2014 (12) TMI 1097 - HC - Service Tax

High Court Invalidates Tax on Club Services, Petitioners Absolved

GREEN ENVIRONMENT SERVICES COOPERATIVE SOCIETY LTD & 1 Versus UNION OF INDIA & 1

The High Court declared Section 65(25a), 65(105)(zzze), and Section 66 of the Finance Act, 1994, as amended by the Finance Act, 2005, unconstitutional in ... Club Membership - Constitutionality of section 65(105) - laiblity 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:- In the case of SPORTS CLUB OF GUJARAT LTD Versus UNION OF INDIA & 3 [2013 (7) TMI 510 - GUJARAT HIGH COURT] the provision of Section 65(25a), Section 65(105) (zzze) and Section 66 of the Finance (No.2) Act,1994 as incorporated / amended by the Finance Act,2005 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, was declared as ultra vires. - order passed by the Commissioner of Service Tax is required to be set aside - Decided in favour of assesse. Issues:Challenge to vires of Section 65(25a) and 65(105)(zzze) of Finance Act, 1994 regarding service tax on services provided by a cooperative society to its members.Analysis:The petitioners contested the constitutionality of Section 65(25a) and 65(105)(zzze) of the Finance Act, 1994, which imposed service tax on services offered by a society to its members. The petitioner society operated a common effluent treatment plant for its members under the Gujarat Cooperative Societies Act. They argued that since the society was formed solely to provide services to its members, there was no commercial service provided to consumers, and thus, should not be subject to taxation. The adjudicating authority had confirmed a substantial service tax demand against the petitioners, leading to a separate challenge by the petitioners against this order.The Commissioner of Service Tax justified the tax demand by categorizing the services provided by the society as 'club or association services' under Section 65(25a) of the Finance Act, 1994. The Commissioner rejected the petitioners' argument that the society and its members were not separate entities, emphasizing that the existence of 'club or association service' implied a legal distinction between the society and its members. The Commissioner upheld the tax liability for the services rendered by the society, leading to the significant tax demand against the petitioners.However, the petitioners cited a previous judgment by a Division Bench of the High Court that declared Section 65(25a) unconstitutional in a similar case involving a sports club. The High Court concurred with this precedent, declaring Section 65(25a), 65(105)(zzze), and Section 66 of the Finance Act, 1994, as amended by the Finance Act, 2005, to be ultra vires in levying service tax on services provided by a club or society to its members. Consequently, the impugned order confirming the tax demand was set aside based on the unconstitutionality of the relevant provisions.Moreover, the Court noted that retrospective exemptions had been granted for such services, providing an additional basis for overturning the adjudication order. As a result, the High Court set aside the impugned order dated 9.10.2007 passed by the Commissioner of Service Tax, ruling in favor of the petitioners and absolving them from the tax liability. The judgment concluded by making the rule absolute, with no costs imposed on either party.