2024 (1) TMI 519 - AT - Service Tax

Association of house owners wins service tax exemption on member maintenance contributions under Section 65(25aa)

CESTAT Hyderabad ruled in favor of an appellant association of house owners registered under the Andhra Pradesh Societies Registration Act, 2001, ... Doctrine of mutuality - Liability to pay service tax Club or Association services or not - amount of the contributions made by their members for their mutual benefit in the nature of maintenance charges, etc. - Appellant is an association of house owners (in group residential houses), registered under the Andhra Pradesh Societies Registration Act, 2001 - period 01.04.2011 to 31.03.2016 - extended period of limitation - HELD THAT:- The issue herein is squarely covered in favour of the Appellant by the ruling of the Apex Court in the case of State of West Bengal vs Calcutta Club Ltd [2019 (10) TMI 160 - SUPREME COURT], wherein in the matter of service tax it has been held Explanation 3(a) to Section 65B(44) does not apply to members’ clubs which are incorporated. In view of the aforementioned ruling of the Apex Court in the case of Calcutta Club Ltd, it is found that the dispute herein is covered on all fours in favour of the Appellant - the definition in Sec 65 (25aa), w.e.f. 01.07.2012, also specifically excludes – any body established or constituted by or under any law for the time being in force. The Appellant is a body registered or incorporated under the Andhra Pradesh Societies Registration Act, 2001. Further explanation 3(a) to Sec 65(44) does not apply to members’ Club/Association, which are incorporated. The impugned order set aside - appeal allowed. Issues Involved:1. Liability to pay service tax on contributions made by members for mutual benefit.2. Invocation of extended period of limitation.3. Applicability of the principle of mutuality.4. Interpretation of 'club or association' under the Finance Act.5. Applicability of Supreme Court rulings on mutuality and service tax.Summary:1. Liability to Pay Service Tax on Contributions Made by Members for Mutual Benefit:The primary issue in these appeals is whether the Appellant, an association of house owners registered under the Andhra Pradesh Societies Registration Act, 2001, is liable to pay service tax on contributions made by their members for mutual benefit, categorized as 'Club or Association services' under Sec 65(25a) read with Sec 65(105)(zzze) of the Finance Act, for the period from 01.04.2011 to 31.03.2016. The SCN issued on 14.10.2016 alleged that the Appellant provided services to its members for a subscription, making them liable for service tax as per Circular No.175/01/2014-ST dated 10.01.2014.2. Invocation of Extended Period of Limitation:The Appellant contested the SCN, and the Adjudicating Authority confirmed the demand of Rs.53,25,891/- under Sec 73(1) along with interest and penalties under Sec 78, Sec 77(2), and late fee under Sec 70 read with Rule 7C. The Commissioner (Appeals) partially dropped the tax demand and remanded the case for re-quantification. The de novo proceedings confirmed a truncated demand of Rs.16,65,507/- with interest and penalties. The Appellant argued that the extended period of limitation is not invokable due to the doctrine of mutuality and the absence of suppression or fraud.3. Applicability of the Principle of Mutuality:The Appellant argued that their activities are for the mutual benefit of members and should not be treated as transactions between different persons, thus not attracting service tax. This argument is supported by the Supreme Court's decision in State of West Bengal vs Calcutta Club Ltd [2019 (29) GSTL 545 (SC)], which held that services provided by members' clubs to their members are not taxable due to the principle of mutuality.4. Interpretation of 'Club or Association' Under the Finance Act:The Tribunal found that the issue is covered by the Supreme Court ruling in Calcutta Club Ltd, which clarified that incorporated entities like companies and cooperative societies are not included in the definition of 'club or association' under Sec 65(25a) and Sec 65(25aa). The Tribunal held that the Appellant, being a registered society, is not liable for service tax under the said provisions.5. Applicability of Supreme Court Rulings on Mutuality and Service Tax:The Tribunal relied on the Supreme Court's interpretation that incorporated members' clubs are not taxable under service tax laws. The Tribunal concluded that the Appellant, being a registered society, is not liable for service tax on contributions made by its members for mutual benefit.Conclusion:The appeals were allowed, and the impugned orders were set aside. The Appellant is entitled to consequential benefits in accordance with the law. The operative part of the order was pronounced in the open court.