Service tax on clubs has been set aside by the Gujarat High Court by a judgment on March 25, 2013, in the cases of Sports Club of Gujarat, Rajpath Club and Karnavati Club in the special civil application Nos.13654-56 of 2005.
The high court agreed that the provisions in the Service Tax law regarding clubs as in Sections 65(25a) and 65(105)(zzze) of the Finance Act, 1994, are unconstitutional and so set them aside. The reason is 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 and the same person, if it is not a proprietary club. This judgment of the Gujarat High Court depended on the judgment of the Supreme Court in the case of Joint Commercial Tax Officer vs The Young Men's Indian Association- 1970(1)SCC462. In this judgment, the Supreme Court observed: "It is a mutuality which constitutes the club and, therefore, sale by a club to its members and its services rendered to the members is not a sale by club to the members." This Supreme Court judgment has also been relied upon by the Calcutta High Court in the case of Saturday Club vs CST and by the Jharkhand High Court in the case of Ranchi Club vs CST - 2012(26)STR401(Jhar). Some of the judgments are on the levy on the club as mandap keeper but the principle of mutuality is common whether it is under mandap keeper under Section 65(19) or the general description of club under Section 65(25a).
This Supreme Court judgment, therefore, is the main and leading judgment on the issue. There are a number of other judgments on the same issue such as Kamavathi Club vs UOI - 2010(20)STR169(Guj), Sports Club of Gujarat vs UOI - 2010 (20)STR17(Guj), Dalhousie Club vs CST - 2006(3)STR311(Cal) and Saturday Club vs CST - 2006(3)STR305(Cal).
On the other side, the judgment of Madras High Court in the case of Tamil Nadu Kalyana Mandapam Owners' Association v. U.O.I.- 2001 (133)ELT36(Mad.) upholds the levy of service tax on mandap keeper, but not on club as mandap keeper. So all the high court judgments and the Supreme Court judgment in the case of Young Men's Indian Association have held that service tax is not leviable on club as a mandap keeper under 65(19) or as a club under 65(25a).
All the judgments are before the comprehensive service tax came in the Budget of 2012. Now, the definition of service is, "any activity carried out by person for another for consideration". Person has been defined in Section 65B(37) (vii) to include, "an association of persons or body of individuals, whether incorporated or not".
The charging section in the new comprehensive tax is, "there shall be levied a service tax on the value of all services provided by one person to another". So the issue still remains whether a club is a different person from its members. This is a general and basic issue and is, therefore, guided by the principle of mutuality enunciated by the Supreme Court judgment and the high court judgments quoted above.
The litigations are all around. The clubs are charging contingency fees and keeping them separately to pay service tax if the court cases are lost.
Conclusion: All high court judgments and Supreme Court judgment are against the levy of service tax on clubs. There is no point in going to the Supreme Court against these high court judgments, which are based on a Supreme Court judgment. The CBEC should get a legal opinion at the highest level and end all these litigations by deciding not to appeal to the Supreme Court. I don't find even a whiff of a chance of winning in the Supreme Court.
smukher2000@yahoo.com
