Service tax on services provided by clubs to its members?

No Service tax leviable under ‘Club or Association’ service in respect of the services provided by clubs to their members in view of the principle of mutuality

In the instant case, the three Appellants namely Matunga Gymkhana, Tahnee Heights Co-Op Housing Society Ltd. and Mittal Tower Premises Co-Operative Society (the Appellants) were running a club for their members. The activities carried out by the Appellants for their members included Sports, Yoga etc.

The Department confirmed the demand of Service tax on the Appellants based on the premise that the Appellants had provided taxable service namely ‘Club or Association’ service specified in erstwhile Section 65(105)(zzze) of the Finance Act, 1994 (“the Finance Act”) read with Section 65(25a) thereof. Being aggrieved, the Appellants preferred their respective appeals before the Hon’ble CESTAT, Mumbai.

The Hon’ble CESTAT, Mumbai held as under:

• The Hon’ble High Court of Jharkhand in the case ofRanchi Club Vs. Chief Commr. Of C. Exc. & ST, Ranchi [2012 (26) STR 401 (Jhar)], has held that in view of the mutuality and 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 as foundational facts of existence of two legal entities in such transaction is missing;
• Subsequently, the Hon’ble High Court of Gujarat in the case of Sports Club of Gujarat Vs. Union of India [2013-TIOL-528-HC-AHM-ST] has declared Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance Act as incorporated/ amended by the Finance Act, 2005 to the extent that the said provisions purport to levy Service tax in respect of services provided by club to its members, as ultra vires;
• The afore stated judgments were also considered by the Principal Bench of the Hon’ble CESTAT, Delhi in the case of Federation of Indian Chambers of Commerce & Industry Vs. Commissioner of Service Tax, Delhi [2014-TIOL-701-CESTAT-DEL], wherein it was held that on application of the principle of mutuality, services provided by clubs to their respective members would not fall within the ambit of the taxable ‘Club or

Association’ service nor the consideration whether by way of subscription/ fee or otherwise received therefore be exigible to Service tax.

Therefore, the Hon’ble Tribunal after holding that the matter is no longer res-integra, decided the matter in favour of the Appellants.

Our Comments: The concept of principle of mutuality in respect of clubs and their membersneeds to be tested legally post facto July 1, 2012 (Negative List Regime of Service tax) whereby the definition of ‘Service’ provided first time under Section 65B(44) of the Finance Act, which interalia, provides that any activity carried out by a person for another for consideration is a ‘Service’.

However, Explanation 3 to Section 65B(44) of the Finance Act has carved out an exceptions to the General Rule that Service tax leviable only when services provided by a person to another.In terms of Explanation 3(a) thereof, an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons.

Thus effective from July 1, 2012, services provided by clubs even to their members may be exigible to Service tax.