2020 (2) TMI 119 - HC - Service Tax

Interpretation of statute - members' clubs - Club or Association service - body of persons - HELD THAT - The expression body of persons occurring in the explanation to Section 65 and occurring in Section 65(25a) and (25aa) does not refer to an incorporated company or an incorporated cooperative society. As the same expression has been used in Explanation 3 post-2012 (as opposed to the wide definition of person contained in Section 65B(37)), it may be assumed that the legislature has continued with the pre-2012 scheme of not taxing members' clubs when they are in the incorporated form. The expression body of persons may subsume within it persons who come together for a common purpose, but cannot possibly include a company or a registered cooperative society. Thus, Explanation 3(a) to Section 65B(44) does not apply to members' clubs which are incorporated. From 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members' clubs in the incorporated form. Petition allowed - decided in favor of petitioner.

Summary

Issues:
Interpretation of the Finance Act regarding the inclusion of clubs or associations providing services for a subscription under service tax net pre and post 1st July, 2012.

Analysis:
The judgment delves into the interpretation of the Finance Act concerning the taxation of clubs or associations providing services for a subscription under the service tax net. The Hon'ble Supreme Court's decision in State of West Bengal and Others Vs. Calcutta Club Limited is cited to establish the legislative competence of Parliament to levy service tax under Entry 97 List I of the Constitution of India. The judgment scrutinizes the definition of "club or association" under Section 65(25a) and emphasizes the distinction between entities "established or constituted" by law, concluding that incorporated clubs or associations pre-2012 were not subject to service tax.

The post-1st July, 2012 scenario is then examined, focusing on the wide definition of "service" under Section 65B(44) and the inclusion of unincorporated associations or body of persons under Explanation 3. The judgment analyzes the legislative intent behind the amendments and concludes that the expression "body of persons" does not encompass incorporated entities like companies or cooperative societies. It highlights the significance of Explanation 3(a) to Section 65B(44) and its exclusion of incorporated members' clubs from the service tax ambit.

Further referencing precedents and legal interpretations, the judgment aligns with the views of the Jharkhand High Court and the Gujarat High Court, affirming that the Finance Act of 1994 does not intend to levy service tax on incorporated members' clubs from 2005 onwards. Consequently, the appeals of the Revenue are dismissed, and the Writ Petition (Civil) No. 321 of 2017 is allowed, declaring actions to levy service tax on incorporated members' clubs as void and ineffective in law. The judgment provides a detailed analysis of the legislative framework, judicial interpretations, and the application of tax laws to determine the taxability of clubs or associations providing services under the service tax regime.