2025 (3) TMI 628 - AT - Service Tax

Association subscription fees exempt from service tax under mutuality doctrine, business auxiliary demands lack clarity

The CESTAT Chennai allowed the appeal in its entirety, setting aside service tax demands on three grounds. For club or association services, the tribunal ... Levy of service tax - Club or Association Services - Business Auxiliary Services - renting of immovable properties. Levy of service tax - Club or Association Services - doctrine of mutuality - HELD THAT:- The said taxable service is defined under Section 65(105)(zzze) of the Finance Act, 1994 to read as ‘any service provided or to be provided to its members, by any club or association in relation to provision of services, facilities or advantages for a subscription or any other amount’. The said definition was amended w.e.f. 16.05.2011 and reads as ‘any service provided or to be provided to its members, or any other person, by any clubs or association membership service in relation to provision of services, facilities or advantages for a subscription of any other amount’. The relationship of a member with its association and vice versa is hit by the doctrine of mutuality. There is no service provider and service recipient relationship. The issue as to whether the subscription / entrance fees collected by the association from its members can be subjected to levy of service tax under the said category was considered by the Tribunal in the case of M/s. Ranchi Club Ltd. The Hon’ble Apex Court in the case of State of West Bengal Vs. Calcutta Club Limited [2019 (10) TMI 160 - SUPREME COURT]] has also held that the demand of service tax on this count cannot sustain. Following these decisions, the demand under this heading made on the appellant cannot sustain and requires to be set aside. Levy of service tax - Business Auxiliary Services - HELD THAT:- The appellant has contested that such commission collected is as pure agent and the said contention has not been controverted by the adjudicating authority as well as the appellate authority. The Show Cause Notice is also not clear as to how this amount is to be treated as business auxiliary services or under which limb of the definition the said activities of the appellant would be covered. The adjudicating authority also after reproducing the definition of BAS and the various limbs has not slotted the appellant under any particular limb. The demand under BAS cannot sustain and requires to be set aside. Levy of service tax on renting of immovable properties - HELD THAT:- It is seen from the annexure to the statement of demand No.64/2014 dated 06-06-2014 that the taxable value under the category of renting of immovable property services for the period 2013-2014 is Rs.1,45,875/- which is below the threshold limit as specified in notification No.33/2012 dated 20.06.2012. The impugned OIO also has taken the said taxable value of Rs.1,45,875/- to arrive at the tax liability demanded under the category renting of immovable property services. Conclusion - i) The doctrine of mutuality applies to club or association services, negating the service tax liability on subscription fees collected from members. ii) The lack of clarity and specificity in the categorization of services under BAS led to the setting aside of the demand under this category. iii) The rental income received by the appellant was below the threshold limit, exempting it from service tax liability. Appeal allowed in toto. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the appellant's activities fall under the taxable service categories of 'Club or Association Services,' 'Business Auxiliary Services,' and 'Renting of Immovable Property Services' as defined under the Finance Act, 1994.Whether the appellant is liable to pay service tax on donations received from non-members, which were treated as subscription fees by the authorities.Whether the appellant's collection of commission qualifies as 'Business Auxiliary Services' or if it was done as a pure agent, thus not attracting service tax.Whether the rental income received by the appellant falls under the 'Renting of Immovable Property Services' and whether it exceeds the threshold limit for service tax liability.ISSUE-WISE DETAILED ANALYSISIssue 1: Club or Association ServicesThe relevant legal framework involves Section 65(105)(zzze) of the Finance Act, 1994, which defines taxable services provided by clubs or associations to their members. The Court referenced the doctrine of mutuality, which negates a service provider-recipient relationship between a club and its members. The Tribunal cited precedents, including the Supreme Court's decision in State of West Bengal Vs. Calcutta Club Limited, which held that subscription fees collected by associations from members are not subject to service tax. Consequently, the demand for service tax under this category was set aside.Issue 2: Business Auxiliary ServicesThe legal framework under consideration was the definition of 'Business Auxiliary Services' (BAS) in the Finance Act, 1994. The appellant argued that commissions collected were as a pure agent, a claim not refuted by the adjudicating or appellate authorities. The Tribunal noted the lack of clarity in the Show Cause Notice regarding the categorization under BAS and found that the authorities did not specify which part of the definition applied. Consequently, the Tribunal set aside the demand under BAS, referencing similar decisions in related cases.Issue 3: Renting of Immovable Property ServicesThe legal issue here involved the applicability of service tax on rental income under Section 66E(a) of the Finance Act, 1994. The Tribunal noted that the appellant's rental income for the period in question was below the threshold limit of Rs. 10,00,000 as specified in Notification No. 33/2012-ST. Since the demand under other service categories was set aside, the rental income alone did not meet the threshold for service tax liability. Therefore, the demand under this category was also set aside.Issue 4: Donations Treated as Subscription FeesThe appellant contested the treatment of donations from non-members as subscription fees, arguing that donations are distinct from fees and do not involve quid pro quo. The Tribunal found merit in the appellant's argument, noting that donations are not taxable as they are not given in consideration for services. The authorities' reliance on an oral statement without documentary evidence was also criticized.SIGNIFICANT HOLDINGSThe Tribunal's significant holdings include:The doctrine of mutuality applies to club or association services, negating the service tax liability on subscription fees collected from members.The lack of clarity and specificity in the categorization of services under BAS led to the setting aside of the demand under this category.The rental income received by the appellant was below the threshold limit, exempting it from service tax liability.Donations are not subject to service tax as they do not constitute consideration for services.The Tribunal concluded by setting aside the impugned order in appeal and allowing the appeal in toto, granting any consequential reliefs as per law.