Whether the service of a club or association to its members is taxable?

PJ/Case Law/2018-2019/3485

Case:COMMISSIONER OF SERVICE TAX, DELHI Versus DLF GOLF RESORTS LTD.
Citation:2018 (12) G.S.T.L. 39 (Tri. - Del.)
Issue: Whether the service of a club or association to its members is taxable?

Brief facts:- The assessee, M/s. DLF Golf Resorts Limited, is holder of service tax registration for providing services of Mandap Keeper, Health Club & Fitness Centre, BAS, Membership of Clubs, Maintenance or Repair Services, Manpower Recruitment services, Renting of Immovable Property and Sponsorship services. On scrutiny of records, it was observed by the department that during the period 16-6-2005 to 31-3-2005 though assessee was collecting charges from members of the club for various services like Green Fees, Academy Revenue, Lessons Fees, Package Horse Riding, Night charges, Non-member Academy Revenue, Guest fees, Package Tennis charges, Tournament charges, Swimming gala, etc., they were not paying service tax on amount collected for these services. The department entertained the view that such amount collected by assessee would fall within the ambit of “any other amount” as defined under Section 65(105)(zzze) read with Section 65(25a) of the Finance Act, 1994. A show cause notice dated 27-7-2005 was issued. After adjudication the original authority confirmed the demand of service tax of Rs. 62,45,399/- for services of Green Fees, Academy Revenue, Lesson Fees, Package horse ride charges, Night charges, Non-members academy revenue, guest fees, package tennis charges, Tournament charges, swimming gala, caddy fees (manpower recruitment & supply). The service tax for the category of manpower recruitment or supply service for the period 16-6-2005 to 31-3-2007 was already discharged by the appellant along with 25% penalty, and the same was ordered to be appropriated by the Commissioner, vide the impugned order. The appeal No. ST/629/2009 is filed by assessee challenging the confirmation of demand of service tax on the above services.
In the impugned order demand of service tax on Rental-Golf operations, Rental sports complex, Cart fee, Golf package Income, Sponsorship charges and Membership Transfer fee to the tune of Rs. 99,99,202/- was dropped by the Commissioner. Being aggrieved the Revenue has filed the Appeal No. ST/664/2009.

Appellant’s contention: At the time of hearing the Ld. Counsel for assessee, Sh. B.L. Narasimhan submitted that the issue whether the services of a club or association to its members is taxable is now settled by judgments of various High Courts and the Tribunal.

Respondent’s Contention& Reasoning of Judgment:This case has been decided on the basis of the judgments of various High Courts and the Tribunal.
In Ranchi Club Ltd. v. CCE, 2012 (26) S.T.R. 401(Jhar.) the Hon’ble High Court observed as under :
“18. However, Learned Counsel for the petitioner submits that sale and service are different. It is true that sale and service are two different and distinct transactions. The sale entails transfer of property whereas in service, there is no transfer of property. However, the basic feature common in both transaction requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. Since the issue whether there are two persons or two legal entity in the activities of the members’ 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.”
The Hon’ble High Court of Gujarat at Ahmedabad in Sports Club of Gujarat Ltd. v. U.O.I. - 2013 (31) S.T.R. 645(Guj.) has held Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance Act, 1994 as incorporated/amended by Finance Act, 2005 to the extent that the said provisions purport to levy service tax in respect of services provided by club to its members to be ultra vires.
The CESTAT in M/s. FICCI v. Commissioner of Service Tax, Delhi - 2014-TIOL-701-CESTAT-DEL = 2015 (38) S.T.R. 529(Tri.-Del.), dated 28-4-2014 had occasion to consider the issue and laid as follows :
“(f) 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 therefor be exigible 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”.
The ratio laid in the above judgments being squarely applicable to the facts of the present case, applying the same we hold that the impugned order is not sustainable. The same is set aside. The assessee has filed Misc. application No. 52103/2015 to receive additional grounds. On perusal it is seen that the additional grounds raised are nothing but submissions made in tune with the judgments relied by assessee. Therefore the Misc. application is allowed. Misc. Application No. 52063/2015 is for extension of stay and in view of the appeal being allow the said application is disposed as infructuous.
In the result, the appeal filed by assessee (ST/629/2009) is allowed. The appeal filed by Revenue (ST/664/2009) is dismissed.

Decision: The appeal was allowed in favor of the appellant.

Comment: The kernel of the case is, the assessee is engaged in providing Mandap Keeper, Health Club & Fitness Centre, BAS, Membership of Clubs, Maintenance or Repair Services, Manpower Recruitment services, Renting of Immovable Property and Sponsorship services. The department alleged that the assessee has provided such services to its members and hence they are liable to pay service tax on the same. The Appellate authority decided the present case on the basis of judgments of various high courts and supreme courts.
In view of the decision in Ranchi Club Limited (supra), is was held that 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 as foundational facts of existence of two legal entities in such transaction is missing. The club and its members are one and same person based on principle of mutuality.
Further, in view of the decision of the Gujarat High Court in Sports Club of Gujarat Limited, the relevant provisions (namely Section 65(25a), Section 65(105)(zzze) and Section 66 of the Act), to the extent these provisions relate to levy service tax in respect of services provided by a “club or association” to its members is declared to be out of scope of service tax.
Consequently, on the basis of the above cited decisions, it can be concluded that services provided by an entity by whatever name called to its members, shall not fall within the ambit of service tax on the grounds of absence of separate legal entities.
Hence the present case was allowed in the favour of the appellant.
Prepared by: Prateeksha Jain

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PJ/Case Law/2018-2019/3485

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