2004 (6) TMI 11 - HC - Service Tax

Service Tax - Club in relation to Mandap Keeper - Club members in relation to proprietary club - If the owner of the house allows any of the family members or friends to carry out a marriage or other ceremony at his house, whether such owner is liable to pay service tax to the authority ? - HELD THAT - Law is well-settled by now that in between the principal and agent when there is no transfer of property available question of imposition of service tax cannot be made available. It is true to say that there is a clear distinction between the 'members' club' and 'proprietary club'. No argument has been put forward by the respondents to indicate that the club is a 'proprietary club'. Therefore, if the club space is allowed to be occupied by any member or his family members or by his guest for a function by constructing a 'mandap' the club cannot be called as 'mandap keeper' because the club is allowing his own member to do so who is, by virtue of his position, principal of the club. If any outside agency is called upon to do the needful it may raise a bill along with the service tax upon the club and the club as an agent of the members, is supposed to pay the same. The authority cannot impose service tax twice once upon the people carrying out the business of 'mandap keeper' as well as the members' club for the purpose of using the space for constructing or using it as 'mandap'. Therefore, apart from any other question possibility of double taxation cannot be ruled out. If I explain my first query as above it will be crystal clear that if a person being an owner of the house allows another to occupy the house for the purpose of carrying out any function in that house it will not be construed as transfer of property. But if such person calls upon a third party 'mandap keeper' to construct a 'mandap' in such house then in that case such 'mandap keeper' can be able to raise bill upon the user of the premises along with the service tax. Therefore, I cannot hold it good that members' club is covered by the Finance Act, 1994 for imposition of service tax to use its space as 'mandap'. Whether the ratio of the judgments can be acceptable herein or not I like to say 'yes it is applicable'. Income-tax is applicable if there is an income. Sales tax is applicable if there is a sale. Service tax is applicable if there is a service. All three will be applicable in a case of transaction between two parties. Therefore, principally there should be existence of two sides/entities for having transaction as against consideration. In a members' club there is no question of two sides. 'Members' and 'club' both are same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, I do not find it is prudent to say that members' club is liable to pay service tax in allowing its members to use its space as 'mandap'. Therefore, the entire proceedings as against the club about the applicability of service tax stands quashed. Interim order, if any, stands confirmed. However, no order is passed as to costs. Thus, the writ petition stands disposed of.

Issues Involved:
1. Whether the petitioner club is a "mandap keeper" under Chapter V of the Finance Act, 1994.
2. Whether the petitioner club is liable to pay service tax for using the club premises as a mandap.
3. The distinction between a members' club and a proprietary club in the context of service tax applicability.
4. The principle of double taxation in the context of service tax.
5. The jurisdiction of the Writ Court to intervene in the proceedings initiated against the petitioner club.

Detailed Analysis:

1. Definition of "Mandap Keeper" and Applicability to the Club:
The petitioner club argued that it is not a "mandap keeper" within the meaning of Chapter V of the Finance Act, 1994, as amended by the Finance Act, 1997. The club contended that it operates as a members' club, not a proprietary club, and thus should not be liable for service tax for allowing members to use its premises. The relevant sections of the Finance Act, 1994, define "mandap" and "mandap keeper" and outline the conditions under which service tax is applicable. The court examined these definitions and the club's Memorandum and Articles of Association, which state that the club's profits are solely for the benefit of the club and not distributed to members.

2. Liability to Pay Service Tax:
The petitioner club's counsel argued that the use of the club premises by members does not constitute a service different from the usual services provided to members, and therefore, should not attract service tax. The court referred to various judgments, including those by the Supreme Court, which established that supplies made by a club to its members do not amount to business activities and are not subject to tax if confined to members only. The court noted that the club acts as an agent for its members, who are the principals, and there is no transfer of property involved.

3. Distinction Between Members' Club and Proprietary Club:
The court distinguished between members' clubs and proprietary clubs, emphasizing that in a members' club, the members are joint owners of the club's property, and the club acts as an agent for its members. The court cited judgments that supported this distinction, noting that facilities provided by a members' club to its members are not considered business activities and are not subject to tax.

4. Principle of Double Taxation:
The court addressed the issue of double taxation, stating that if a club is required to pay service tax for allowing members to use its premises as a mandap, it would result in double taxation. The court explained that if an outside mandap keeper provides services on the club's premises, the mandap keeper would raise a bill, including service tax, which the club would pay as an agent of the members. Imposing service tax on the club itself for allowing members to use the premises would constitute double taxation.

5. Jurisdiction of the Writ Court:
The court considered whether it had the jurisdiction to intervene in the proceedings initiated against the petitioner club. The court noted that the power to issue prerogative writs under Article 226 of the Constitution is plenary and not limited by other constitutional provisions. The court emphasized that it has the duty to intervene in cases involving the enforcement of fundamental rights, violation of natural justice principles, or actions without jurisdiction. The court concluded that the writ petition was rightly entertained to avoid perpetuating illegality and to provide an immediate remedy.

Conclusion:
The court held that the petitioner club is not a "mandap keeper" under the Finance Act, 1994, and is not liable to pay service tax for allowing members to use its premises as a mandap. The court quashed the proceedings against the club regarding the applicability of service tax and confirmed the interim order. The writ petition was disposed of without any order as to costs.

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