PER C L MAHAR:
The brief facts of the matter are that the appellant association is engaged in the business of providing services to its members under the head of „Club Membership and Associations".
The appellant is registered with the Service Tax department for
"Membership of Club service/ Club and Association services"
falling under section 65(105) (zzze) of the Finance Act, 1994. During the audit of the financial statements of the appellant by
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the Department for the period 2010-2011 to 2011-2012, it was noticed that the appellant had received an amount of Rs.85,79,282/- towards entry fee, annual membership fee and contribution from members. The Department observed that the appellant had shown value of service receipt of Rs.31,50,000/- only in their ST -3 return for the financial year 2010-2011. It was also noticed by the Department"s audit party from the trial balance statement for the financial year 2011-2012 that the appellant had received Rs. 70,05,000/- towards entry fee, annual membership fee and contribution from the members but, the appellants did not file any ST Return for the period and it did not discharge service tax liability on receipt of service charges.
2. It was on the basis of preliminary findings of the Department that two show cause notices dated 18 April 2013 and
16 May 2014 were issued demanding Service Tax amounting to Rs. 12,80,731/- from the appellant.
3. The above mentioned Show cause notices were adjudicated by the Adjudicating Authority vide Order-in-Original dated 16 October, 2015, wherein the Adjudicating Authority confirmed the Service Tax demand. However, an amount of Rs.7,25,252/- from the show cause notice dated 18 April, 2013 covering the period 2010-2011 to 2011-2012 was dropped. Similarly, an amount of Rs. 3,70,800/- was also dropped from Show cause notice dated 16 May, 2014 covering the period 2012-2013. The basic ground on which, the demand of Rs.10,96,052/- was dropped by the Adjudicating Authority, was that an amount of Rs.1,00,41,286/- received by the appellant was in the nature of covering up the deficit in the appellant"s finances for a particular event, which was neither relatable to any service nor any service seems to have been provided against this amount.
4. The Department feeling aggrieved by the Order-in-Original preferred an appeal before the Commissioner (Appeals) who vide
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Order-in-Appeal dated 07 March, 2016 allowed the Departmental appeal and confirmed the service tax that had been dropped by the Order-in-Original and proportionate penalty and interest were also confirmed. The appellant is before us against the above mentioned Orders-in-Appeal.
5. The learned advocate appearing on behalf of the appellant at the outset itself submitted that section 65(105)(zzze) of the Finance Act, 1994, under which the demand has been confirmed for a period prior to 01 July, 2012, has been held to be ultra vires by the Gujarat High Court in Sports Club of Gujarat Limited vs. Union of India reported in [2013(31) STR 645 (Gujarat). He further stressed that since the provisions have already been held as ultra vires, there is no operative legislative provision now to legitimize the levy and collection of Service Tax under the category of club or association service. The learned advocate has also place reliance on the following decisions in this regard:
1. Federation of Indian Chambers of Commerce and Industry vs. Commissioner [2015 (38) STR 529 (Tri-Delhi)];
2. Green Environment Services Coop Society Ltd. vs. Union of India [2015 (37) STR 961(Guj)];
3. Ranchi Club Ltd. vs. Chief Commissioner[ 2012 (26) STR 401 (jhar)];
4. NASSCOM v Commissioner [2015(37) STR 1041(Tri-Del)]
6. The learned advocate relying upon the above decisions has submitted that confirmation of demand by learned Commissioner (Appeals) is not sustainable as the activities undertaken by the appellant are excluded from the purview of Cub or Association service. It has further been submitted that the appellant was engaged in promotion and protection of non alcoholic industry in India. These activities are in the nature of general public
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utility for use by the members of the appellant from the beverage industry. It has further been added that the appellant association is non- profit organisation and thus as per the CESTAT decision in the case of Federation of India Chambers of Commerce and Industry vs. Commissioner reported in
2015 (38) STR 529 (Tri-Del)], the appellant is covered under exclusion clause in the definition of club or association under section 65(25a) of the Finance Act, 1994. It was further stressed that learned Commissioner (Appeals) has gravely erred in demanding service tax on the funding which have been received only to meet deficit which have been there in the finances of the Association and against which neither any service has been provided nor has promised in future. It has further been submitted that since the appellants and its members are not separate persons on the basis of principle of mutuality, and, therefore, there cannot be any provisions of services by the appellant to its members in the period prior to 01 July, 2012.
7. In this regard, the learned advocate has placed reliance on following decisions:
1. State of West Bengal vs. Calcutta Club Ltd. [2019-TIOL-449-SC- ST-LB];
2. Commissioner vs Ranchi Club Ltd. [2019-TIOL-449-SC-ST-LB];
3. Sports Club of Gujarat Ltd. vs. Union of India [2013 (31) STR 645 (Guj)];
4. Federation of Indian Chambers of Commerce and Industry vs. Commissioner [2015 (38) STR 529 (Tri-Del)].
8. It has further been submitted by the appellant that in any event, the contribution received by the appellant cannot be subjected to service tax for the period from 01 July, 2012 also. It is submitted that the contribution amount received has no
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nexus with the taxable entry of club or association and therefore, the charging provision under Section 66 B itself is not attracted. He further submitted, the contribution received by the appellant from some of its member is voluntary in nature and they are given to cover up the deficit in the finances of the appellant. In other words, the contributions received by the Appellant are not towards any additional benefit received by the members making such voluntary payments. The learned Commissioner (Appeals) held that the contribution received is towards the events organised by the Appellant. It is submitted that such events are not organised for the members making such payments to the Appellant. In fact, excess expenses incurred were collected only from a few members. Such contribution received cannot be subjected to service tax in terms of provisions of the Finance Act. In the instant case, there is no quid pro quo for the contributions received by the appellants. Since the members who make such voluntary payments are not liable to receive anything in return, it is submitted that contribution which is in the nature of a donation, cannot be considered as consideration and therefore, placing reliance on the guidance note dated 20 June, 2012, no service can be said to have been provided to the appellant. It is, therefore, submitted that no demand of service tax can sustain with effect from 01 July, 2012 also and the impugned order is liable to be set aside on this ground alone.
9. It is further submitted that the extended period cannot be invoked in their case and no interest and no penalties are imposable. The appellant are entitled to benefit of cum-tax. Without prejudice to the above, it is submitted that the appellant was under a bona fide belief that it is not liable to pay service tax as no services were being provided by it. Further, the appellant duly cooperated with the Department and provided all requisite information. The appellant did not suppress any facts. Thus, the invocation of extended period in the impugned order is not
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sustainable merely on the basis of non-payment of tax or non- filing of returns. In any case, the present matter involves interpretation of law in light of the given facts and circumstances. Also, all transactions were duly recorded in the books of accounts of the appellant. Thus, invocation of extended period of limitation in the impugned order is not sustainable.
10. We have also heard Shri R K Maji, learned Authorised Representative of the Department who supported the findings as given in Order-in-Appeal.
11. We have heard both the sides and perused the record of the appeal.
12. In this regard, we find that the matter is no longer res integra as section 65(105)(zzze) of the Finance Act, has already been held ultra vires by the Gujarat High Court in Sports Club of Gujarat Ltd. (supra).The relevant extract of the judgement is as under:
7. Learned Advocate Mr. Ravani appearing for the Authorities i.e. Union of India, Commissioner of Central Excise, and Deputy Commissioner/Assistant Commissioner, Service Tax Cell, vehemently opposed the petitions and submitted that the Department has not accepted the aforesaid judgment. Learned advocate submitted that the Department has filed SLP before the Hon"ble Apex Court and the judgment is under challenge. Merely because the judgment is not accepted by the Department, its persuasive value is not lost and it can always be considered by this Court for its persuasive value, more particularly when the said judgment has relied upon a decision of the Full Bench of Patna High Court in the matter of Commissioner of Income-tax
v. Ranchi Club Ltd., 1992 (1) PLJR 252 (Pat) (FB), which is referred to by the Division Bench.
7.1 Learned advocate for the Department also submitted that there is no question of mutuality because the club is a legal entity as it is incorporated under the Companies Act. This Court is unable to accept the submissions made by learned advocate for the Department because they were the very facts before the Division Bench for consideration and learned advocate for the Department could not set out any convincing grounds on which this Court should not follow the decision of the Division Bench of Jharkhand High Court.
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8. In the result, these petitions are allowed and it is hereby declared that Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance (No. 2) Act, 1994 as incorporated/amended by the Finance Act, 2005 to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires. Rule is made absolute with no order as to costs.
13. We also take note of the judgement of Hon"ble Apex Court in case of State of West Bengal vs. Calcutta Club Ltd.
reported in [2019-TIOL-449-SC-ST-LB] and Chief Commissioner vs Ranchi Club Ltd. reported in [2019-TIOL-
449 SC-ST-LB]. The relevant extract of the judgement is as under:
" 72. 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 included. Shri Dhruv Agarwal laid great emphasis on the judgments in DALCO Engineering Private Limited v. Satish Prabhakar Padhye and Ors. Etc. (2010) 4 SCC 378 (in particular paragraphs 10, 14 and 32 thereof) and CIT, Kanpur and Anr. v. Canara Bank (2018) 9 SCC 322 (in particular paragraphs 12 and 17 therein), to the effect that a company incorporated under the Companies Act cannot be said to be
"established" by that Act. What is missed, however, is the fact that a Company incorporated under the Companies Act or 70 a cooperative society registered as a cooperative society under a State Act can certainly be said to be "constituted" under any law for the time being in force. In R.C. Mitter & Sons, Calcutta v. CIT, West Bengal, Calcutta (1959) Supp. 2 SCR 641, this Court had occasion to construe what is meant by "constituted" under an instrument of partnership, which words occurred in Section 26A of the Income Tax Act, 1922. The Court held:
"The word "constituted" does not necessarily mean "created" or
"set up", though it may mean that also. It also includes the idea of clothing the agreement in a legal form. In the Oxford English Dictionary, Vol. II, at pp. 875 & 876, 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",
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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 larger sense, as indicated above, the difficulty in which the learned Chief Justice of the Calcutta High 71 Court found himself, would be obviated inasmuch as the section would take in cases both of firms coming into existence by virtue of written documents as also those which may have initially come into existence by oral agreements, but which had subsequently been constituted under written deeds."
73. It is, thus, clear that companies and cooperative societies which are registered under the respective Acts, can certainly be said to be constituted under those Acts. This being the case, we accept the argument on behalf of the Respondents that incorporated clubs or associations or prior to 1st July, 2012 were not included in the service tax net.
74. The next question that arises is - was any difference made to this position post 1st July, 2012?
75. It can be seen that the definition of "service" contained in Section 65B(44) is very wide, as meaning any activity carried out by a person for another for consideration. "Person" is defined in Section 65B(37) as including, inter alia, a company, a society and every artificial juridical person not falling in any of the preceding sub-clauses, as also any association of persons or body of individuals whether incorporated or not.
76. What has been stated in the present judgment so far as sales tax is concerned applies on all fours to service tax; as, if the doctrine of agency, trust and mutuality is to be applied qua 72 members" clubs, there has to be an activity carried out by one person for another for consideration. We have seen how in the judgment relating to sales tax, the fact is that in members" clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply on all fours when we are to construe the definition of
"service" under Section 65B(44) as well.
77. However, Explanation 3 has now been incorporated, under sub- clause (a) of which unincorporated associations or body of persons and their members are statutorily to be treated as distinct persons.
78. The explanation to Section 65, which was inserted by the Finance Act of 2006, reads as follows:
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"Explanation: For the purposes of this section, taxable service includes any taxable service provided or to be provided by any unincorporated association 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 73 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 list for the first-time post 2012, services were now taxable if they were carried out by "one person" for "another person" for consideration. "Person" is very widely defined by Section 65B(37) as including individuals as well as all associations of persons or bodies of individuals, whether incorporated or not. Explanation 3 to Section 65B(44), instead of using the expression "person" or the expression "an association of persons or bodies of individuals, whether incorporated or not", 74 uses the expression "a body of persons" when juxtaposed with
"an unincorporated association".
82. We have already seen how the expression "body of persons"
occurring in the explanation to Section 65 and occurring in Section 65(25a) and (25aa) does not refer to an incorporated company or an incorporated cooperative society. As the same expression has been used in Explanation 3 post-2012 (as opposed to the wide definition of "person"
contained in Section 65B(37)), it may be assumed that the legislature has continued with the pre-2012 scheme of not taxing members" clubs when they are in the incorporated form. The expression "body of persons" may subsume within it persons who come together for a common purpose, but cannot possibly include a company or a registered cooperative society. Thus, Explanation 3(a) to Section 65B(44) does not apply to members" clubs which are incorporated.
83. The expression "unincorporated associations" would include persons who join together in some common purpose or common action - see ICT, Bombay North, Kutch and Saurashtra, Ahmedabad v. Indira Balkrishna (1960) 3 SCR 513 at page 519-520. The expression "as the case may be" would refer to different groups of individuals either bunched together in the form 75 of an association also, or otherwise as a
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group of persons who come together with some common object in mind. Whichever way it is looked at, what is important is that the expression
"body of persons" cannot possibly include within it bodies corporate.
84. We are therefore of the view that the Jharkhand High Court and the Gujarat High Court are correct in their view of the law in following Young Men"s Indian Association (supra). We are also of the view that from 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members" clubs in the incorporated form. "
14. Following the above decisions, we hold that the impugned Order-in-Appeal cannot be sustained and, therefore, we set aside the same. The Appeal is accordingly, allowed. (operative part of the order pronounced in the Court)
Justice Dilip Gupta (President)
C. L. Mahar
(Technical Member)
ss
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