2022 (11) TMI 1228 - AT - Service Tax

Enhancement of late fee/penalty levied u/s 70 of FA on the appellant herein from Rs. 16,100/- to Rs.83,100/- - delayed filing of ST-3 Returns for the period from April, 2009 to March, 2011 and October, 2011 to March, 2012 - taxability of clubs or associations services - doctrine of mutuality - HELD THAT - The issue whether the services provided by the Housing Society to its members falls within the taxable net, came up for consideration before this Tribunal in the matter of TAHNEE HEIGHTS CO-OPERATIVE HOUSING SOCIETY LIMITED VERSUS COMMISSIONER OF CGST, MUMBAI SOUTH 2018 (10) TMI 901 - CESTAT MUMBAI and while discussing the principle of mutuality it has been held by the Tribunal that the activities undertaken by the appellant therein should not fall within the scope and ambit of taxable service, for payment of service tax. In the case in hand the penalty u/s. 70 ibid is imposed on the appellant for not filing the ST- 3 return on time. Section 70 ibid provides that every person liable to pay service tax shall himself assess the tax due on the services provided by him and shall furnish to the superintendent of central excise a return in such form and in such manner and at such frequency and with such late fee not exceeding twenty thousand rupees, for delayed furnishing of return, as may be prescribed. Therefore only the persons who are liable to pay service tax, have to file the return on time else they are liable to pay penalty. But as discussed in the preceding paragraphs applying the principle of mutuality, the appellants are not liable to pay service tax at all and once it has been held that they are not liable to pay service tax then section 70 ibid itself has no application. Although the appellants did not file any appeal before the 1st appellate authority against the imposition of penalty of Rs.16,100/- but now since they are in appeal before the Tribunal against the enhancement of the penalty to Rs.83,100/- which also includes the penalty imposed by the adjudicating authority and have challenged the entire amount of penalty therefore I am deciding this appeal for the entire amount of penalty imposed on them. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Penalty enhancement by the Commissioner (Appeals) from Rs. 16,100 to Rs. 83,100.
2. Applicability of service tax on clubs or associations.
3. Principle of mutuality and its impact on service tax liability.
4. Imposition of penalty under Section 70 for delayed filing of ST-3 return.

Analysis:
1. The appeal was filed against the Commissioner (Appeals) order enhancing the penalty on the appellant from Rs. 16,100 to Rs. 83,100 for delayed filing of ST-3 returns. The Adjudicating Authority had initially imposed the penalty of Rs. 16,100 under Section 70 r/w Rule 7C. However, the Commissioner (Appeals) enhanced it, leading to the current appeal.

2. The legal position regarding the liability of clubs or associations for service tax was discussed. It was established that clubs formed on the principle of mutuality are not liable to pay service tax on services provided to members. Various judicial decisions, including those of the Supreme Court, clarified that such entities, acting as agents for members, do not involve separate legal entities for tax purposes.

3. The Tribunal considered the principle of mutuality in determining the service tax liability of the Housing Society towards its members. Referring to previous cases, the Tribunal concluded that activities undertaken by the society, where members are essentially providing services to themselves, do not fall within the taxable net. The legal status of the appellant as a co-operative society under relevant provisions was also analyzed to support this conclusion.

4. The imposition of penalty under Section 70 for delayed filing of ST-3 returns was scrutinized. Despite the late filing, it was argued that since the appellant was not liable to pay service tax due to the principle of mutuality, the penalty provision of Section 70 did not apply. As the appellant was not obligated to pay service tax, the late filing did not warrant penalty imposition.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty imposed on the appellant for delayed filing of ST-3 returns. The decision was based on the principle of mutuality, determining that the appellant was not liable to pay service tax, and therefore, the penalty under Section 70 was unjustified.