2017 (9) TMI 1679 - HC - Service Tax

Member's club - club or association or not? - Chapter-V of the Finance Act, 1994 as amended by the Finance Act, 2005 - Held that - The first petitioner is admittedly a members club. The concept of mutuality applies with regard to transactions between a member and the members club. A members club is considered as a one legal entity of the member involved irrespective of the member of members or the legal entity that the members seek to clothe the club with, in so far transactions between the club and its members are concerned. When food or drinks are consumed by a member, this transaction is not considered as a sale by the club to its member as on the anvil of mutuality, a member and the club being the same, a member cannot be said to selling anything to itself for the transaction to qualify as a sale - the first petitioner being a members club, it is not liable to pay the service tax under the Finance Act, 1994 as amended by the Finance Act, 2005. The issue as to whether a members club is liable to pay service tax under Sections 65, 66 and 67 of the Finance Act, was considered by the Jharkhand High Court. In Ranchi Club Limited 2012 (6) TMI 636 - JHARKHAND HIGH COURT it has held that, a members club is not liable to pay the same - there is no reason as to why a view contrary to that of Ranchi Club Ltd. is required to be taken in the facts of the present case. The authorities will not proceed with the show cause notice which is a subject matter of the interim application - petition allowed.

Issues:
1. Whether a members' club is liable to pay service tax under the Finance Act, 1994 as amended by the Finance Act, 2005.
2. Applicability of the concept of mutuality in transactions between a member and a members' club.
3. Interpretation of Sections 65, 66, and 67 of the Finance Act in the context of a members' club.
4. Comparison of judgments by different High Courts regarding the liability of members' clubs to pay service tax.

Analysis:

1. The main issue before the court was whether a members' club is liable to pay service tax under the Finance Act, 1994 as amended by the Finance Act, 2005. The petitioners argued that due to the concept of mutuality, transactions between a member and a members' club do not involve passing consideration, thus not attracting the provisions of Section 67 or Section 66 of the Act. The court considered previous judgments and held that a members' club, being a members' club, is not liable to pay service tax under the Finance Act.

2. The concept of mutuality was a crucial aspect of the judgment. The court emphasized that in transactions between a member and a members' club, the concept of mutuality applies, treating them as one legal entity. Therefore, when a member consumes food or drinks at the club, it is not considered a sale by the club to the member. This principle of mutuality was upheld based on previous judgments and was a significant factor in determining the liability of a members' club to pay service tax.

3. The court delved into the interpretation of Sections 65, 66, and 67 of the Finance Act in the context of a members' club. It was argued that the absence of consideration in transactions between a member and a members' club exempts them from the purview of service tax. The court referred to relevant definitions and provisions of the Act to support the argument that the concept of mutuality precludes the application of service tax to members' clubs.

4. The judgment also compared decisions by different High Courts regarding the liability of members' clubs to pay service tax. References were made to judgments from Jharkhand High Court and Gujarat High Court, which had exempted members' clubs from service tax based on the concept of mutuality. The court noted that the view expressed in these judgments was pending consideration before the Supreme Court but found no reason to deviate from the established principle that members' clubs are not liable to pay service tax.

In conclusion, the court ruled in favor of the petitioners, holding that a members' club is not liable to pay service tax under the Finance Act, 1994. The court directed the authorities to refund the amount deposited by the club for service tax along with statutory interest, emphasizing the application of the concept of mutuality in transactions between members and the club. The show cause notices issued against the petitioners regarding service tax were quashed based on the declaration in the writ petition.

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