2013 (8) TMI 529 - AT - Service Tax

Club or Association Services - holiday and leisure service - collection of room rental from non-members - Interest of installment sales interest on instalment sales was merely interest on delayed payment of membership fees and same cannot be equated with interest on loan as referred in Section 67, Service Tax (Determination of Value) Rules, 2006 and Board circular - Held that - It was reasonable to pay tax on interest on installment sales - Notification No.4/2006-ST payment of tax on amount of ninety percent of interest was exempted on financial leasing including equipment leasing and hire purchase - service tax was payable on the income earned by the assessee by way of interest/finance charges in relation to the taxable service - obligation to pay membership fees alongwith service tax would be at the time of entry. Income from securitization Held that - Income from securitization was an independent transaction between the bank and the applicant company - income from securitization was the excess of consideration received over and above the principal amount of receivables from the members. Room rental - Held that - It was possible that the members also paid room rentals for overstaying and booking for their guests - the assesse had not placed the details of room rentals - there was a factual dispute on this issue. Waiver of pre deposit Held that - Assesse failed to make out a prima facie case for waiver of pre-deposit of entire amount of tax on the major issues namely, interest on sales and room rental the figures taken from balance sheet on accrual basis whereas service tax had to be paid on receipt basis two crores were ordered to be submitted on such submission rest of the pre deposit of tax penalty and interest to be waived and stay application allowed stay granted partly.

Summary

Issues:
- Taxability of various amounts collected by the applicants in relation to their services provided under the category of "Club or Association Services."
- Contention on demand of tax on Room Rentals, Interest on Instalment Sales, Income from Securitisation, Exchange fee, and Telephone and Fax charges.
- Interpretation of relevant legal provisions and circulars in determining the tax liability on different components of the services provided.
- Dispute on whether certain amounts collected are directly related to the taxable service provided to the members.
- Assessment of evidence presented by the applicants in support of their contentions.
- Decision on waiver of pre-deposit of tax amount based on the prima facie case made by the applicants.

Analysis:
The judgment by the Appellate Tribunal CESTAT Chennai involved the taxability of various amounts collected by the applicants under the category of "Club or Association Services" provided by them, including room rentals, interest on instalment sales, income from securitisation, exchange fee, and telephone and fax charges. The applicants contested the demand of tax on these amounts, presenting arguments on the merit of taxation and limitation. The Tribunal analyzed each issue separately.

Regarding the demand of tax on interest on instalment sales, the Tribunal found merit in the contention that interest on delayed payment of membership fees is distinct from "interest on loan" as per relevant rules and circulars. It established that the interest charged was related to delayed payment of membership fees and should be subject to service tax. The Tribunal differentiated between interest on loans and interest on delayed payments, concluding that service tax is applicable on income earned through interest/finance charges related to the taxable service.

On the issue of income from securitisation, the Tribunal observed that the income arising from securitisation represented an independent transaction between the bank and the applicant company. While the scope of taxable service was broad, the income must have a direct or proximate relation to the service provided. The Tribunal noted a factual dispute on room rentals as the applicants failed to provide evidence supporting their claim that room rentals were collected only from non-members.

In the final decision, the Tribunal directed the applicants to predeposit a specified amount within a given timeframe, with the waiver of the balance amount of tax, penalty, and interest contingent on this predeposit. The Tribunal highlighted that the prima facie case for waiver of pre-deposit was not established on major issues like interest on sales and room rentals, indicating that further examination of other issues, including limitation, would be conducted during the appeal hearing. The judgment emphasized the importance of compliance and reporting within the specified timeline.