2015 (9) TMI 1389 - AT - Service Tax

Refund claim - Unjust enrichment - cum-tax computation - deposit of tax which was not leviable - Service tax was paid as Clubs or associations service on amounts collected as entrance fee for admission of new members - Held that - Mere capacity to deliver a service cannot be equated with providing or agreeing to provide a service; such service has to reach the recipient in exchange for the consideration or the consideration is made over in exchange for a schedule of delivery of the service. In a combined human activity, contribution of, or agreement to contribute, funds cannot, therefore, be construed as consideration to be taxed under Finance Act, 1994 unless attributable to an activity or performance or promise thereof on the part of an identified provider to an identified recipient. Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transactions will not arise. Contributions for the discharge of liabilities or for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit so derived. Tax was paid on the entrance fee without collecting the tax amount from the new members. Though the first appellate authority has granted the benefit of a cum-tax computation of the entrance fee, it must be borne in mind that the tax liability was discharged before the re-computation allowed in the impugned order. It, therefore, does not alter the origin of the funds utilized for discharge of tax liability - viz. from the common funds of the appellant without recourse to the members who paid nothing more than the entrance fee. Moreover, entrance fees are fixed in the bye-laws without reference to tax leviable, if any, thereon. For both these reasons, it can be concluded that tax burden has not been transferred to the members from whom entrance fees were collected. Clearly, the service tax so paid does not carry the taint of unjust enrichment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Liability of service tax on entrance fees collected by a members' club.
2. Principle of mutuality and its applicability to service tax.
3. Refund claim and unjust enrichment.

Detailed Analysis:

1. Liability of Service Tax on Entrance Fees Collected by a Members' Club:
The appellant, a members' club, contested the levy of service tax on entrance fees collected from new members during a specified period. The appellant argued that the entrance fees were not liable to service tax as they were not a consideration for any service rendered. The Tribunal noted that entrance fees are a one-time payment for inclusion into the membership and do not confer access to services, facilities, or advantages. The Tribunal concluded that entrance fees do not fall under the definition of "taxable service" as per section 65(105)(zzze) of the Finance Act, 1994, and thus, are not subject to service tax.

2. Principle of Mutuality and its Applicability to Service Tax:
The appellant relied on the principle of mutuality, which posits that transactions between a club and its members are not taxable as the club and its members are indistinguishable. The Tribunal acknowledged the principle of mutuality as applied in various judicial pronouncements, including those by the Hon'ble Supreme Court. The Tribunal also referred to recent decisions by the Hon'ble High Courts of Jharkhand and Gujarat, which held that transactions between members' clubs and their members are not taxable. The Tribunal emphasized that the principle of mutuality applies squarely to the appellant, and the legislative intent was not to tax the entirety of payments received by a club from its members.

3. Refund Claim and Unjust Enrichment:
The appellant sought a refund of the service tax paid under protest, arguing that the tax was not leviable. The Tribunal observed that the tax was paid from the common funds of the club without collecting the tax amount from the new members. The Tribunal concluded that the tax burden was not transferred to the members, and thus, the service tax paid does not carry the taint of unjust enrichment. Consequently, the appellant is eligible for a refund of the tax collected without authority of law.

Conclusion:
The Tribunal allowed the appeal, holding that the entrance fees collected by the appellant are not subject to service tax. The principle of mutuality precludes the taxability of transactions between the club and its members. The appellant is entitled to a refund of the service tax paid, as the tax burden was not passed on to the members, thereby negating any unjust enrichment. The appeal was allowed with consequential relief.