High Court rules incorporated clubs exempt from service tax on services to members, quashing demand in landmark decision.

The High Court quashed the impugned order regarding the first Show Cause Notice (SCN) dated 21.04.2014, which demanded service tax from a company providing services to its members. Relying on the principle of mutuality and recent Supreme Court decisions, the Court ruled that incorporated clubs were not liable to pay service tax on services to members. The demand confirmed against the first SCN was deemed void, allowing the petitioner to challenge the demand in the second SCN separately. The writ petition was granted without costs, and the related Miscellaneous Petition was closed.

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Issues Involved:
1. Legality of service tax demand on services provided by clubs/associations to their members.
2. Applicability of the principle of mutuality.
3. Validity of the impugned order in light of recent Supreme Court judgments.

Issue-wise Detailed Analysis:

1. Legality of Service Tax Demand on Services Provided by Clubs/Associations to Their Members:
The petitioner, a registered company under Section 25 of the Indian Companies Act, 1956, was issued two Show Cause Notices (SCNs) demanding service tax for services provided to its members. The first SCN (SL.No.33/2014-ST(JC)) dated 21.04.2014 covered the period from 01.10.2008 to 31.01.2014, demanding Rs. 30,86,565. The second SCN (SL.No.88/2015-ADC) dated 16.10.2015 covered the period from 01.02.2014 to 31.03.2015, demanding Rs. 17,04,205. The total demand was Rs. 47,90,770. The impugned Order-in-Original No.4/2016 dated 07.01.2016 confirmed these demands. However, the petitioner confined the writ petition to the first SCN only.

2. Applicability of the Principle of Mutuality:
The petitioner argued that no service tax was payable on services provided to its members based on the principle of mutuality, as held by the Gujarat High Court in Sports Club of Gujarat Ltd vs Union of India, 2013 (31) STR 645, and the Jharkhand High Court in Ranchi Club Ltd vs Chief CCE and ST, 2012 (26) STR 401. These decisions declared that no service tax was payable for services rendered by clubs/associations to their members.

3. Validity of the Impugned Order in Light of Recent Supreme Court Judgments:
The petitioner relied on the recent Supreme Court decision in State of West Bengal and Others vs Calcutta Club Ltd and Chief Commissioner of Central Excise and Service Tax and Another vs Ranchi Club Ltd, 2019 SCC OnLine SC 1291. The Supreme Court held that incorporated clubs or associations were not liable to pay service tax on services provided to their members, applying the principle of mutuality. The Court examined the Finance Act provisions before and after the 2012 amendments and concluded that members' clubs in incorporated form were not included in the service tax net.

Judgment:
The High Court, following the Supreme Court's decision, quashed the impugned order concerning the first SCN (SL.No.33/2014-ST(JC)) dated 21.04.2014. The Court allowed the writ petition, stating that the demand confirmed against the first SCN was void and of no effect in law. The petitioner was given liberty to seek remedy against the demand confirmed in the second SCN (SL.No.88/2015-ADC) dated 16.10.2015 in accordance with the law. The writ petition was allowed with no cost, and the connected Miscellaneous Petition was closed.

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