been expressly excluded under Section 65(25a)(i) and Section 65(2aa)(i) as anybody established or constituted by or under any law for the time being in force. Hence, body of persons will not include body incorporated/constituted under any law for the time being in force.

• Further that, w.e.f. 01.07.12, negative list was introduced. Person is very widely defined by Section 65B(37). However, explanation 3 to Section 65B(44) instead of using an expression “person” or the expression “an association of persons or bodies of individuals, whether incorporated or not”, uses the expression “a body of persons” when compared with “an unincorporated association”.

• It was held that as the same expression has been used in explanation 3 after 01.07.2012, as opposed to the wide definition of “person” contained in Section 65B(37), it may be assumed that the legislature has continued with the pre-2012 scheme of not taxing members, clubs when they are in incorporated form. Thus, explanation 3(a) to Section 65B(44) does not apply to members clubs which are incorporated.

• Based on above observations it was held that Explanation “body of persons” may encompass within it persons who come together for a common purpose but does not include a company or a registered cooperative society. For this judgement given in the case of CIT, Bombay North, Kutch and Saurashtra, Ahmedabad v. Indira Balkrishna, (1960) was referred and supreme court in its judgement held that based on above it was held that Gujarat High Court and Jharkhand High Court are correct in the view of the law in the case Young Men’s India Association.

• In view of above, it was held that aforesaid judgement of Supreme court in the case of Calcutta club, the contention of the revenue department that the appellant is liable to pay service from 01.07.2012 is incorrect. Furthermore, tribunal distinguished the reliance placed upon by the Appellate authority in the case of Emerald Leisures Ltd. and Avadh Infratech Ltd (supra).

• Further, tribunal held that the Adjudicating authority bringing the theory of unjust enrichment in the instant case without any reasons stands incorrect.

• Further, reliance was placed upon the judicial pronouncement given by Tribunal in the case of Karnavati Club Ltd. v. Commissioner of Service Tax Ahmedabad in which it was held that club has passed on the incidence of service tax liability to its members as the members are not separate from the club. Hence, refund of service tax claimed by a club from self, it cannot be held that the club itself will be unjustly enriched. Services rendered to self cannot be held equivalent to services rendered to a client or customer.

Hence, based on above decision, it is crystal clear that there is no unjust enrichment applicable on the refund claimed by the appellant.

• Regarding plea of department that filing of return is self-assessment order and the appellant should have filed appeal against it rather than filing of refund, it was held that neither the show cause notice has raised this plea nor the orders passed by the Assistant Commissioner or Commissioner (Appeals) have examined this plea. Department has also not filed any cross appeals in this appeal to raise this issue. Hence, department cannot be allowed now to raise this plea in this appeal filed by the appellant.

Therefore, based on above observations and findings , Tribunal held that the impugned order should be set aside and the appellant should be provided with the relief sought in the appeal.

AUTHOR’s COMMENT:

The judgement is a very welcoming judgement as it is a very detailed judgement covering earlier laid landmark judgements on the taxability of services provided by club to its members. It makes clear that principle of unjust enrichment cannot be invoked where tax has been paid by members on the services provided by club to its members as the principle of mutuality applies between the club and its members. Further, that w.e.f. 01.07.2012 even after insertion of Explanation 3(a), the services provided by a incorporated/registered clubs to its members will remain exempt from the levy of service tax as the body of persons cannot extend to include registered/incorporated clubs. Services provided to self i.e. by club to its members cannot be treated equivalently to services provided to its customers/clients. Further, Revenue department cannot invoke principle of unjust enrichment and reject refund application without any recorded evidence.

Various case laws, sections, rules, circulars, notifications referred in the instant case study:

Section 11B of Excise Act 1944, Section 83, of Finance Act 1944

Section 65B(7), Section 65B(37), Section 65B(44), Section 65(105)(zze), Section 65(25a), Section 65(25aa), Section 65B, Section 66, Section 66B, Section 66D, Section 67, Section 68 of Finance Act 2005 and its subsequent amendments.

AAR ruling in Emerald Leisures Ltd [2016 (41) S.T.R. 321 (A.A.R.)]

AAR ruling in Avadh Infratech Ltd [2016 (45) S.T.R. 580 (A.A.R.)]

State of West Bengal v. Calcutta Club Ltd. [2019 (29) G.S.T.L. 545 (S.C.)]

ITC Ltd. vs. Commissioner of Central Excise, Kolkata-IV [2019 (368) E.L.T. 216 (S.C.)]

Karnavati Club Ltd. v. Commissioner of Service Tax, Ahmedabad [2013 (31) S.T.R. 445 (Tri.-Ahmd.)]

CA PRADEEP JAIN

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