2014 (5) TMI 183 - AT - Service Tax

Club or Association service - principal of mutuality - services being provided by M/s Electronic and Computer Software Export Promotion Council (ECSEPC) and Federation of India Chambers of Commerce and Commerce and Industry (FICCI) - Held that - FICCI and ECSEPC are engaged in activities having objectives which amount to public service and are of a charitable nature; the appellant ECSEPC is also a body falling within the exclusionary clause (i) of Section 65(25a) of the Act Services provided by appellants to their respective members and consideration received therefor is not exigible to tax in view of the principle of mutuality - The services provided by the appellants is not authorised for levy and collection of service tax under Club or Association service, in view of declaration of unconstitutionality of the relevant and applicable provisions, by the judgment of the Gujarat High Court in Sports Club of Gujarat Limited vs. Union of India 2013 (7) TMI 510 - GUJARAT HIGH COURT Services provided by the appellants to non members and the consideration received for rendition of such service, fall outside the scope of the definition of Club or Association service and the taxable service defined in Section 65(25a) read with Section 65(105)(zzze) of the Act, prior to 01.05.2011 Services provided by the appellant FICCI to non members subsequent to 01.05.2011, though presumably may fall within the expanded scope of the taxable Club or Association service, (by virtue of the amendments by the Finance Act, 2011), the proportionate service tax and interest for these services provided subsequent to the amendments w.e.f. 01.05.2011 (not identified in the impugned order), cannot be sustained since the show cause notice dated 28.12.2012, issued to FICCI covering part of the post amendatory period omits to allege FICCI s liability to tax on the basis of the amended provisions and thus there is denial of due process Invocation of the extended period of limitation for initiation of proceedings against both the appellants, to the extent the extended period is invoked and the confirmation of penalties, is unjustified and unsustainable - Decided in favor of assessee.

Issues Involved:

1. Whether the appellants (FICCI/ECSEPC) fall outside the ambit of "Club or Association" as defined in Section 65(25a) or 65(25aa).
2. Whether services provided by appellants to their respective members and the fees/subscriptions received therefor are exigible to tax, in view of the principle of mutuality.
3. Whether service tax is leviable under the taxable category "Club or Association" service, despite invalidation of the relevant provisions by the judgments in Ranchi Club Ltd. and Sports Club of Gujarat Ltd.
4. Whether services provided by FICCI and ECSEPC to non-members and consideration received for rendition of such services are liable to be classified/computed as "Club or Association" service.
5. Whether levy and demand of service tax on FICCI for the period subsequent to 1-5-2011 is sustainable.
6. Whether ECSEPC is a body constituted by or under any law and therefore falls outside the purview of the definition of "Club or Association," in view of clause (i) of Section 65(25a) of the Act.
7. Whether invocation of the extended period of limitation and imposition of penalties is justified in the facts and circumstances.

Detailed Analysis:

Issue (a): Whether the appellants (FICCI/ECSEPC) fall outside the ambit of "Club or Association" as defined in Section 65(25a) or 65(25aa).

The Tribunal analyzed the definitions and the objectives of FICCI and ECSEPC, concluding that both entities are engaged in activities having objectives which are in the nature of public service and are of a charitable nature. The Tribunal referred to various legal precedents, including the Supreme Court ruling in CIT, New Delhi v. Federation of Indian Chambers of Commerce and Industries, which declared FICCI as a charitable organization. The Tribunal criticized the adjudicating authority for relying on a vague Board Circular instead of Supreme Court judgments. Consequently, it was held that FICCI and ECSEPC fall outside the ambit of "Club or Association" as defined under the Act.

Issue (b) & (c): Whether services provided by appellants to their respective members and the fees/subscriptions received therefor are exigible to tax, in view of the principle of mutuality and whether service tax is leviable under "Club or Association" service category, despite invalidation of the relevant provisions by the judgments in Ranchi Club Ltd. and Sports Club of Gujarat Ltd.

The Tribunal referred to the principle of mutuality, as established in the Ranchi Club Ltd. case, and the Gujarat High Court's decision in Sports Club of Gujarat Ltd., which declared the relevant provisions unconstitutional. It concluded that services provided by the appellants to their members do not fall within the ambit of the taxable "Club or Association" service, and the consideration received is not exigible to service tax. The Tribunal emphasized that, in the absence of a contrary decision by any other High Court, the law declared by the Gujarat High Court must be followed.

Issue (d) & (e): Whether services provided by FICCI and ECSEPC to non-members and consideration received for rendition of such services are liable to be classified/computed under "Club or Association" service; and whether levy and demand of service tax on FICCI for the period subsequent to 1-5-2011 is sustainable.

The Tribunal noted that the show cause notices did not specifically allege liability to service tax on services provided to non-members under the amended provisions introduced by the Finance Act, 2011. The Tribunal held that services provided to non-members fall outside the ambit of "Club or Association" service prior to 1-5-2011. For the period subsequent to 1-5-2011, the Tribunal found that the show cause notice failed to provide due process by not alleging liability under the amended provisions, thus denying FICCI the opportunity to respond.

Issue (f): Whether ECSEPC is a body constituted by or under any law and therefore falls outside the purview of the definition of "Club or Association," in view of clause (i) of Section 65(25a) of the Act.

The Tribunal concluded that ECSEPC, being an Export Promotion Council constituted under the Foreign Trade Policy and subject to uniform bye-laws framed by the Central Government, is a body "established" or "constituted" under a law for the time being in force. Therefore, it falls within the exclusionary clause of the definition of "Club or Association."

Issue (g): Whether invocation of the extended period of limitation and imposition of penalties is justified in the facts and circumstances.

The Tribunal found that there was a bona fide dispute regarding the appellants' liability to service tax, evidenced by the extensive correspondence and legal opinions obtained by FICCI. The Tribunal concluded that the invocation of the extended period of limitation and the imposition of penalties were unjustified and arbitrary, invoking the discretion under Section 80 of the Act to eschew penalties.

Conclusion:

The appeals were allowed, with the Tribunal holding that:

1. The appellants are engaged in activities having objectives which amount to public service and are of a charitable nature.
2. Services provided to members are not exigible to tax in view of the principle of mutuality.
3. The services provided are not authorized for levy and collection of service tax under "Club or Association" service, in view of the declaration of unconstitutionality by the Gujarat High Court.
4. Services provided to non-members fall outside the scope of the taxable service prior to 1-5-2011, and subsequent to this date, there was no specific allegation of liability under the amended provisions.
5. Invocation of the extended period of limitation and imposition of penalties were unjustified and unsustainable.

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