9911796707
TMI Blog2015 (10) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3 lakhs / Rs. 4.5 lakhs up-to Rs. 10 lakhs to be received from each potential member in addition to non-refundable membership fee for an amount ranging from Rs. 50,000/- to Rs. 5,00,000/- depending on the category of membership. The maximum term of membership is 20 years. The club facility shall be allowed to be used only by the members. 2. Applicant has raised following issues for determination by the Authority. (a) Whether the relationship between the applicant and members of the club could be considered as provision of 'service' by one person (service provider) to another person (service receiver) for the purpose of Section 65B(44) of the Finance Act, 1994 read with Sections 66B, 66D and Section 66E of the Finance Act, 1994 and accordingly, would the Membership fee, Annual fee and other charges received from members from time to time be liable for Service Tax or in light of the settled legal concept of mutuality, the club and its members are not to be regarded as two separate entities and hence, there is provision of "service" by one person (service provider) to another person (service receiver)? (b) Whether refundable security deposit would be subject to Service Tax is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keeping in view the principle of mutuality, the surplus accruing to a Members' Club from the subscription charges received from its members cannot be said to be income within the meaning of the Act; that if such receipts are from source other than the members, no exemption can be claimed in respect of such receipts on the plea of mutuality; that Hon'ble Gujarat High Court in Sports Club of Gujarat Limited Vs U.O.I. reported in 2013 (31) STR 645 (Guj.) held provisions of Section 65(25a), Section 65 (105)(zzze) and Section 66 of the Finance Act, 1994 to levy Service Tax in respect of services purportedly provided by the petitioner club to its members to be ultra vires; that above rulings would apply even after 01.07.2012 in respect of submissions made by the applicant; that explanation to Section 65 B(44) would not apply in the facts of the present case. 5. Revenue submits the as per Section 65B (37), "person" includes an association of persons or body of individuals, whether incorporated or not. Section 65B (44) defines the term "service". The term "service" is defined as any activity carried out by a person for another for consideration. Explanation 3 to the said Section e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided by the applicant, which is a Public Limited Company and the profit of the company is shared amongst shareholders and not to the so called members of the Club is clearly a taxable service provided by one person (applicant) to another person (members of the club) and are accordingly leviable to Service Tax. "Principle of mutuality" raised by the applicant does not seem to have relevance in view of the material facts on record. 6. First issue raised by the applicant is that there is no activity carried out by the club for its members, thus there is no service. In order to charge Service Tax, there should be "service". As per Section 65 B (44) of the Finance Act, 1994, "service" inter-alia means any activity carried out by a person for another for consideration. Therefore, "service" has following 4 ingredients; a) Activity (carried out) b) By one person c) For another person d) For consideration 7. According to the applicant, there is no "activity"; that making available passive infrastructure to members by the club is not an activity; that activity means state of being active. Revenue submits that there are "services" liable to Service Tax, which does not contain stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings recorded by the High Court that the clubs or associations sought to be rendered liable in these appeals were not transferring property belonging to them but merely acting as agents for and on behalf of the members. They were not selling goods but were rendering a service to their members. 11. It is noticed from the above judgment of the Hon'ble Supreme Court that with regard to incorporated club, if some of the shareholders are not members or some of the members are not shareholders that would be case of a proprietary club and would involve sale. In the instant case before us, members may not be shareholders and shareholders may not be members of the club. Therefore, members are not owners of or interested in the property of the club. Hence, ratio of the judgment is not helpful to the applicant. One interesting aspect is noticed from the reading of said judgment, which states that clubs or associations were not transferring property belonging to them but were merely acting as agents for and on behalf of members; that they were not selling goods but rendering a service to their members. The judgment makes it clear that activity of giving goods to its members by the clu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied and thus principles of mutuality are violated. Similarly, ratio of judgments of Hon'ble High Courts relied upon by the applicant in Ranchi Club Ltd. vs. Chief Commissioner of Central Excise & Service Tax, Ranchi Zone (W.P. (T) NO. 2388 OF 2007, Dated:- 15-03-2012)and Dalhousie Institute vs. Assistant Commissioner, Service Tax cell (2005 (180) ELT 18 (Cal) are not applicable to the facts of the case before us. 15. Applicant also relied upon the judgments of the Hon'ble High Court in case Saturday Club Ltd vs. A.C Service Tax Cell, Calcutta [2006 (3) STR 305 (Cal)] and Sports Club of Gujarat ltd vs. U.O.I [2013 (31) STR 645 (Guj) to emphasize that in view of principles of mutuality, no service tax is payable by the applicant. The Hon'ble High Court observed that principally there should be existence of two sides / entities for having transaction as against consideration - In a members club, there is no question of two sides - members and club, both are same entity. We observe that with effect from 01.07.2012, new system of taxation of services has been introduced by the Government. Besides other changes, the word "service" has also been defined under Section 65B (44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertake any activity per se for the members. Applicant further submits that refundable security deposit not retained by him, cannot be considered as a consideration; that receipt of said deposit is a condition of the contract and not consideration. Applicant relied upon the judgment CIT vs. Tollygunge Club Ltd. (1977) 2 SCC 790 and CIT vs. Bijli Cotton Mills (P) Ltd (179) 1 SCC 496 in support of his contention, besides some other judgments. 19. Applicant submits that Section 67 of the Finance Act, 1994 provides that value of taxable services shall be the gross amount charged by the service provider for such services provided or to be provided by him; that the terms "gross amount charged" and "such service" has to be read in context and in tender with each other; that notional interest on the refundable security deposits, which is not charged by the applicant, cannot be considered as gross amount "charged" by the applicant; that there is no provision under the Finance Act, 1994 or rules made there-under allowing addition of notional amount to the value of taxable service; that notional interest on security deposits can be included in the value of the service only if the Revenue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for most of the categories of members. Since refundable security deposit is proposed to be taken from members in money (ranging from Rs. 1.50 lakhs to Rs. 10 lakhs), Section 67 (1) (ii) and (iii) ibid are not applicable. Further, said deposit is for security towards various facilities and amenities in the club. Therefore, refundable security deposit is not for any services rendered. Applicant proposes to take refundable security deposit from proposed members and same is not a consideration for service provided or to be provided, as same would be refunded to members. Further, Section 67(1)(i) ibid inter-alia envisages that Service Tax chargeable on any taxable service with reference to value, be the gross amount charged by the service provider for such service provided or to be provided by him. Therefore, "charged" means amount collected or to be collected by the service provider for service provided or to be provided by him. Notional interest on refundable security deposit is not a "charge" by the applicant. Since there is no "charge", there is no service in the present case. 23. Further, there is no provision under the Finance Act, 1994 or rules made there-under allowing additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /85382/2013 & ST/86957/2014, ST/89511/2013, ST/89898/2013, ST/85580/2014, ST/86118/2014, ST/86243/2014, ST/85471/2014, Date : 16-07-2014) wherein it is held that notional interest on interest free security deposit cannot be added to be rent agreed upon between the parties for the purposes of levy of Service Tax on renting of immovable property. The order in case of Murli Realtors Pvt. Ltd. is not an interim / stay order, as in case of Phoenix International Ltd. relied upon by the Revenue. Therefore, Murli Realtors Pvt. Ltd judgment will prevail over the stay order relied upon by the Revenue. 27. In view of the above, we rule as under; (a) The relationship between the applicant and members of the club should be considered as provision of "service" by one person (service provider) to another person (service receiver) for the purpose of Section 65B (44) of the Finance Act, 1994 read with Sections 66B, 66D and Section 66E of the Finance Act, 1994 and accordingly, the Membership fee, Annual fee and other charges received from members from time to time be liable for Service Tax. (b) Refundable security deposit and interest there-on should not be subjected to Service Tax as per provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
