The issue of service tax on clubs has cropped up time and again. The latest is the Commissioner Service Tax, Delhi, losing a case against the Gymkhana Club (service tax appeal no 1,846 of 2011). A judgment on the case was delivered by the tribunal after the department conceded that the tribunal had, in several cases, decided against the levy. The issue is pending in the Supreme Court.
Let's consider the merit of the case. All cases on the issue have been lost by the department in high courts. The parent judgment is of the Supreme Court in the case of the Joint Commercial Tax Officer vs The Young Men's Indian Association (1970(1)SCC462). It has been laid down that a club is established on the principle of mutuality and, therefore, there is no sale or supply by the club to its members. The club and the members are one, in case it is not a proprietary club. This has been followed up by other high courts such the Gujarat High Court in its judgment on March 25, 2013, in the cases of Sports Club of Gujarat, Rajpath Club, as well as in the case of Kamavathi Club vs UOI (2010(20)STR169(Guj)). This Supreme Court judgment has also been relied upon by the Calcutta high court in the case of Saturday Club vs CST (2006(3)STR305(Cal)) and Dalhousie Club vs CST (2006(3)STR311(Cal)) and by the Jharkhand high court in the case of Ranchi Club vs CST (2012(26)STR401(Jhar)).
There are a number of other judgments on the same issue. Some are on the levy on the club as a mandap keeper. The principle of mutuality is common, whether as a mandap keeper under section 65(19) or the general description of a club under section 65(25a). So, all judgments by the high courts, as well as the Supreme Court's judgment in the case of Young Men's Indian Association have held service tax is not leviable on a club as a mandap keeper, under 65(19), or as a club under 65(25a).
All judgments were before the comprehensive service tax was announced in Budget 2012. But if it is not a service, the same principle will apply now, too.
The practice is show-cause memos have been issued to clubs, as they are contesting paying service tax. The clubs are charging service tax and keeping this under the contingency head. Prolonged litigation is undesirable, as it affects confidence in the government.
Conclusion: If we wait for the Supreme Court, which admitted the case in 2012, to decide the issue, it will take long. In the meantime, all clubs will have to charge service tax and put this under the contingency account, which will continue to keep things unsettled. I suggest the Central Board of Excise and Customs (CBEC) should finalise the issue internally. It could take a legal opinion at the level of the law secretary and if it is agreed that service tax isn't leviable on clubs, it could either withdraw the case from the Supreme Court or issue a circular in this regard.
As it is in favour of the taxpayer, there will be no problem. Even when it is in favour of the department, the CBEC could issue a circular, though the matter is sub judice. Practising lawyers say the Attorney General isn't in favour of too many appeals. And, even the finance ministry is so inclined. It is a welcome trend compared to the previous practice of filing appeals routinely to a high court and the Supreme Court. There is tremendous pressure in favour of solving the problem of mounting litigation. So, this is the time when the CBEC could improve the situation by reviewing the cases pending in the Supreme Court or a high court. The CBEC should take the initiative now, when the time is ripe.
Let's consider the merit of the case. All cases on the issue have been lost by the department in high courts. The parent judgment is of the Supreme Court in the case of the Joint Commercial Tax Officer vs The Young Men's Indian Association (1970(1)SCC462). It has been laid down that a club is established on the principle of mutuality and, therefore, there is no sale or supply by the club to its members. The club and the members are one, in case it is not a proprietary club. This has been followed up by other high courts such the Gujarat High Court in its judgment on March 25, 2013, in the cases of Sports Club of Gujarat, Rajpath Club, as well as in the case of Kamavathi Club vs UOI (2010(20)STR169(Guj)). This Supreme Court judgment has also been relied upon by the Calcutta high court in the case of Saturday Club vs CST (2006(3)STR305(Cal)) and Dalhousie Club vs CST (2006(3)STR311(Cal)) and by the Jharkhand high court in the case of Ranchi Club vs CST (2012(26)STR401(Jhar)).
There are a number of other judgments on the same issue. Some are on the levy on the club as a mandap keeper. The principle of mutuality is common, whether as a mandap keeper under section 65(19) or the general description of a club under section 65(25a). So, all judgments by the high courts, as well as the Supreme Court's judgment in the case of Young Men's Indian Association have held service tax is not leviable on a club as a mandap keeper, under 65(19), or as a club under 65(25a).
All judgments were before the comprehensive service tax was announced in Budget 2012. But if it is not a service, the same principle will apply now, too.
The practice is show-cause memos have been issued to clubs, as they are contesting paying service tax. The clubs are charging service tax and keeping this under the contingency head. Prolonged litigation is undesirable, as it affects confidence in the government.
Conclusion: If we wait for the Supreme Court, which admitted the case in 2012, to decide the issue, it will take long. In the meantime, all clubs will have to charge service tax and put this under the contingency account, which will continue to keep things unsettled. I suggest the Central Board of Excise and Customs (CBEC) should finalise the issue internally. It could take a legal opinion at the level of the law secretary and if it is agreed that service tax isn't leviable on clubs, it could either withdraw the case from the Supreme Court or issue a circular in this regard.
As it is in favour of the taxpayer, there will be no problem. Even when it is in favour of the department, the CBEC could issue a circular, though the matter is sub judice. Practising lawyers say the Attorney General isn't in favour of too many appeals. And, even the finance ministry is so inclined. It is a welcome trend compared to the previous practice of filing appeals routinely to a high court and the Supreme Court. There is tremendous pressure in favour of solving the problem of mounting litigation. So, this is the time when the CBEC could improve the situation by reviewing the cases pending in the Supreme Court or a high court. The CBEC should take the initiative now, when the time is ripe.