Appeal granted on service tax demand pre-introduction, penalty set aside

The Tribunal partly allowed the appeal by the Appellant, setting aside the demand for service tax and penalty imposed under section 78. The Tribunal ruled that amounts received before the introduction of service tax on Club and Association services were not subject to tax. Interest was, however, deemed payable on delayed service tax payments for certain memberships. The Tribunal held that the penalty could not be upheld due to the unsustainable service tax demand.

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Issues involved:
1. Taxability of amounts received prior to the introduction of service tax on Club and Association services.
2. Imposition of penalty under section 78 on the Appellant.

Detailed analysis:
Issue 1: The primary issue in this case was whether the amounts received by the Appellant before the introduction of the levy of service tax under Club and Association services could be subjected to service tax. The Appellant argued that the demand for service tax on the amount received for corporate membership before the introduction of the levy could not be sustained as the service itself was not taxable at the time of receiving the consideration. The Appellant had paid the said amount under protest. The Tribunal referred to a decision by the Hon'ble High Court of Rajasthan in a similar case, where it was held that contracts concluded before the introduction of the service tax law would not be subject to service tax. Accordingly, the Tribunal set aside the demand for service tax on the amounts received before the levy was introduced. However, the Tribunal held that interest was payable on the delayed payment of service tax on Junior and NRI memberships, as well as on corporate membership from a specific entity.

Issue 2: The second issue revolved around the imposition of a penalty of Rs. 83,00,000 on the Appellant. The Tribunal noted that since the major demand for service tax was not sustainable due to the reasons discussed above, the imposition of the penalty could not be upheld. The Tribunal relied on a previous decision where it was held that the demand notice issued after a significant period from the introduction of the clarification by the Board was barred by limitation. Consequently, the Tribunal concluded that penalty under section 78 could not be imposed on the Appellant. As a result, the Tribunal modified the impugned order by setting aside the demand for service tax and penalty, while directing the payment of interest on specific amounts received by the Appellant.

In conclusion, the Tribunal partly allowed the appeal filed by the Appellant, setting aside the demand for service tax and penalty, and ordering the payment of interest on the specified amounts.

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