2024 (11) TMI 1137 - AT - Service Tax

Services provided by cooperative housing society to its members - Demanding service tax under the category of construction of residential complex service for the period 2011 (October, 2010 to March, 2011) to 2013-2014 along with proposal for interest and penalty - Scope of doctrine of mutuality between the association and its members - as argued since between the society and members no different person are involved, therefore, even though the construction of residential complex has been carried out but the same do not fall under the definition of taxable service of construction of complex. Therefore, the activity between the society and its members is correctly classified under Club or Association Service. HELD THAT - We find that in the facts of the present case the period involved is 01.10.2010 to 31.03.2014, therefore, both the periods i.e. prior to negative list regime and post negative list regime is involved. We find that the appellant vehemently argued that the relationship between the appellant and its members to whom the residential flats have been allotted are of association and its members. Therefore, there is no service as the service provider and service recipient are not existing. As per the facts of the present case we find that there is no dispute that the appellant is a co-operative housing society constituted by its members for the objective of construction of residential complex exclusively for the members of the society. Therefore, it is not a case that of the independent builder has constructed the residential complex and sold to the unrelated buyers. Since, the concept of doctrine of mutuality is involved in the present case between the appellant and its members, it cannot be said that the society has provided any service to its members. Between the association and its members in such service no service provider and service recipient are involved. In this arrangement of society and its members, we are of the view that at most the activities are covered under club or association service. The principal of doctrine of mutuality has been considered in various judgments and finally the larger bench of State of West Bengal vs. Calcutta Club 2019 (10) TMI 160 - SUPREME COURT it was decided that there is a doctrine of mutuality between the association and its members, therefore, no service exist. Accordingly, the same is not taxable. The Hon ble Apex Court has considered both the period i.e. prior to 01.07.2012 and thereafter and held that even in both the period , the amount received by the association from its members shall not be liable to service tax. Thus, we are of the view that in a case the appellant being a society consisting of members provided the residential complex to its members does not amount to service in the light of settled legal position in Calcutta Club (Supra). Therefore, the demand is not sustainable. Whether demand is time barred? - In this regard we find that the demand is for the period October, 2010 to March, 2014 and the show cause notice was issued on 21.04.2016 i.e. beyond the normal period. We find that this issue being very contentious and decided by various high courts and finally the issue came to be settled in the case of Calcutta Club Ltd by the Hon ble Apex Court. Therefore, the issue being involved interpretation of law, no malafide can be attributed to the appellant. Therefore, there is no suppression of fact or wilful mis-statement. Accordingly, the demand is not sustainable on the ground of time bar also.

Issues Involved:

1. Classification of services provided by the appellant as "Construction of Residential Complex Service" versus "Club or Association Service."
2. Applicability of the doctrine of mutuality to the services provided by the appellant.
3. Validity of the extended period for the demand of service tax.
4. Appropriateness of penalties and interest imposed on the appellant.

Issue-wise Detailed Analysis:

1. Classification of Services:
The appellant argued that their activities should be classified under "Club or Association Service" rather than "Construction of Residential Complex Service." The appellant, a cooperative housing society, was constituted by its members to construct residential units exclusively for its members. The appellant contended that since the services were provided to its own members, it did not constitute a service as per the definition under the Finance Act, 1994. The Tribunal agreed with the appellant, citing that the relationship between the society and its members does not involve a separate service provider and recipient, thereby aligning with the concept of mutuality. The Tribunal referenced several judgments, including the Supreme Court's decision in Calcutta Club Ltd., which supported the classification under "Club or Association Service."

2. Doctrine of Mutuality:
The doctrine of mutuality was central to the appellant's defense, asserting that no service tax was applicable due to the mutual relationship between the society and its members. The Tribunal upheld this argument, referencing the Supreme Court's ruling in Calcutta Club Ltd., which stated that services rendered by a club to its members are not taxable as they do not constitute a service provided by one person to another. The Tribunal concluded that the appellant's activities fell within the ambit of mutuality and thus were not subject to service tax.

3. Extended Period for Demand:
The appellant challenged the use of the extended period for the demand of service tax, arguing that there was no suppression or willful misstatement on their part. The Tribunal found merit in this argument, noting that the issue involved a complex interpretation of law, which had been settled only recently by higher judicial authorities. Consequently, the Tribunal held that the demand was not sustainable on the grounds of time-bar, as the extended period was unjustified.

4. Penalties and Interest:
Given the Tribunal's findings on the classification of services and the doctrine of mutuality, it was determined that the imposition of penalties and interest was unwarranted. The Tribunal set aside the penalties and interest, emphasizing that the appellant had not engaged in any malafide conduct that would justify such punitive measures.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief to the appellant. The decision was pronounced in open court on November 22, 2024.

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