Supreme Court: No Service Tax for Member's Clubs in Incorporated Form

The Supreme Court allowed the writ petition challenging a Show Cause Notice demanding service tax for services rendered by a company under Section 65 (105) (zzze) of the Finance Act 1994 between May 2005 and May 2010. The Court clarified that post-2012, the legislative intent was not to tax member's clubs in incorporated form, emphasizing that incorporated entities like companies are not included in the definition of "body of persons" for service tax purposes. The demand in the notice was deemed unsustainable in light of the Court's decision, and the petition was allowed without costs.

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Issues:
Challenge to Show Cause Notice for service tax on services rendered by a company under Section 65 (105) (zzze) of the Finance Act 1994 between May 2005 and May 2010.

Analysis:

1. The petitioner challenged Show Cause Notice No.86/2011 dated 03.10.2011, demanding service tax for services rendered between May 2005 and May 2010 under Section 65 (105) (zzze) of the Finance Act 1994. The notice alleged the petitioner provided services of a "clubs or association" as per Section 65 (25a) of the Act, justifying an extended period of limitation and demanding a specific sum as service tax, education cess, and interest, along with penalties.

2. Both parties acknowledged the issue was settled by the Supreme Court in State of West Bengal Vs. Calcutta Club Ltd., 2019, but the respondents argued the petitioner should go through show cause proceedings. The court noted that writs against show cause notices are generally not entertained initially, and the petitioner should have replied to the notice.

3. An interim injunction was issued on 16.11.2011, delaying the adjudication of the Show Cause Notice. The Supreme Court's decision on 03.10.2019 clarified the issue, emphasizing that a company incorporated under the Companies Act could be constituted under any law in force, affecting the interpretation of "club or association" for service tax purposes.

4. The Supreme Court's observations highlighted the distinction between incorporated and unincorporated entities in the context of service tax liability. The Court clarified that post-2012, the legislative intent was not to tax member's clubs in incorporated form. The judgment emphasized that the expression "body of persons" did not include incorporated entities like companies or registered cooperative societies for service tax purposes.

5. The Court concluded that the demand in the impugned show cause notice was not sustainable in light of the Supreme Court's decision. Therefore, the writ petition was allowed, and no costs were imposed. The judgment clarified the interpretation of the law regarding the taxation of clubs or associations under the Finance Act 1994, providing clarity on the liability of incorporated entities for service tax.

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