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TMI Blog2019 (10) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... om the provision of Deemed Transfer that profits or gains arising from a transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business, is by a deeming fiction brought to tax, despite the fact that there is no transfer in law by the owner of a capital asset to another person. Modalities such as these to bring to tax amounts that would do away with any doctrine of mutuality are conspicuous by their absence in the language of Article 366(29-A)(e). The service tax was thus leviable on all services as defined, short of a negative list of services which was set out in Section 66D of the Act - After exhaustively reviewing a number of judgments, the Court stated that Parliament has legislative competence to levy service tax under Entry 97 List I of the Constitution of India. The definition of club or association contained in Section 65(25a) makes it plain that any person or body of persons providing services for a subscription or any other amount to its members would be within the tax net. However, what is of importance is that anybody established or constituted by or under any law for the time being in force, is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding of property must be a holding for and on behalf of the members of the club, there being no transfer of property from one person to another. Proprietary clubs were distinguished, as there the owner of the club would not be the members themselves, but somebody else. Also it must be noted that from 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members clubs in the incorporated form. Appeal dismissed - decided against Revenue. - CIVIL APPEAL NO.4184 OF 2009, CIVIL APPEAL NO. 7497 OF 2012 - - - Dated:- 3-10-2019 - CIVIL APPEAL NO. 7773 OF 2019 (ARISING OUT OF SLP (C) NO.26883 OF 2013) WITH CIVIL APPEAL NO. 7771 OF 2019 (ARISING OUT OF SLP (C) NO.22909 OF 2013) WITH CIVIL APPEAL NO. 7772 OF 2019 (ARISING OUT OF SLP (C) NO.24977 OF 2013) WITH CIVIL APPEAL NOS.4377-4380 OF 2015 WITH CIVIL APPEAL NO.5157 OF 2015 WITH CIVIL APPEAL NO.7030 OF 2015 WITH CIVIL APPEAL NO.8543 OF 2015 WITH CIVIL APPEAL NO.7259 OF 2015 WITH CIVIL APPEAL NO.7924 OF 2015 WITH CIVIL APPEAL NO. 7774 OF 2019 (ARISING OUT OF SLP (C) NO.33249 OF 2015) WITH CIVIL APPEAL NO. 7775 OF 2019 (ARISING OUT OF SLP (C) NO.151 OF 2016) WITH CIVIL APPEAL NO. 7781 OF 2019 (ARISING OU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax under the Act. A prayer was also made before the Tribunal for nullifying the action of the Revenue threatening to levy tax on the supply of food to the permanent members. 3. It was contended before the Tribunal that there could be no sale by the respondent Club to its own permanent members, for doctrine of mutuality would come into play. To elaborate, the respondent Club treated itself as the agent of the permanent members in entirety and advanced the stand that no consideration passed for supplies of food, drinks or beverages, etc. and there was only reimbursement of the amount by the members and therefore, no sales tax could be levied. 4. The Tribunal referred to Article 366(29-A) of the Constitution of India, Section 2(30) of the Act, its earlier decision in Hindustan Club Ltd. v. CCT [Hindustan Club Ltd. v. CCT, (1995) 98 STC 347 (Tri)] , distinguished the authority rendered in Automobile Assn. of Eastern India v. State of W.B. [Automobile Assn. of Eastern India v. State of W.B., (2017) 11 SCC 811 : (2002) 40 STA 154 (SC)] and, eventually, opined as follows: Considering the relevant fact presented before us and the different judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in Section 2(30) of the West Bengal Sales Tax Act, 1994 (hereinafter referred to as the West Bengal Sales Tax Act ) and Article 366(29-A) of the Constitution of India, the Court then referred to the Constitution Bench decision in C.T.O. v. Young Men s Indian Association (1970) 1 SCC 462 as follows: 14. Earlier the Constitution Bench decision in CTO v. Young Men's Indian Assn. [CTO v. Young Men's Indian Assn., (1970) 1 SCC 462] dealing with the liability of a club to pay sales tax when there is supply of refreshment to its members, the Court had concluded thus: (SCC pp. 467-68, para 11) 11. The essential question, in the present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within the meaning of the Sale of Goods Act, 1930. The State Legislature being competent to legislate only under Schedule VII List II Entry 54 to the Constitution the expression sale of goods bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in Section 2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers or when property is transferred in the goods sold to the members. 4. The Division Bench then set out 3 questions to be answered by a larger Bench as follows: 30.1. (i) Whether the doctrine of mutuality is still applicable to incorporated clubs or any club after the 46th Amendment to Article 366(29-A) of the Constitution of India? 30.2. (ii) Whether the judgment of this Court in Young Men's Indian Assn. [CTO v. Young Men's Indian Assn., (1970) 1 SCC 462] still holds the field even after the 46th Amendment of the Constitution of India; and whether the decisions in Cosmopolitan Club [Cosmopolitan Club v. State of T.N., (2017) 5 SCC 635 : (2009) 19 VST 456 (SC)] and Fateh Maidan Club [Fateh Maidan Club v. CTO, (2017) 5 SCC 638 : (2008) 12 VST 598 (SC)] which remitted the matter applying the doctrine of mutuality after the constitutional amendment can be treated to be stating the correct principle of law? 30.3. (iii) Whether the 46th Amendment to the Constitution, by deeming fiction provides that provision of food and beverages by the incorporated clubs to its permanent members constitute sale thereby holding the same to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, a reading of the definition of dealer and explanation (1) thereof in particular, would make it clear that the explanation is not really an explanation in the classical sense, but seeks to rope in members clubs which sell goods to their members. Thus, the explanation stands apart from the main part of the definition of dealer , which requires a person to carry on the business of selling and purchasing goods. He then relied heavily on Deputy Commercial Tax Officer, Saidapet Anr. v. Enfield India Ltd., Co-operative Canteen Ltd. (1968) 2 SCR 421 for the proposition that the English cases which dealt with the doctrine of mutuality had no application in the context of a taxing statute, as these judgments dealt with criminal liability. He also relied strongly on this judgment to show that profit-motive is totally unnecessary where a supply of goods by a club to its members, falls within the definition of sale under the Madras General Sales Tax Act, 1959 in that case. He also distinguished Inland Revenue Commissioners v. Westleigh Estates Company, Limited 1924 K.B. 390 from the present case, by stating that all observations on mutuality were made in the context of whether a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed within body of persons , as a result of which Article 366(29- A)(e) will not apply to sales of food or refreshments by a club to its members. According to him, the Constitution (Forty-sixth Amendment) Act, 1982 ( hereinafter referred to as the 46th Amendment ), which inserted Clause (29-A) into Article 366 of the Constitution, has not done away with the Young Men s Indian Association (supra), as there cannot possibly be a supply of goods by one person to itself; and that, therefore, the doctrine of agency/trust/mutuality continues as before. He referred to the definition of consideration in Section 2(d) of the Indian Contract Act, 1872, which according to him made it clear that consideration must flow from one person to another and in the absence of two players, as in the case of Young Men s Indian Association (supra), Article 366(29-A) would have no application. When it came to the application of 366(29-A)(f), Shri Gupta stated that it is clear that (f) was enacted for a very different purpose, namely, to get over the judgment of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi (1978) 4 SCC 36, which dealt with the service element contained in a bill for food o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, execution of works contract or any adventure or concern in the nature of trade, commerce, manufacture or execution of works contract, whether or not such trade, commerce, execution of works contract, adventure or concern is carried on with the motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, execution of works contract, adventure or concern; and (b)Any transaction in connection with, or ancillary or incidental to, such trade, commerce, manufacture, execution of works contract, adventure or concern; xxx xxx xxx (10) dealer means any person who carries on the business of selling or purchasing goods in West Bengal or any person making sales under section 15, and includes- (a)an occupier of a jute-mill or shipper of jute; (b)Government, a local authority, a statutory body, a trust or other body corporate which, or a liquidator or a receiver appointed by a Court in respect of a person, being a dealer as defined in this clause, who, whether or not in the course of business, sells, supplies or distributes directly or otherwise goods for cash or for deferred payment or for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priation to the contract of sale by the seller, whether the assent of the buyer to such appropriation is prior or subsequent to the appropriation: PROVIDED that where there is a single contract of sale in respect of goods situated in West Bengal as well as in places outside West Bengal, provisions of this Explanation shall apply as if there were a separate contract of sale in respect of the goods situated in West Bengal. xxx xxx xxx 9. Incidence of tax on sale (1) Subject to the provisions of this Act, with effect from the appointed day (a) Every dealer (i) who has been liable immediately before the appointed day to pay tax under section 4 or section 8 of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941), and who would have continued to be so liable on such appointed day under that Act had this Act not come into force, or (ii) whose gross turnover during a year first exceeds the taxable quantum as applicable to him under the Bengal Finance (Sales Tax) Act, 1941, on the day immediately preceding the appointed day, (b)Every dealer registered under the West Bengal Sales T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntum referred to in the Bengal Finance (Sales Tax) Act, 1941, shall be included. (5) Every dealer whose liability to pay tax under subsection (1) or sub-section (2) has ceased under subsection (4), shall, if his gross turnover of sales calculated from the commencement of any year again exceeds the taxable quantum at any time within such year, be liable to pay such tax on all sales, other than those referred to in Section 15, effected on and from the date immediately following the day on which such gross turnover of sales against first exceeds the taxable quantum. (6)The Commissioner shall, after making such enquiry as he may think necessary and after giving the dealer an opportunity of being heard, fix the date on and from which such dealer shall become liable to pay tax under sub-section (2) or sub-section (5). 9. The 61st Law Commission Report, which deliberated on the subject matter of Article 366(29-A), dealt with sales by associations to members under Chapter 1-D. of the Report. It began by referring to Enfield India Ltd. (supra) and then referred to Young Men s Indian Association (supra) as follows: 1D.3. Unincorporated associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of goods was passed in 1893. The basis of the decision was that the transaction was a release of the rights of the other members to the purchaser . It might have been thought, therefore, that when section 1(1) of the Sale of Goods act specifically enacted (in 1893) that- There may be a contract of sale between one part owner and another, The basis of Graff v. Evans had ceased to be valid. It may be noted that the Indian Sale of Goods Act has a similar provision. But in Davies v. Burnett, a Divisional Court followed the earlier case, and the Sale of Goods Act was not even referred to. A well-known writer has stated, that this view of the law has now been accepted for so long that it is unlikely to be upset by a higher court. The English cases mostly relate to licensing. But the point to be noted is, that the provision in the Sale of Goods Act as to part owner has not come in their way. The position in this respect, as was observed in an Australian case, is simply that a part of the common property is appropriated to the separate use of the members, and he makes a corresponding contribution from his separate property to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid, Article 366(29-A) included within it sub-clause (e). 12. At this point, it is important to refer to the Statement of Objects and Reasons which led upto the 46th Amendment. The relevant portions of the Statement of Objects and Reasons read as follows: Sales tax laws enacted in pursuance of the Government of India Act, 1935 as also the laws relating to sales tax passed after the coming into force of the Constitution proceeded on the footing that the expression sale of goods , having regard to the rule as to broad interpretation of entries in the legislative lists, would be given a wider connotation. However, in Gannon Dunkerley's case (A.I.R. 1958 S.C. 560), the Supreme Court held that the expression sale of goods as used in the entries in the Seventh Schedule to the Constitution has the same meaning as in the Sale of Goods Act, 1930. This decision related to works contracts. By a series of subsequent decisions, the Supreme Court has, on the basis of the decision in Gannon Dunkerley's case, held various other transactions which resemble, in substance, transactions by way of sales, to be not liable to sales tax. As a result o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also the collection or recoveries made by way of tax under any such law. However, no sales tax will be payable on food or drink supplied by a hotelier to a person lodged in the hotel during the period from the date of the judgment in the Associated Hotels of India case and the commencement of the present Amendment Act if the conditions mentioned in sub-clause (2) of clause 6 of the Bill are satisfied. In the case of food or drink supplied by Restaurants this relief will be available only in respect of the period after the date of judgment in the Northern India Caterers (India) Limited case and the commencement of the present Amendment Act. (emphasis supplied) 13. At this juncture, it is important to advert to the decision of this Court in BSNL v. Union of India (2006) 3 SCC 1. This judgment concerned itself with the nature of the transaction by which mobile phone connections are enjoyed. The question that arose before this Court was whether the transaction in question was a service transaction and not a transaction for sale or supply of goods. In answering this question, the Court, after referring to Article 366(29-A), observed as follows: 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-clauses of Article 366(29-A) introduced by the Forty-sixth Amendment was a result of ruling of this Court which was sought to be neutralised or modified. Sub-clause (a) is the outcome of New India Sugar Mills Ltd. v. CST [(1963) 14 STC 316 : 1963 Supp (2) SCR 459] and Vishnu Agencies (P) Ltd. v. CTO [(1978) 1 SCC 520 : 1978 SCC (Tax) 31 : AIR 1978 SC 449] . Sub-clause (b) is the result of Gannon Dunkerley Co. [State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] Sub-clause (c) is the result of K.L. Johar and Co. v. CTO [(1965) 2 SCR 112 : AIR 1965 SC 1082] . Sub-clause (d) is consequent to A.V. Meiyappan v. CCT [(1967) 20 STC 115 (Mad)] . Sub-clause (e) is the result of CTO v. Young Men's Indian Assn. (Regd.) [(1970) 1 SCC 462] . Sub-clause (f) is the result of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [(1978) 4 SCC 36 : 1978 SCC (Tax) 198] and State of Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472 : (1972) 29 STC 474] 15. The observations made in the judgment on sub-clause (e) cannot possibly be said to form the ratio-decidendi of the judgment, as what came up for consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 560 : 1959 SCR 379] has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29-A). Transactions which are mutant sales are limited to the clauses of Article 366(29-A). All other transactions would have to qualify as sales within the meaning of the Sales of Goods Act, 1930 for the purpose of levy of sales tax. 17. We have thus to discover for ourselves whether the doctrine of mutuality has been done away with by Article 366(29-A)(e), and whether the ratio of Young Men s Indian Association (supra) would continue to operate even after the 46th Amendment. 18. At this juncture, it is important to set out the two pillars, so to speak, on which the Young Men s Indian Association (supra) is largely based. In Graff v. Evans (1882) 8 Q.B. 373, the Grosvenor Club was incorporated in the form of a trust, the Appellant Graff acting as Manager of the club, for and on behalf of a Managing Committee, which conducted the general business of the club. Food and refreshments such as wine, beer and spirits were served to members on payment for the same. The question was whether a license was required under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a co-owner as the vendor. 19. Likewise, in Trebanog Working Men s Club and Institute Ltd. v. Macdonald (1940) 1 K.B. 576, a similar question arose before the Kings Bench Division. Graff (supra) was applied and followed thus: In our opinion, the decision in Graff v. Evans applies to and governs the present case. Once it is conceded that a members' club does not necessarily require a licence to serve its members with intoxicating liquor, because the legal property in the liquor is not in the members themselves, it is difficult to draw any legal distinction between the various legal entities that may be entrusted with the duty of holding the property on behalf of the members, be it an individual, or a body of trustees, or a company formed for the purpose, so long as the real interest in the liquors remains, as in this case it clearly does, in the members of the club. There is no magic in this connection in the expressions trustee or agent. What is essential is that the holding of the property by the agent or trustee must be a holding for and on behalf of, and not a holding antagonistic to, the members of the club. We are dealing here with a quasi-crimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough at a fixed tariff is a sale. (See Halsbury's Laws of England, 3rd Edn., Vol. 5, pp. 280-281). The principle laid down in Graff v. Evans [(1882) 8 QBD 373] had throughout been followed. In that case Field, J., put it thus: I think the true construction of the Rules is that the members were the joint owners of the general property in all the goods of the club, and that the trustees were their agents with respect to the general property in the goods. The difficulty felt in the legal property ordinarily vesting in the trustees of the members' club or in the incorporated body was surmounted by invoking the theory of agency i.e. the club or the trustees acting as agents of the members. According to Lord Hewart (L.C.J.)in Trebanog Working Men's Club and Institute Ltd. v. Macdonald [(1940) 1 AELR 454] once it was conceded that a members' club did not necessarily require a licence to serve its members with intoxicating liquor it was difficult to draw any distinction between the various legal entities which might be entrusted with the duty of holding the property on behalf of members, be it an individual or a body of trustees or a company formed for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke any profit was not considered sufficient to establish that the society was acting only as an agent of its members. As a registered society was a body corporate it could not be assumed that the property which it held was the property of which its members were owners. The English decisions were distinguished on the ground that the courts in those cases were dealing with matters of quasi-criminal nature. 22. Finally, the Court concluded: 11. The essential question, in the present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within the meaning of the Sale of Goods Act, 1930. The State Legislature being competent to legislate only under Entry 54, List II, of the Seventh Schedule to the Constitution the expression sale of goods bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in Section 2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be eligible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in matter of supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments which disregarded the corporate form and stated that there could not be a sale, on the facts of those cases, between two persons because Foster, i.e. a member of the club, could be regarded as vendor as well as purchaser in Graff (supra). Likewise, in Trebanog (supra), the form in which the club was clothed was of no moment, it being stated that there is no magic in the expressions trustee or agent . What is essential is that the holding of the property by the trustee or agent must be a holding for and on behalf of, and not a holding antagonistic to, the members of the club. 26. It is thus clear that Enfield India Ltd. (supra) does not take the matter any further. Young Men s Indian Association (supra) made no distinction between a club in the corporate form and a club by way of a registered society or incorporated by a deed of trust. What is the essence of the judgment is that the holding of property must be a holding for and on behalf of the members of the club, there being no transfer of property from one person to another. Proprietary clubs were distinguished, as there the owner of the club would not be the members themselves, but somebody else. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Edn.), p. 894 where the etymological meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company. The proper approach to the solution of the Question 1s to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is admission is subject to balloting. The membership is not transferable like the right of shareholders. There is the provision for expulsion of a Member under certain circumstances which feature never exists in the case of a shareholder holding shares in a Limited Company. The membership is fluid. A person retains rights as long as he continues as a Member and gets nothing at all when he ceases to be a Member, even though he may have paid a large amount as admission fee. He even loses his rights on expulsion. In these circumstances, it is clear that the Club cannot be treated as a separate legal entity of the nature of a Limited Company carrying on business. The Club, in fact, continues to be a Members' Club without any shareholders and, consequently, all services provided in the Club for Members have to be treated as activities of a self-serving institution. 29. Given the differences pointed out in Cricket Club of India (supra) between clubs registered as Companies under Section 25 of the Companies Act and other companies, it is clear that the ratio decidendi in the judgment in Bacha F. Guzdar (supra) would not apply to such clubs - there being no shareholders, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affording its facilities to nonmembers. Thus, in Carlisle and Silloth Golf Club v. Smith (Surveyor of Taxes) [(1913) 3 KB 75 (CA)] , where a members' golf club admitted non-members to play on payment of green fees it was held that it was carrying on a business which could be isolated and defined, and the profit of which was assessable to income tax. But there is no liability in respect of profits made from members who avail themselves of the facilities provided for members. 18. In short, there has to be a complete identity between the class of participators and class of contributors; the particular label or form by which the mutual association is known is of no consequence. Kanga and Palkhivala explain this concept in The Law and Practice of Income Tax (8th Edn., Vol. I, 1990) at p. 113 as follows: 1.Complete identity between contributors and participators.- The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. The Madras, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a commonality between contributors of funds and participators in the activity, a complete identity between the two is then established. This identity is not snapped because the surplus that arises from the common fund is not distributed among the members it is enough that there is a right of disposal over the surplus, and in exercise of that right they may agree that on winding up, the surplus will be transferred to a club or association with similar activities. Most importantly, the surplus that is made does not come back to the members of the club as shareholders of a company in the form of dividends upon their shares. Since the members perform the activities of the club for themselves, the fact that they incorporate a legal entity to do it for them makes no difference. This judgment was also followed by this Court in Income Tax Officer, Mumbai v. Venkatesh Premises Cooperative Society Limited (2018) 15 SCC 37. What is of essence, therefore, in applying this doctrine is that there is no sale transaction between two persons, as one person cannot sell goods to itself. 31. What arises for deliberation now is whether the 46th Amendment has done away with the principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disjunctively, a body of persons cannot be equated with person . Person as defined by the General Clauses Act, (which applies to the interpretation of the Constitution vide Article 367) reads as follows: 3. Definitions.- xxx xxx xxx (42) person shall include any company or association or body of individuals, whether incorporated or not; Article 366(29-A) does not use this expression, as person would then include corporate persons as well. On the other hand, body of persons is used to make it clear beyond doubt that corporate persons are not referred to. 36. The definition of person in other Acts such as the Income Tax Act, 1961 is also very wide, and includes an association of persons or body of individuals, whether incorporated or not see Section 2(31) of the Income Tax Act, 1961. Quite clearly, this language was available and in common usage by the legislature, as the definition of person under the Income Tax Act has stood in the statute book since 1961. The contrast in the language of the Income Tax Act, 1961 and Article 366(29-A)(e) again leads to the conclusion that body of persons would not refer to the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 39. But, says Shri Dwivedi, even if sub-clause (e) does not apply, sub-clause (f) would apply, given the width of its language. Here again, it is clear that the reason for sub-clause (f), as has been stated in the Statement of Objects and Reasons, is the doing away with of two judgments of this Court, namely, State of Punjab v. Associated Hotels of India Limited AIR 1972 SC 1131 and Northern India Caterers (India) Ltd. (supra). 40. This is clear not only from the Statement of Objects and Reasons, but from the subject matter of sub-clause (f) (which does not include goods in their entirety, but only food or any other article for human consumption, or any drink), which is the serving of such food or drink in hotels or restaurants. This is further made clear by Section 6 of the 46th Amendment Act, which is a validation and exemption provision. Section 6(1)(a) specifically refers to transactions referable to the aforesaid two Supreme Court judgments. The exemption provision puts the matter beyond doubt. Section 6(2) of the Amendment Act reads as follows: (2) Notwithstanding anything contained in sub-section (1), any supply of the nature referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y manner whatsoever , being part and parcel of sub-clause (f) cannot be held to extend to a supply of all goods so as to bring such goods to tax when applied to members clubs. 43. Judgments of this Court have also held that the subject matter of sub-clause (f) related to food and drink supplied in hotels and restaurants, the deeming fiction of sub-clause (f) being introduced only to get over certain judgments of this Court. In K. Damodarasamy Naidu Bros. and Ors. v. State of T.N. and Anr. (2000) 1 SCC 527, this Court referred to Article 366(29-A)(f) as follows: 9. The provisions of sub-clause (f) of clause (29-A) of Article 366 need to be analysed. Sub-clause (f) permits the States to impose a tax on the supply of food and drink. The supply can be by way of a service or as part of a service or it can be in any other manner whatsoever. The supply or service can be for cash or deferred payment or other valuable consideration. The words of sub-clause (f) have found place in the Sales Tax Acts of most States and, as we have seen, they have been used in the said Tamil Nadu Act. The tax, therefore, is on the supply of food or drink and it is not of relevance that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. A reading of the constitutional amendment would show that supply by way of or as part of any service of food or other article for human consumption is now deemed to be a sale of goods by the person making the transfer, delivery or supply. 45. That the doctrine of mutuality has not been done away with by sub-clause (e) is also clear when sub-clause (e) is contrasted with certain provisions of the Income Tax Act, 1961. Section 2(24) (vii) of the Income Tax Act, 1961, reads as under: 2. Definitions.- xxx xxx xxx (24) income includesxxx xxx xxx (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of Section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. It can be seen from this provision that profits or gains arising from a transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business, is by a deeming fiction brought to tax, despite the fact that there is no transfer in law by the owner of a capital asset to another person. Modalities such as these to bring to tax amounts that would do away with any doctrine of mutuality are conspicuous by their absence in the language of Article 366(29-A)(e). 49. In light of the view that we have taken, it is unnecessary to advert to Shri Dwivedi s arguments that the explanation (1) to Section 2(10) of the West Bengal Sales Tax Act is a stand-alone provision and not an explanation in the classical sense. We, therefore, answer the three questions posed by the Division Bench in State of West Bengal v. Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Young Men s Indian Association (supra) then held, stating: 18. However, learned counsel for the petitioner submits that sale and service are different. It is true that sale and service are two different and distinct transaction. The sale entails transfer of property whereas in service, there is no transfer of property. However, the basic feature common in both transactions requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. Since the issue whether there are two persons or two legal entity in the activities of the members' club has been already considered and decided by the Hon'ble Supreme Court as well as by the Full Bench of this Court in the cases referred above, therefore, this issue is no more res integra and issue is to be answered in favour of the writ petitioner and it can be held that in view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form including as mandap keeper, then it is not a service by one to another in the light of the decisions referred above as foundational facts of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied the judgment of Young Men s Indian Association (supra), which was in the context of Sales Tax acts, to Service Tax, and hence did not lay down the law correctly. 57. On the other hand, learned counsel appearing on behalf of the Respondents in these cases argued that when service tax was introduced in 1994, the legislature indicated activities which amounted to service, which were then selected for the purpose of imposition of tax. In 2005, despite the fact that members clubs were so selected, members clubs in incorporated form were expressly excluded from service tax. Post-2012, there was a sea change, as a result of which service tax was imposed on all taxable services, short of those which were in a negative list contained in Section 66D of the Finance Act. According to the learned counsel appearing on behalf of the Respondents, the same position that obtained re: incorporated members clubs continued after 2012, despite the introduction of Explanation 3 to Section 65B(44). All the learned counsel argued that the doctrine of mutuality, insofar as incorporated institutions are concerned, was not done away with in the service tax regime, and the Jharkhand and Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thus making it clear that the tax net had now been widened so as to include non-members of clubs or associations as well. 62. Under Section 66, it was stated that there shall be levied the tax (referred to as the service tax ) at the rate of 12% of the value of taxable services referred to in sub-clauses (zzze) of clause (105) of section 65, and collected in such manner as may be prescribed. 63. Under Section 67, where service tax is chargeable on any taxable service with reference to its value, it was stated: 67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, - (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as establishments of distinct persons. 67. A new Section 66B was then introduced, which states as follows: 66B. Charge of service tax on and after Finance Act, 2012 There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. 68. As was stated hereinabove, service tax was thus leviable on all services as defined, short of a negative list of services which was then set out in Section 66D of the Act. 69. In an interesting judgment of this Court, Union of India and Ors. v. Margadarshi Chit Funds Private Limited and Ors. (2017) 13 SCC 806, this Court outlined the history of service tax as follows: 19. The amendment was carried w.e.f. 1-6-2007 whereby the words but does not include cash management were deleted. This provision remained on statute book up to 30-6-2012. By the Finance Act, 2012, entire scheme of service tax was completely changed and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices is based on negative list of services. Therefore, earlier list of taxable services is no longer applicable. Instead two things have happened. First, the term service is defined whereas there was no definition of service in the Finance Act, 1994 which position remained till 2012. Earlier, each individual service on which tax was levied (known as taxable service) was defined. Secondly, the definition of service given now contains a negative list which is contained in Section 66-D of the Act. In other words, it specifically excludes certain transactions from the ambit of service. Thus, those transactions which are specifically excluded are not liable for service tax. Any other kind of service which qualifies the definition of service contained in the Act would be exigible to service tax. 70. In All-India Federation of Tax Practitioners and Ors. v. Union of India and Ors. (2007) 7 SCC 527, this Court upheld the constitutional validity of the levy of service tax, also stating: 8. As stated above, service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services. Therefore, for our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, the word constitute is said to mean, inter alia, to set up, establish, found (an institution, etc.) and also to give legal or official form or shape to (an assembly, etc.) . Thus the word in its wider significance, would include both, the idea of creating or establishing, and the idea of giving a legal form to, a partnership. The Bench of the Calcutta High Court in the case of R.C. Mitter and Sons v. CIT [(1955) 28 ITR 698, 704, 705] under examination now, was not, therefore, right in restricting the word constitute to mean only to create , when clearly it could also mean putting a thing in a legal shape. The Bombay High Court, therefore, in the case of Dwarkadas Khetan and Co. v. CIT [(1956) 29 ITR 903, 907] , was right in holding that the section could not be restricted in its application only to a firm which had been created by an instrument of partnership, and that it could reasonably and in conformity with commercial practice, be held to apply to a firm which may have come into existence earlier by an oral agreement, but the terms and conditions of the partnership have subsequently been reduced to the form of a document. If we construe the word constitute in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociation or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration: 79. It will be noticed that the aforesaid explanation is in substantially the same terms as Article 366(29-A)(e) of the Constitution of India. Earlier in this judgment qua sales tax, we have already held that the expression body of persons will not include an incorporated company, nor will it include any other form of incorporation including an incorporated co-operative society. 80. It will be noticed that club or association was earlier defined under Section 65(25a) and 65(25aa) to mean any person or body of persons providing service. In these definitions, the expression body of persons cannot possibly include persons who are incorporated entities, as such entities have been expressly excluded under Section 65(25a)(i) and 65(25aa)(i) as anybody established or constituted by or under any law for the time being in force . Body of persons , therefore, would not, within these definitions, include a body constituted under any law for the time being in force. 81. When the scheme of service tax changed so as to introduce a negative ..... X X X X Extracts X X X X X X X X Extracts X X X X
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