2017 (4) TMI 1227 - AT - Service Tax

Club or association services - appellant received some donation from the members towards the building fund but did not discharge the service tax on such donation amount - case of appellant is that the amount received against building fund has no nexus with any service provided by the appellant as a club towards its members since payment of donation is not compulsory - Held that - Since the donation amount does not present any additional facilities or relating to the membership in the club, the same has no nexus with the taxable service provided by the appellant - the service tax demand on the donation amount cannot be sustained - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether service tax is applicable on donations received by a club or association towards a building fund.

Analysis:
The case involved a dispute regarding the payment of service tax on donations received by a club from its members towards a building fund. The appellant, registered for providing taxable services under the category of "club or association services," had paid service tax on membership/entrance fees but did not discharge service tax on the donation amount received. The Department initiated proceedings against the appellant, culminating in an adjudication order confirming the demand for service tax, along with penalties. The appellant argued that the donations towards the building fund were voluntary and did not relate to any additional facilities or services provided by the club to its members. The Adjudicating Authority had dropped the proceedings, stating that such donations were not connected to providing taxable services and, therefore, not liable for service tax.

The learned Commissioner (Appeals) upheld the demand for service tax, stating that there was a clear nexus between the service receiver and provider, and the entire amount, including donations for the building fund, was chargeable to service tax. However, the appellate tribunal disagreed with this view. It noted that the donations were voluntary and not linked to any services provided by the club to its members. Quoting Section 67(1)(i) which refers to the gross amount charged for services provided, the tribunal held that since the donations were not related to providing taxable services, they could not be considered as part of the taxable value for service tax purposes. Therefore, the service tax demand on the donation amount was deemed unsustainable.

The tribunal also observed that the appellant had already paid service tax on membership/entrance fees collected from members and deposited it with the Government. As the appellant did not contest the case on the merit of paying service tax on membership/entrance fees, the tribunal allowed the appeal to the extent of the demand confirmed on the contribution towards the building fund. The appeal was disposed of accordingly, setting aside the service tax demand on donations towards the building fund.