Sunday, March 9, 2014

Service by club to the members - whether liable for service tax

The question whether service provided by a club to its members are liable for service tax is an old one, but still there is no clarity in answer. There are contrary decisions from courts on this point.

To add sault to the injury, the parliament has been amending the Finance Act, 1994 several times to levy tax on club service.

When a favourable decision comes in favor of club, Central Government amend the law to catch the clubs.


To escape from service tax, clubs take an easy stand that based on the principle of ' mutuality', clubs are not liable to pay service tax. To provide service there must be two persons service provider and service receiver. Principle of mutuality is based on the premise that club and its members are one and the same.



There are several decisions both favorable and against the tax payer. The following are some favorable decisions which club can rely on:



1. Saturday Club Ltd v Assistant Commissioner [2005] 1 STT 64 [Cal.]

2. Dalhousie Institute v. Assistant Commissioner[2005] 1 STT 15 [Cal.]
3. Karnavati Club Ltd. vs. UOI [2011] 31 STT 1 [Guj.]
4. Commissioner of Service Tax, Delhi II v. Safdarjung Club 2014(33) STR 415 (Trib. Del.)


Subsequently, an Explanation is added in section 65 on 01.05.2006 by which taxable services included any taxable service provided by unincorporated association to the member for a consideration.



Even after the above explanantion was added, Jharkhand HC held in favor of the tax payer in Ranchi Club Ltd vs. CCCE,  & ST, ranchi Zone [ 2012] 36 STT 64 stating that even after the introduction of the explanantion, based on the principle of mutuality service tax not applicable.



Again, an amendment was made in the law in the form of an explanation to section 65B(44) bringing a deeming provision that unincorporated association and member shall be treated as distinct persons.



After bringing the deeming provision, we have to see which view courts are going to take.



The dispute continues......