2013 (7) TMI 510 - HC - Service Tax

Club Membership - Constitutionality of section 65(105) - laiblity for service tax - Whether services provided by the assessee club to its members would be liable to service tax - the club is rendering service or selling any commodity to its members for a consideration then whether the amounts to sale or not Held that - Section 65(25a), Section 65(105) (zzze) and Section 66 as incorporated / amended to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires decided in favour of assessee. Decision in Joint Commercial Tax Officer Vs. The Young Mens Indian Association (1970 (2) TMI 87 - SUPREME COURT OF INDIA) and Decision of Full bench in case of Commissioner of Income Tax Vs. Ranchi Club Limited 2012 (6) TMI 636 - Jharkhand High Court followed.

Summary

Issues Involved:
Challenge to the levy of service tax on services provided by a club to its members under specific sections of the Finance Act, 1994 as amended by the Finance Act, 2005 based on the principle of mutuality.

Analysis:
1. Prayer for Writ of Mandamus: The petitioners, three different clubs in Ahmedabad, challenged the imposition of service tax on services provided to their members under certain sections of the Finance Act, 1994. The prayer sought a writ declaring the provisions ultra vires, beyond legislative competence, unconstitutional, illegal, and void. Additionally, a mandamus was requested to prevent the enforcement of these provisions.

2. Argument of Learned Senior Advocates: The Senior Advocates for the petitioners argued that the issue of mutuality was central to the case, citing a judgment from the Division Bench of Jharkhand High Court. They highlighted the principle that transactions between a club and its members based on mutuality do not constitute a sale or service for tax purposes. The advocates emphasized the importance of the mutuality principle in determining the taxability of services provided by the clubs to their members.

3. Decision on Mutuality Principle: The Division Bench of the Jharkhand High Court held that the existence of two legal entities is essential for a transaction to be considered a sale or service. In the context of clubs providing services to members, the mutuality principle prevails, and such transactions do not involve service provision to another legal entity. However, services provided by the clubs to non-members were considered taxable.

4. Opposition by Authorities: The authorities representing the Union of India and the Service Tax Cell opposed the petitions, stating that the Department had challenged the Jharkhand High Court judgment. They argued against the application of the mutuality principle, claiming that the clubs, being legal entities, were not eligible for exemption based on mutuality.

5. Court's Decision: The High Court allowed the petitions, declaring the relevant sections of the Finance Act, 1994, as amended by the Finance Act, 2005, ultra vires to the extent they levied service tax on services provided by the clubs to their members. The Court upheld the mutuality principle, emphasizing that transactions based on mutuality do not involve service provision to another legal entity. The judgment was stayed for six weeks to allow the Department to pursue further action.

This detailed analysis of the judgment provides insights into the legal arguments presented, the application of the mutuality principle, the opposition by the authorities, and the final decision of the High Court in declaring the relevant provisions of the Finance Act, 1994, as ultra vires concerning the levy of service tax on services provided by clubs to their members.