2023 (1) TMI 295 - HC - VAT and Sales Tax

Doctrine of mutuality - club and association service - whether after the 46th Constitutional Amendment made in the Constitution which came into effect from 02.02.1983, the services in form of foods and drinks provided to the members of the club would be included under the term 'sale' and liable to be taxed? - HELD THAT - Section 2(h) (v) of U.P. Trade Tax Act, 1948 provides that in case of supply of goods by any unincorporated association or body of persons to members shall be considered as 'sale'. Further Section 2(h)(vi) provides that any services in whatsoever manner such as foods and drinks provided for human consumption shall also be encompassed under the term 'sale'. The earlier Constitution Bench decision in THE JOINT COMMERCIAL TAX OFFICER, HARBOUR DIVISION II, MADRAS VERSUS YOUNG MEN S INDIAN ASSOCIATION, MADRAS AND OTHERS 1970 (2) TMI 87 - SUPREME COURT had held that where supply of various preparations by clubs to members is involved, it shall not be sale, as there is no transfer of property from one to another. If the club even though a distinct legal entity is only acting as agent for its members in the matter of supply of various pre- parations to them and no sale would be involved as the element of transfer would be completely absent. The Apex Court further, while answering the question posed by the Division Bench, in STATE OF WEST BENGAL ORS. VERSUS CALCUTTA CLUB LIMITED AND CHIEF COMMISSIONER OF CENTRAL EXCISE AND SERVICE ORS. VERSUS M/S. RANCHI CLUB LTD. 2019 (10) TMI 160 - SUPREME COURT has held that the judgment rendered by the earlier Constitution Bench in the matter of Young Men's Indian Association continues to hold the field even after 46th amendment. According to Apex Court Sub-clause (f) of Article 366 (29-A) has no application in member's club. As the matter is no more res integra and the Apex Court has clarified that Sub-clause (f) of Article 366 (29-A) does not apply to the member's club and it is not disputed that the revisionist is a club incorporated and is serving foods and drinks to its members, it is not covered under the definition of Section 2 (h) of the Act of 1948, as held by the Tribunal - Revision allowed.

Summary

Issues:
- Interpretation of the term 'sale' under U.P. Trade Tax Act and UP VAT Act
- Applicability of doctrine of mutuality to clubs providing services to members
- Impact of 46th Constitutional Amendment on taxation of services provided by clubs

Analysis:
The judgment by the High Court of Allahabad dealt with a revision under the U.P. Trade Tax Act challenging an order by the Commercial Tax Tribunal regarding the taxation of services provided by a defense services club to its members. The Tribunal had held that supplying foods and drinks to club members constituted a 'sale' under Section 2(h)(v) and (vi) of the Act, thus upholding the tax liability. The revisionist contended that the doctrine of mutuality, as affirmed in previous judgments, exempted the club from taxation. The State argued that the constitutional amendment and relevant definitions supported the Tribunal's decision.

The key issue revolved around the interpretation of the term 'sale' post the 46th Constitutional Amendment. The Court analyzed the provisions of Section 2(h)(v) and (vi) of the Act, which encompassed supply of goods and services, including foods and drinks, to members as 'sale'. Reference was made to the Young Men's Indian Association case and the recent Calcutta Club Limited judgment, emphasizing the doctrine of mutuality. The Apex Court clarified that even after the constitutional amendment, the doctrine of mutuality applied to clubs, and Sub-clause (f) of Article 366(29-A) did not apply to member's clubs.

In light of the Apex Court's rulings, the High Court concluded that the revisionist club, being incorporated and serving members on a no-profit basis, fell outside the definition of 'sale' under the Act. Therefore, the Tribunal's order taxing the club's services was deemed unsustainable and set aside. The revision was allowed, affirming the club's exemption from taxation based on the doctrine of mutuality and the interpretation of relevant legal provisions.

In summary, the judgment clarified the application of the doctrine of mutuality to clubs providing services to members, post the 46th Constitutional Amendment. It underscored the exclusion of member's clubs from taxation on services like foods and drinks, aligning with established legal principles and recent Apex Court decisions.