2008 (2) TMI 837 - HC - VAT and Sales Tax

High Court affirms tax exemption for club members based on mutuality principle

The High Court upheld the Tribunal's decision that the Calcutta Club Limited is not liable to pay sales tax on supplies to its permanent members due to ... Whether the learned Tribunal having regard to the definition of 'sale' in section 2(30) of the 1994 Act read with clause (29A) of article 366 sub-clauses (e) and (f) of the Constitution of India had decided correctly that the members' club like the first respondent herein comes within the purview of the aforesaid definition in view of the mutuality and reciprocity amongst the members in the club? Held that:- Upon careful reading of the Constitutional amendment as well as the provision of the definition of 'sale' under the 1994 Act it is clear that supply of food, drinks and beverage has to be made upon payment of consideration either in cash or otherwise to make the same exigible to tax. To clarify it one must supply the beverage in consideration of paying the value thereof by the members. In clause (f) it is made clear that if such supply of aforesaid things is effected either on immediate payment of cash or deferred payment or valuable consideration (emphasis(1) supplied) which may be of various nature only then the tax can be levied. Mr. Bajoria has rightly contended that going by the language in the definition of 'sale' in the Act as well as the amended provision of the Constitution the concept of mutuality is not obliterated. In the clauses (e) and (f) had there been specific mention of supply irrespective of payment, the provision of the said Act would have been applicable and the mutuality concept could be said to have been obliterated. Application dismissed. Issues Involved1. Whether the Calcutta Club Limited is considered a 'dealer' under the West Bengal Sales Tax Act, 1994.2. The applicability of sales tax on supplies made by the club to its permanent members.3. The concept of mutuality and reciprocity between the club and its members.4. The interpretation of Article 366(29A) of the Constitution of India in the context of sales tax.Detailed Analysis1. Whether the Calcutta Club Limited is considered a 'dealer' under the West Bengal Sales Tax Act, 1994The Calcutta Club Limited filed an application before the learned Tribunal seeking a declaration that it is not a 'dealer' within the meaning of the West Bengal Sales Tax Act, 1994. The club argued that there is no sale of goods in the form of food, refreshment, and drinks to its permanent members, and thus, it is not liable to pay sales tax under the Act. The Tribunal held that the club is not a 'dealer' as there is no substantial change in the definition of 'sale' in the new Act, and the concept of mutuality and reciprocity between the club and its members remains intact.2. The applicability of sales tax on supplies made by the club to its permanent membersThe State of West Bengal contended that, following the Constitutional Amendment and the definition in the 1994 Act, the club must pay tax for the supply of food, drinks, and beverages to its members, treating it as a 'deemed sale.' The Tribunal, however, concluded that there is no sale requiring consideration within the club, as the payments made by members to the club are essentially payments to themselves. The Tribunal observed that the club acts as an agent and instrument for collecting such payments, and therefore, the supplies made to the members do not constitute a sale.3. The concept of mutuality and reciprocity between the club and its membersThe Tribunal emphasized the principle of mutuality, stating that there is an identity between the members and the club, which acts as an alter ego of the members collectively. The Tribunal held that the payments made by the members to the club are not for the sale of goods but are reimbursements for expenses incurred by the club on behalf of the members. The Tribunal further noted that the concept of mutuality has not been eliminated by the Constitutional Amendment or the 1994 Act.4. The interpretation of Article 366(29A) of the Constitution of India in the context of sales taxThe State argued that Article 366(29A) of the Constitution, specifically sub-clauses (e) and (f), deems such supplies as sales for the purpose of levying sales tax. However, the Tribunal and the High Court held that the amendment does not eliminate the concept of mutuality in members' clubs. The High Court noted that the Supreme Court's decision in the Automobile Association of Eastern India case did not address whether the concept of mutuality was done away with by the Constitutional Amendment. The High Court concluded that the amendment does not apply to transactions within members' clubs where mutuality exists, and therefore, sales tax is not leviable on such transactions.ConclusionThe High Court dismissed the application by the State of West Bengal, upholding the Tribunal's decision that the Calcutta Club Limited is not liable to pay sales tax on supplies made to its permanent members due to the principle of mutuality and reciprocity. The Court emphasized that the Constitutional Amendment and the 1994 Act do not eliminate the concept of mutuality in members' clubs, and thus, such transactions are not considered sales for the purpose of levying sales tax. The application was dismissed with no order as to costs.