2016 (3) TMI 900 - AT - Service Tax

Demand of Service tax along with interest on the unpaid portion - Rendering of business support services and club or association service - Appellant is in receipt of various amounts from its members and other persons for use of sporting, recreational and infrastructural facilities of the club in addition to entrance fees and periodical subscription for the period from April 2005 to September 2009 and sought to be taxed as club or association service as per section 65(105) (zzze) of Finance Act, 1994- Held that - in view of the various decisions of Hon ble Supreme Court, Hon ble High Court and Tribunal, the demand of tax on receipts from members cannot sustain. Tax under Finance Act, 1994 is not on the entity or on amounts receipts by the entity - it is on specified taxable services and hence taxability can arise only to the extent that each transaction between the member and the club can meet the test of conformity with section 65(105)(zzze) ibid. Therefore, without ascertainment of the receipts as quid pro quo for an identified service, demand of tax on amount transferred from an individual to an entity merely because the individual happens to be a member, on the one hand, and the recipient happens to be club/association on the other, does not meet the test of having rendered taxable service. Also, interest, if any, on delayed payment shall be determined and paid. Penalty under Section 78 ibid is also modified to the amount of tax that is confirmed and penalty under Section 77 ibid is upheld. - Matter disposed of

Issues:
Tax liability on various services provided by a club, including 'business support services,' 'club or association service,' and 'renting of immovable property service.'

Analysis:

1. The club appealed against an order confirming a tax demand of Rs. 60,81,315 for providing 'business support services' and 'club or association service,' along with penalties under the Finance Act, 1994.

2. The club received amounts for facilities, entrance fees, and subscriptions, sought to be taxed under 'club or association service' and 'support services of business or commerce.' Additionally, amounts from catering contracts and staff accommodations were also under tax scrutiny.

3. The original authority found discrepancies in taxing the club, lacking clarity and certainty in tax demands, failing to quantify tax liabilities under each service head properly.

4. The tribunal noted the misapplication in taxing the club, emphasizing the need for a clear examination of transactions under section 65 of the Finance Act, 1994, and criticized the lack of clarity in the impugned order.

5. The club registered under 'club or association service' and paid tax under that head, but the authority found multiple services involved, yet failed to determine tax liabilities distinctly for each service, leading to confusion.

6. The tribunal acknowledged the tax paid by the club on receipts from catering contracts, rejecting claims of non-taxability and emphasizing the correct discharge of tax obligations, despite technical flaws.

7. Tax demands on staff accommodation recoveries were deemed unjust as they fell outside the taxable service of 'renting of immovable property,' leading to the dismissal of this demand.

8. Legal precedents were cited to dispute tax liability on receipts from members, with the tribunal ultimately ruling against taxing these receipts based on the decisions of the Hon'ble High Court of Gujarat.

9. The tribunal clarified that tax under the Finance Act, 1994, is on specified taxable services, not on entities or amounts received, emphasizing the need for transactions to conform to the relevant sections for taxability.

10. Membership fees were analyzed, concluding that they do not necessarily represent consideration for services rendered by the club, as they contribute to the club's corpus rather than payment for specific services.

11. Periodical subscriptions were deemed non-taxable as they primarily fund the club's operational expenses, not as consideration for services, especially when members pay separately for facility usage.

12. Demand for tax on amounts transferred from members to the club was rejected as it did not meet the criteria of being a quid pro quo for an identified service, leading to the set-aside of tax demands on such receipts.

13. The impugned order was set aside for taxing receipts from members and staff recoveries, confirming the discharge of tax on catering contracts. Penalties were modified and upheld accordingly.

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