Mutuality and service tax: incorporated club payments to members were not taxable, and refund was not hit by unjust enrichment.

An incorporated members' club was not liable to service tax on services provided to its members after 01.07.2012, because the doctrine of mutuality continued to apply and the Finance Act, 1994 did not treat the club and its members as distinct persons for that purpose; refund could not be refused on that basis. The refund claim was also not barred by unjust enrichment, as the tax burden had not been passed on to an external recipient. A plea that the refund was barred because the self-assessment order had not been challenged could not be entertained when it was not raised in the show cause notice or the impugned orders and no cross-appeal was filed.

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Issues: (i) Whether service tax was leviable on services rendered by an incorporated club to its members for the period after 01.07.2012, and whether refund of the tax so paid could be denied on that basis; (ii) Whether the refund claim was barred by unjust enrichment; (iii) Whether the department could raise the plea based on non-challenge to the self-assessment order.

Issue (i): Whether service tax was leviable on services rendered by an incorporated club to its members for the period after 01.07.2012, and whether refund of the tax so paid could be denied on that basis.

Analysis: The governing scheme under the Finance Act, 1994 changed with the introduction of the negative list regime and the new definitions in section 65B. The Supreme Court in Calcutta Club held that the doctrine of mutuality continued to apply to incorporated members' clubs and that the Finance Act, 1994 did not purport to levy service tax on such clubs even after 01.07.2012. The view taken by the appellate authority that the club and its members were distinct persons for service tax purposes was therefore incorrect.

Conclusion: The issue is decided in favour of the assessee. Service tax was not leviable on the club's services to its members on the reasoning adopted by the appellate authority, and refund could not be denied on that ground.

Issue (ii): Whether the refund claim was barred by unjust enrichment.

Analysis: The refund arose from tax paid by the club on services to its own members. In such a case, the incidence of tax is not passed on to an external customer, and the club and its members are treated as one for the relevant purpose. The Tribunal's earlier view on clubs showed that the bar of unjust enrichment does not apply where the tax burden is not transferred to a separate recipient.

Conclusion: The issue is decided in favour of the assessee. The refund was not hit by unjust enrichment.

Issue (iii): Whether the department could raise the plea based on non-challenge to the self-assessment order.

Analysis: The plea was neither raised in the show cause notice nor examined in the orders under challenge, and no cross-appeal was filed by the department. In these circumstances, the plea could not be entertained in the appeal.

Conclusion: The issue is decided in favour of the assessee. The department's self-assessment objection was not open for consideration.

Final Conclusion: The appellate order was unsustainable and was set aside, resulting in grant of refund-related relief to the appellant.

Ratio Decidendi: An incorporated members' club is not liable to service tax on services provided to its members merely because of the post-01.07.2012 definitions, and a refund arising from such payment is not defeated by unjust enrichment where the tax burden has not been passed on to a distinct recipient.

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