2004 (6) TMI 10 - HC - Service Tax

Applicability of the Finance Act, 1994 as amended by Finance Act, 1997 to the petitioner club - Estoppel against the petitioner for challenging the registration and returns - Application of the principle of mutuality in the context of service tax - HELD THAT - Undeniably and undisputedly the petitioner club has been formed by a number of individuals and for the purpose of attaching apparently independent legal entity this body individuals have got this club registered under the West Bengal Societies Registration Act, 1961. Under the said Act this club cannot have any juristic entity rather the office-bearer of the same as provided u/s 19 of the said Act. Therefore all the members jointly own all the immovable properties as per definition of the mandap. In the bye-laws, rules and regulations of the Club I do not find there is any provision that the properties and the facilities those are being made available by the members for themselves, are extended to the third parties for any consideration whatsoever. The members of the club are allowed exclusively to participate in the services rendered by the club and the club fund, no third party is allowed to participate in the same. Even the facilities and amenities of the club are not extended to any third party who, of course, may come as a guest and/or invitee of the members. Therefore, it is clear from the activities of the club as stipulated in the bye-laws, rules and regulation, the mandap keeper in this case is the members collectively in the name of petitioner No. 1 and the mandap belonged to them in the name of the petitioner No. 1 again. In my view service taxes is recoverable from the mandap keeper who is having different and separate legal and physical entity and, let out mandap with commercial and trading object. Here the members have formed the petitioner No. 1 to serve themselves mutually and for this purpose members are paying for such user and any amount of receipt and expenditure of the club is enjoyed and/or participated and/or incurred by the members alone, not by third party. The Supreme Court in the case of the Joint Commercial Tax Officer, Harbour Division v. Young Men s Indian Association Madras and Ors. 1970 (2) TMI 87 - SUPREME COURT . while dealing with the problem of levy of sales tax in connection with a club after considering the various decisions of the Courts of this country as well as the English decisions. The principle of mutuality in this case is also squarely applicable, as going by the definitions of mandap, mandap keeper and the taxable service, in this case the facility of use of the premises to the members by its club cannot be termed to be a letting out nor the members of the club using the facility of any portion of the premises for any function can be termed to be a client. The services rendered by any person to his client presupposes the element of commerciality and obviously this transaction must be involved with the third parties, as opposed to the members of the club. Thus, I allow the writ petition consequently I set aside and quash the notices and the registration certificate.

Summary

Issues Involved:
1. Applicability of the Finance Act, 1994 as amended by the Finance Act, 1997 to the petitioner club.
2. Whether the petitioner club is estopped from challenging the action of the respondent after obtaining registration and filing returns.
3. Application of the principle of mutuality to the petitioner club in the context of service tax.

Summary:

1. Applicability of the Finance Act, 1994 as amended by the Finance Act, 1997 to the petitioner club:
The petitioner club, formed under the West Bengal Societies Registration Act, 1961, sought a declaration that the Finance Act, 1994 as amended by the Finance Act, 1997 does not apply to it. The club argued that it is a non-profit entity providing amenities exclusively to its members and their guests, with no provision for outsiders to participate in its functions. The club's income is derived solely from its members, and any surplus is reserved for their benefit, maintaining the element of mutuality. The club contended that it should not be classified as a 'mandap keeper' providing taxable services u/s 65(4)(i) of the Act.

2. Whether the petitioner club is estopped from challenging the action of the respondent after obtaining registration and filing returns:
The respondents argued that the petitioner is estopped from challenging the applicability of the Act after having obtained a Registration Certificate and submitted returns. However, the court held that estoppel cannot apply against the provision of law. If the statute is found inapplicable, actions taken by mistake cannot operate as estoppel. Thus, this preliminary issue was decided against the respondent.

3. Application of the principle of mutuality to the petitioner club in the context of service tax:
The court examined whether the petitioner club falls within the definitions of 'mandap', 'mandap keeper', and 'taxable service' as per the Act. The court noted that the club's facilities are exclusively for its members, and any use by guests is incidental and not for commercial purposes. The principle of mutuality, as established in income-tax and sales tax cases, was deemed applicable. The court referenced several Supreme Court and High Court decisions supporting the principle of mutuality, concluding that the club's activities do not constitute a commercial transaction subject to service tax.

Conclusion:
The court allowed the writ petition, setting aside and quashing the notices and the registration certificate. The principle of mutuality was upheld, and the club was found not liable for service tax as a 'mandap keeper'. No order as to costs was made.