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of <h1>Sections 65(25a), 65(105)(zzze), and 66 amendments on club service tax ruled ultra vires</h1> <h3>SPORTS CLUB OF GUJARAT LTD Versus UNION OF INDIA & 3</h3> The HC held that provisions under Sections 65(25a), 65(105)(zzze), and 66, as amended to levy service tax on services provided by a club to its members, ... Club Membership - Constitutionality of section 65(105) - principle of mutuality - liability for service tax - Whether services provided by the assessee club to its members would be liable to service tax - the club is rendering service or selling any commodity to its members for a consideration then whether the amounts to sale or not – Held that:- Section 65(25a), Section 65(105) (zzze) and Section 66 as incorporated / amended to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires – decided in favour of assessee. Decision in Joint Commercial Tax Officer Vs. The Young Mens' Indian Association [1970 (2) TMI 87 - SUPREME COURT] and Decision of Full bench in case of Commissioner of Income Tax Vs. Ranchi Club Limited [2012 (6) TMI 636 - JHARKHAND HIGH COURT] followed. ISSUES: Whether the imposition of service tax under Section 65(25a), Section 65(105)(zzze), and Section 66 of the Finance (No.2) Act, 1994 as amended by the Finance Act, 2005 on services provided by clubs to their members is constitutionally valid and within the legislative competence of Parliament.Whether the principle of mutuality exempts transactions between a club and its members from being considered taxable services or sales.Whether a club incorporated under the Companies Act can be treated as a separate legal entity for the purpose of levying service tax on services provided to its members.Whether the transactions between a club and its non-members are taxable under service tax laws. RULINGS / HOLDINGS: The Court declared that the provisions of Section 65(25a), Section 65(105)(zzze), and Section 66 of the Finance (No.2) Act, 1994 as amended by the Finance Act, 2005, to the extent they levy service tax on services purportedly provided by clubs to their members, are ultra vires, beyond the legislative competence of Parliament, unconstitutional, illegal and void.The Court held that the principle of mutuality applies, meaning that transactions between the club and its members do not constitute a transaction between two distinct persons or legal entities, and therefore no taxable service or sale is involved.The Court rejected the argument that incorporation under the Companies Act negates the principle of mutuality, affirming that even incorporated clubs acting on the principle of mutuality do not provide taxable services to their members.The Court noted that services provided by the club to non-members are outside the principle of mutuality and may be subject to service tax, as such transactions involve two distinct legal entities. RATIONALE: The Court relied on the principle of mutuality as established in precedent, including the judgment of the Supreme Court in Joint Commercial Tax Officer Vs. The Young Men's Indian Association, which held that 'for a transaction of sale, there must be two persons' and that 'no sale would be involved as the element of transfer would be completely absent' when a club provides services to its members.The Court considered the Full Bench decision of the Patna High Court in Commissioner of Income Tax Vs. Ranchi Club Limited, which recognized that income or transactions between a club and its members are not taxable due to mutuality, but income from non-members is taxable.The Court acknowledged that 'sale and service are different and distinct transactions,' but emphasized that both require the existence of two legal entities, which is absent in transactions between a club and its members.The Court noted that the Department's challenge to the cited precedents does not diminish their persuasive value, especially given the consistency of the principle of mutuality in Indian jurisprudence.There was no dissenting or concurring opinion; the Court followed existing precedent and applied it to the facts before it, resulting in a ruling that the impugned service tax provisions are unconstitutional insofar as they apply to services provided by clubs to their members.
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