Whether services rendered by members to club leviable to service tax?

PJ/CASE LAW/2014-15/2500

Case:-MATUNGA GYMKHANA TAHNEE HEIGHTS COOPERATIVE HOUSING SOCIETY LTD Vs COMMISSIONER OF SERVICE TAX, MUMBAI

Citation:-2015-TIOL-108-CESTAT-MUM

Brief facts:-As the issue involved in these appeals is same, common order is being passed. There are three appellants in these appeals and the facts of each case may be mentioned separately. The first appellant M/s Matunga Gymkhana run a club for their members. The activities carried out by them relate to Sports, Yoga etc. According to them, their objective is charitable as per the constitution of the Gymkhana. They are a Public Charitable Trust registered under the Mumbai Public Trust Act. Their objective is for promotion of physical well being and most of the sports facilities are utilized by the members and their children. According to them, Section 65 (25a) of the Finance Act, 1994 states that club or association means anybody or body of persons providing services facilities for a subscription but does not include any body engaged in activities having objectives which are in the nature of public service and are of charitable, religious or political nature.

However, Revenue was of the view that the activities are not charitable in nature as they are chargeable and neither are they in the nature of public service. According to Revenue, the appellant do not come in the purview of the exclusion clause under Section 65(25a) ibid. Therefore, the demand of service tax against the appellant was confirmed, appropriate interest ordered and penalties imposed under Sections 76, 77 & 78 of the Act.

The second appellant M/s. Tahnee Heights Cooperative Housing Society formed a society in which all the members are share holders. The society is registered under the Maharashtra Cooperative Societies Ltd. Charges are collected from the members for maintenance, repair, beautification etc. According to the appellant, they offer services to self and, therefore, would not be covered under service tax. In their view they are covered by the exclusion clause under Section 65(25a) which excludes anybody established or constituted by or under any law from the coverage of 'club or association'. The appellant had however, paid service tax on persuasion by the department. Later they filed refund claims which were rejected on merits. Revenue was of the view that the above exclusion clause only refers to bodies which are established or constituted under a Statute and not bodies which are formed and registered under a statute. Therefore, the refund claims were rejected on merits without going into the aspects of unjust enrichment.

The third appellant is M/s. Mittal Tower Premises Cooperative Society. The facts in this case are similar to the facts of the case relating to the second appellant. Here also, the appellants were managing and maintaining the land and building belonging to the society formed amongst members of the premises. They collected expenses from the members towards water charges, security charges, repair expenses, lift repairs etc. They are also registered under the Maharashtra Cooperative Housing Societies Act. In their case also the service tax had been paid initially and later refund was claimed. The refund claims were rejected on merits without going into the aspect of unjust enrichment.

Appellant’s contention:-The Ld. Counsel relied on three judgments namely:

(i) Ranchi Club vs. Chief Commr. Of C. Exc. & ST, Ranchi 2012 (26) STR 401 (Jhar) = 2012-TIOL-1031-HC-JHARKHAND-ST

(ii) Sports Club of Gujarat vs. Union of India 2013-TIOL-528-HC-AHM-ST

(iii) M/s. Federation of Indian Chambers of Commerce & Industry vs. Commissioner of Service Tax, Delhi 2014-TIOL-701-CESTAT-DEL.

Respondent’s contention:-The Ld. AR's reiterated the findings of Revenue authorities.

Reasoning of judgment:-The Hon’ble Tribunal have heard the rival contentions. The demand of service tax in these cases is based on the premises, that the appellants had provided taxable 'club or association' service specified in Section 65 (105) (zzze). The words "club or association" are defined in Section 65(25a) of the Finance Act, 1994. These provisions are extracted below:

"Section 65 (105) (zzze)

Taxable service means any service provided or to be provided to its members, by any "club or association" in relation to provision of services, facilities or advantages for a subscription or any other amount;

Section 65(25a)

"club or association" means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount to its members, but does not include:

(i) Anybody established or constituted by or under any law for the time being in force; or

(ii) Any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or

(iii) Any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or

(iv) Any person or body of persons associated with press or media;"

They find that the subject matter in the present appeals has also been the subject issue in various judgements. In the case of Ranchi Club (supra), the Hon'ble Jharkhand High Court held that –

"Since the issue whether there are two persons or two legal entity in the activities of themembers' club has been already considered and decided by the Hon'ble Supreme Court as well as by the Full Bench of this Court in the cases referred above, therefore, this issue is no more res integra and issue is to be answered in favour of the writ petitioner and it can be held that in view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form including as mandap keeper, then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing. However, so far as services by the club to other than members, learned counsel for the petitioner submitted that they are paying the tax".

Subsequently it was held by the Hon'ble Gujarat High Court in the case of Sports Club of India (supra) that –

"it is hereby declared that Section 65(25a), Section 65(105) (zzze) and Section 66 of the Finance (No.2) Act, 1994 as incorporated / amended by the Finance Act, 2005 to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires."

These judgments were also considered by the Principal Bench in the case of FICCI (supra).

It was held that on the analyses above and on the basis of the precedential guidance adverted to, we conclude that in view of the decision in Ranchi Club Limited (supra), on application of the principle of mutuality, services provided by the appellants to their respective members would not fall within the ambit of the taxable "club or association" service nor the consideration whether by way of subscription/ fee or otherwise received therefore be eligible to service tax. In view of the decision of the Gujarat High Court in Sports Club of Gujarat Limited, as the relevant provisions (namely Section 65(25a), Section 65(105)(zzze) and Section 66 of the Act), to the extent these provisions purport to levy service tax in respect of services provided by a "club or association" to its members is declared ultra vires, we hold that there are no operative legislative provisions of the Act legitimizing the levy and collection of service tax from the appellants, for providing "club or association" service, in so far as these relate to any services provided to members of these appellants."

It was further held by the bench that "We hold that services provided to non members fall outside the ambit of "club or association" service prior to 01.05.2011 and subsequent to this date there is no specific allegation that the services provided to non-members fall within the expanded scope of this taxable service qua provisions of the Finance Act, 2011...............".

In view of the above judgments, the issue at hand is no more res integra. They set aside the impugned orders and allow the appeals with consequential relief, if any, in accordance with law.

Decision:-Appeals allowed.

Comment:-The analogy of the case is that a service to members of club/cooperative housing society is not a service by one to another and, therefore, is not chargeable to service tax. Relying on the various decisions given by High Courts in various cases wherein it has been held that club and its members are one and the same, no service tax is leviable on the services provided by club to its members. Accordingly, the refund claims filed were allowed.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2500

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