2023 (6) TMI 460 - AT - Service Tax

Levy of Service Tax - club and association services - activity undertaken by the appellant in collecting membership fee from its members - whether service tax can be levied on activities undertaken by a club for its members for membership fee? - period involved in the present appeal is post negative list i.e. post 01.07.2012. HELD THAT - With effect from July 1, 2012, service has been defined under section 65B (44) of the Finance Act and service tax is leviable on all services as defined except the negative list of services set out in section 66D of the Finance Act - This amendment was explained by the Supreme Court in Union of India and others Vs. Margadarshi Chit Funds Pvt. Ltd. and others 2017 (7) TMI 224 - SUPREME COURT holding that each individual service on which tax was levied (known as taxable service) was defined. Secondly, the definition of service given now contains a negative list which is contained in Section 66-D of the Act. In other words, it specifically excludes certain transactions from the ambit of service. Thus, those transactions which are specifically excluded are not liable for service tax. Any other kind of service which qualifies the definition of service contained in the Act would be exigible to service tax. The Supreme Court in Calcutta Club Ltd. 2019 (10) TMI 160 - SUPREME COURT examined the definition of club or association as contained in section 65(25a) of the Finance Act from June 16, 2005 up to July 1, 2012 holding that incorporated clubs or associations or prior to 1st July, 2012 were not included in the service tax net. It would be seen from the judgment of the Supreme Court that club or association was earlier defined under section 65(25a) and 65(25aa) to mean any person or body or persons providing service. The expression body of persons cannot be possibly include persons who are incorporated entities, as such entities have been expressly excluded under sections 65(25a)(i) and 65(25aa)(i) as any body established or constituted by or under any law for the time being in force . Body of persons , therefore, would not include a body constituted under any law for the time being in force. Thus, companies and cooperative societies, prior to July 1, 2012, which were registered under respective Acts, would be constituted under those Acts. Incorporated clubs or associations, therefore, prior to July 1, 2012 which were registered under Acts, would be constituted under those Acts. Incorporated clubs or associations, therefore, prior to July 1, 2012 were not included in the service tax net. After July 1, 2012, also the situation does not change for the reason that Explanation 3 uses the same expression. The confirmation of demand by the Commissioner by order dated 09.01.2017 deserves to be set aside and is set aside - Appeal allowed.

Summary

Issues Involved:
1. Levy of service tax on membership fees collected by a club from its members.
2. Interpretation of the term "service" under section 65B(44) of the Finance Act post-2012.
3. Applicability of the Supreme Court's decision in Calcutta Club Limited to the present case.

Summary:

Levy of Service Tax on Membership Fees:
The primary issue in this appeal was whether service tax can be levied on activities undertaken by a club for its members in exchange for membership fees. The Commissioner of Service Tax-Delhi-1 confirmed the demand for service tax based on the provisions of section 65B(44) of the Finance Act, 1994, which came into effect from 01.07.2012.

Interpretation of "Service" Post-2012:
The appellant, a company incorporated under the Companies Act, 1956, argued that its activities were for its members exclusively. The Tribunal examined the legal definitions and amendments related to "club or association" and "taxable service" under the Finance Act. It noted the Supreme Court's explanation in Union of India vs. Margadarshi Chit Funds Pvt. Ltd., highlighting the shift to a negative list system post-2012, where services are taxable unless specifically excluded.

Applicability of Supreme Court's Decision in Calcutta Club Limited:
The Tribunal relied heavily on the Supreme Court's decision in Calcutta Club Limited, which clarified that incorporated clubs or associations were not included in the service tax net prior to July 1, 2012, and that the definition of "service" post-2012 did not change this position. The Supreme Court emphasized that the term "body of persons" does not include incorporated entities, thus excluding such clubs from service tax liability.

Conclusion:
The Tribunal concluded that the Commissioner's reliance on Explanation 3 to section 65(44) of the Finance Act was misplaced, as explained by the Supreme Court in Calcutta Club Limited. Therefore, the confirmation of demand by the Commissioner was set aside, and the appeal was allowed.