Case nº Ruling No. AAR/ST/10/2015 in Application No. AAR/44/ST/07/2014 of AAR Cases, September 11, 2015 (case In Re: Emerald Leisures Limited Vs)

JudgeFor Appellant: B.J. Raichandani, Advocate
PresidentV.S. Sirpurkar, J. (Chairman) and S.S. Rana, Member
Resolution DateSeptember 11, 2015
Issuing OrganizationAAR Cases

Judgment:

  1. M/s. Emerald Leisures Limited (hereinafter also referred to as applicant) is resident Public Limited Company. Applicant has entered into the business of establishing and running an indoor sports complex and club. The facilities and amenities to be provided at the upcoming indoor sports complex and club include lawn tennis courts, badminton court, swimming pool, table tennis, billiards, card room, board games, virtual sports, kids play area, a library, restaurant, spa, gymnasium, banquet halls and room to stay. Applicant proposes to invite membership from prospective members in terms of proposed scheme. The said scheme includes proposal for refundable interest free security deposit ranging between Rs. 3 lakhs/Rs. 4.5 lakhs up-to Rs. 10 lakhs to be received from each potential member in addition to non-refundable membership fee for an amount ranging from Rs. 50,000/- to Rs. 5,00,000/- depending on the category of membership. The maximum term of membership is 20 years. The club facility shall be allowed to be used only by the members.

  2. Applicant has raised following issues for determination by the Authority.

    "(

    1. Whether the relationship between the applicant and members of the club could be considered as provision of "service" by one person (service provider) to another person (service receiver) for the purpose of Section 65B(44) of the Finance Act, 1994 read with Sections 66B, 66D and Section 66E of the Finance Act, 1994 and accordingly, would the Membership fee, Annual fee and other charges received from members from time to time be liable for Service Tax or in light of the settled legal concept of mutuality, the club and its members are not to be regarded as two separate entities and hence, there is provision of "service" by one person (service provider) to another person (service receiver)?

    (b) Whether refundable security deposit would be subject to Service Tax is in accordance with the applicable provisions of law, in particular, the definition of service contained in Section 65B(44) read with sections 66B, 66D and Section 66E of the Finance Act, 1994 or not."

  3. Applicant submits that in order to attract Service Tax, the service provider has to undertake an activity for another person (service receiver) for a consideration; that in the instant case, all the ingredients for imposition of Service Tax are not present. Applicant submit that there is no "activity" undertaken by the applicant for the members; that the term "activity" has not been defined under the Finance Act, 1994 or Central Excise Act, 1944 or the rules made thereunder; that the dictionary meaning of "activity" is the state of being active or energetic action or movement, liveliness; that members shall use the available passive infrastructure; that no Service Tax is applicable on aforesaid transaction.

  4. Further, applicant submits that no service is being provided by one person to another as there is complete absence of identity between the contributors and the beneficiaries thereof; that for a service to be regarded as taxable service, there should be two distinct person i.e. service provider and service receiver; that in the case of the Dalhousie Institute 2005 (108) ELT 18, the Hon'ble Calcutta High Court held that immoveable property let out by a club to its members would not be liable to Service Tax as "Mandap Keeper" because the club is a mutual concern; that similar view was taken in case of Saturday Club Ltd. v. CCE 2006 (30) STR 305 (Cal); that in case of Joint Commercial Tax officer, Madras v. Young Men's Indian Association 1970(1)(SCC) 462 it was held by the Hon'ble Supreme Court that in spite of definition contained in Section 2(n) of Sales of Goods Act, 1930 read with Explanation I, if there is no transfer of property from one to another, there is no sale, which would be exigible to tax. The Hon'ble Supreme Court further observed that if the club, even though a distinct legal entity, is only acting as an agent for its members in matter of, supply of various preparations to them, no sale would be involved as the element of transfer would be completely absent; that similar view was taken by Full Bench of the Patna High Court in case of CIT v. Ranchi Club (1992 196 ITR 137 Patna) wherein it was inter-alia held that keeping in view the principle of mutuality, the surplus accruing to a Members' Club from the subscription charges received from its members cannot be said to be income within the meaning of the Act; that if such receipts are from source other than the members, no exemption can be claimed in respect of such receipts on the plea of mutuality; that Hon'ble Gujarat High Court in Sports Club of Gujarat Limited v. U.O.I. reported in 2013 (31) STR 645 (Guj.) held provisions of Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance Act, 1994 to levy Service Tax in respect of services purportedly provided by the petitioner club to its members to be ultra vires; that above rulings would apply even after 01.07.2012 in respect of submissions made by the applicant; that explanation to Section 65B(44) would not apply in the facts of the present case.

  5. Revenue submits the as per Section 65B(37), "person" includes an association of persons or body of individuals, whether incorporated or not. Section 65B(44) defines the term "service". The term "service" is defined as any activity carried out by a person for another for consideration. Explanation 3 to the said Section explicitly states that for the purpose of this Chapter, an unincorporated association or body of persons, as the case may be, and the member thereof, shall be treated as distinct persons. The activity undertaken by the applicant is in the interest of the shareholders of the Company. Services are provided to...

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