TaxTMI 
TaxTMI 
2025 (4) TMI 935
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....ce, Outdoor Catering Service etc. The Adjudicating Authority vide Order-InOriginal bearing No. SD-02/REF-20/VJP/2017-18 dated 15.05.2017 rejected the refund claim of Rs.20,46,47,216/-. Being aggrieved with the above OIO, they filed appeal before Commissioner (Appeals), Ahmedabad who vide Order-in-Appeal No. AHM-EXCUS-001-APP-237-17-18 dated 29.12.2017, allowed the appeal by holding that the appellants are eligible for refund under the principles of mutuality. Aggrieved with this order, the department filed this appeal bearing No. 11308 of 2018-DB. As per the Department, decision of Hon'ble High Court of Gujarat's in Order dated 25.03.2013 pertains to the period prior to 01.07.2012 whereas, the legal position has changed from 01.07.2012 which negates the issue of mutuality between the club and its members and they are deemed to be separate persons and hence, the said order of Hon'ble High Court is not applicable in this case. 2. The grounds of Appeal taken by the Revenue are- 2.1 The respondent was registered with the service tax department and as per rules, they were required to make payment of tax on monthly basis and file returns on half yearly basis on sel....
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....uired to be collected, it is required to be credited to the Central Government. Thus, in such scenario no refund arises. Hence, the payment of service tax made is to be treated as a deposit of tax and allowing the refund of such payment is bad in law and Commissioner(A) erred in allowing the same. 2.4 With effect from 01.07.2012, a new system of taxation of services has been introduced. Besides other changes, the word "services" has also been defined under Section 65B (44) of the Finance Act, 1994 as given below:- "(44) Service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include:- (a) an activity which constitutes merely.- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner, or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c)....
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....s. 2.8 The Section 65(105)(zzze) defines the taxable service provided by clubs and association. Section 65(25aa) defines the term club and associations and Section 66 is the charging Section of Service Tax. These provisions are reproduced below: Section 66 of the Finance Act, 1944 provides that, there shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clause (zzze) of clause (105) of section 65 and collected in such manner as may be prescribed. Section 65 (25aa)"Club or association" means any person or body of persons providing services, facilities or advantages, primarily to its members for a subscription or any other amount, but does not include i) Any body established or constituted by or under any law for the time being in force; or ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry, or iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political....
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....nd distinct individual. In view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form, then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing. 2.12 The aforesaid judgment records that the department has challenged the judgment of the Division Bench of the Jharkhand High Court before the Hon'ble Supreme Court, which was then pending. The department has also challenged judgment of Hon'ble Gujarat High Court in the case of Sports Club Limited and sought stay of the Judgment. However, this litigation pertains to the period prior to 01.07.2012. 2.13 Vide amendment in Section 66B, it is provided that there shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent on the value of all services, other than those services specified in the negative list (Sec. 66D), provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Section 66BA provides that reference to section 66 to be con....
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....ocated outside India would be taxable provided other conditions relating to taxability of service are satisfied. 2.17 Regarding principle of mutuality after 01.07.2012, in a case of M/s Emerald Leisures Limited, Mumbai (Formerly Apte Amalgamations Ltd) before AUTHORITY FOR ADVANCE RULINGS (Central Excise, Customs and Service Tax) DATED 11th day of September, 2015 in Ruling No. AAR/ST/10/2015 in Application No. AAR/44/ST/07/2014, it was held, in para 15 & 27, that: "15. Applicant also relied upon the judgments of the Hon'ble High Court in case of Saturday Club Ltd vs. A.C Service Tax Cell, Calcutta | 2006 (3) STR 305 (Cal) | and Sports Club of Gujarat Itd us. U.O.I (2013 (31) STR 645 (Guj) to emphasize that in view of principles of mutuality, no service tax is payable by the applicant. The Hon'ble High Court observed that principally there should be existence of two sides / entities for having transaction as against consideration - In a members club, there is no question of two sides members and club, both are same entity. We observe that with effect from 01.07.2012, new system of taxation of services has been introduced by the Government. Besides other changes, ....
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....correct taxes. Accordingly, Order-in-Appeal No.AHM-EXCUS-001-APP-237-17-18 dated 29.12.2017, passed by the Commissioner (Appeals) CGST and Central Excise Ahmedabad in case of M/s Rajpath Club Ltd., S. G. Road, Ahmedabad is not proper and legal and deserves to be set aside. 2.20 Another important issue is that when Service Tax became ultra vires as per the understanding of law, vide Hon'ble High Court of Gujarat's order dtd. 25.03.2013, why was then the Service Tax collected for the period 01.04.2016 to 30.09.2016, for which they have now claimed refund. This clearly indicates a modus operandi for unjust enrichment of the clubs as some (not all) members of the clubs paid Service Tax from their personal income and as such the incidence of Service tax is borne only by those members. If such Service Tax collected, is refunded to the Club (Claimant), it will be nothing but sheer profit to the club in the form of unjust enrichment as it will never be returned to the persons who had paid the Service Tax for utilizing the services. The respondents filed a refund claim escaping the principles of Unjust Enrichment on the ground of doctrine of mutuality. In terms of Hon'ble Sup....
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....f mutuality because these members are not similarly placed. The principle of mutuality decided by Hon'ble Supreme Court in the case of State of West Bengal v/s. Calcutta Club Ltd. was on the aspect of mutuality of the members and the club. It held that the judgments of Jharkhand High Court in Ranchi Club Ltd. (Supra) and the Gujarat High Court in Sports Club of Gujarat (Supra) are correct in their view of the law in Young Men's Indian Association (Supra). It was also held that with effect from 2005, no service tax could be levied on the services by clubs or associations to their members in the incorporated form and therefore, show-cause/ demand notices and other action taken to levy and collect service tax from incorporated clubs are declared to be void and would have no effect in law. The said judgment of State of West Bengal v/s. Calcutta Club Ltd. neither discussed the aspect of unjust enrichment of the refund originating out of the judgement nor go in to the principle of mutuality between one member and another member of the Club. Therefore, the law pertaining to unjust enrichment prevailing as on date, would be squarely applicable in this case when the refund claim is ....
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....y examined in the impugned order, as it is a fact that the Service tax was paid by the individual member, while the refund claim in this case has been filed and claimed by the appellant, who is a Club. The mutuality between a club and the member of a club, decided by the judgement of State of West Bengal v/s. Calcutta Club Ltd., cannot be directly inferred as a mutuality between one member of a club and another member of the same club. The service tax paid by one member of the club, on being refunded to the Club, would be unjustly enriching another member/s of the club, who had not paid the Service Tax. This aspect of unjust enrichment of the other member or members of the club at the expense of the member who had paid the Service Tax, has not been addressed by any judgement of any Court. The distinction between mutuality of the club with the member and one member of the club with another member of the club, cannot be construed to be the same in case of jurisprudence. Therefore, Non-invoking the Principle of Unjust Enrichment on the basis of Mutuality would amount to enlarging/broadening the scope of the judgement of State of West Bengal v/s. Calcutta Club Ltd. To state that not on....
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....se is hit by the bar of unjust enrichment. c. Hon'ble High Court of Madras, in Commissioner of Income Tax v/s. M/s. TVS lean Logistics Ltd., held that- "4.3. Similarly, there should be a literal rule of interpretation of a statute, which is the first and foremost principle of interpretation and where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule and even if the literal interpretation results in hardship or inconvenience, it has to be followed. The language employed in a statute is the determinative factor of the legislative event and even assuming there is a defect or any omission in the words used in the legislature, the Court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline, vide RAGHUNATH RAI BAREJA v. PUNJAB NATIONAL BANK [2007] 2 SCC 230." d. In another case, Hon'ble Supreme Court in ESCORTS LTD. Versus COMMI....
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....harti Airtel Ltd. v/s. State of Karnataka [2012 (25)S.T.R. 514 (Kar)) at Para 129 stated that - "129. The Supreme Court is not only the constitutional Court, but it is also the highest court in the country, the final court of appeal. By virtue of Article 141 of the Constitution, what the Supreme Court lays down is the law of the land. Its decision are binding on all courts. Its main role is to interpret the constitutional and other statutory provisions bearing in mind the fundamental philosophy of the Constitution. The Supreme Court is expected to decide questions of law for the country and not to decide individual cases without reference to such principles of law. The Supreme Court under Article 141 of the Constitution is enjoined to declare law. The expression 'declared' is wider than the words 'found or made'. To declare is to announce opinion. The law declared by the Supreme Court is the law of the land. The Supreme Court has always been a law maker and its role travels beyond merely dispute-settling. It is a problem-solver in the 'nebulous areas' without ignoring statutory provisions. The Supreme Court only interprets the law and cannot legisla....
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....same requires to be credited to Consumer Welfare Fund. As this aspect needs minute verification with regard to payment of Service Tax by individual members, it was requested to set aside the impugned order of the Commissioner (Appeal) and to remand the matter back to the Sanctioning Authority for testing the bar of unjust enrichment in this refund claim. 3. The Respondent Party in response through their advocate submitted as follows : M/s. Rajpath Club Ltd. the appellant is an incorporated entity under the companies Act. 1956 and its certificate of incorporation had been produced before the Commissioner (Appeals) as it is can be seen from page 63 of the Appeal Paper Book (internal page 6 of the commissioner appeals order). It is to be noted that the doctrine of unjust enrichment has been agitated before the tribunal but the doctrine nowhere finds mention in the appeal memorandum filed by the department. 3.1. The doctrine of unjust enrichment generally applies to prevent entities from claiming a refund of taxes when they have already passed on the tax burden to consumers or clients, thereby enriching themselves unjustly at the expense of the government or taxpayers. However....
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.... not arise." 2. Commissioner of Service Tax - Ahmedabad v. Young Men's Christian Association:-2024 (5) TMI 200. The Hon'ble CESTAT Ahmedabad has reaffirmed that the doctrine of mutuality applies to transactions between a club and its members, meaning there is no taxable service between two distinct entities and therefore, the doctrine of unjust enrichment is not applicable in the cases of a club. The relevant paragraphs have been reproduced here under "4. We have carefully considered the submission made by both the sides and perused the records. We find that even the aspects of taxability decided by the Hon'ble Supreme Court is on the principle that due to doctrine of mutuality no service exists between the club or association and its members. When the Hon'ble Supreme Court held that the club or association and its members are not two distinct identity and there is a mutuality of interest between both of them on that basis only it was held that since no service provider or service recipient exists service tax is not payable. On the same principle, if any service tax is paid, it has gone from one hand to other within the same entity it cannot be said t....
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....ared deemed to be a sale for the purpose of the said Act. In that situation, Hon'ble Supreme Court considered the issue that the club is rendering service or selling any commodity to its members for a consideration then whether that amounts to sale or not. Hon'ble Supreme Court held that it is a mutuality which constitutes the club and, therefore, sale by a club to its members and its services rendered to the members, is not a sale by club to the members. In the case of Commissioner of Income Tax Vs. Ranchi Club Limited, the Hon'ble Patna High Court affirmed that no one can earn profit out of himself on the basis of principle of mutuality and held that income tax cannot be imposed on the transaction of the club with its members. From the above finding, it can be seen that the Learned Commissioner (Appeals) held that unjust enrichment is not applicable due to principle of mutuality, we completely agree with the finding of the commissioner (Appeals) which is supported by the Hon'ble Gujarat High Court judgment (Supra)." 3 Commissioner Service Tax - Ahmedabad v. Young Men's Christian Association:-2024 (10) TMI 679-Annexure C Following the earlier decisi....
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....ssioner of Service Tax-Ahmedabad Versus Young Mens Christian Association • Rajpath Club-STA 12846 of 2018- Order Dated-28.06.2024 • Karnavati Club- STA 12428 of 2018- Order Dated-29.11.2024 • 1981 (4) TMI 96-HC-JK Synthetics Ltd Versus Union of India 3.4. Additionally the club was required to file an affidavit as to what all happened of the previous refund claims filed by them from time to time as the present claims are also involving the same issue and are only periodic Vide an affidavit dated 5th March, 2025 both Rajpath Club Ltd as well as Karnavati Club filed the affidavit which are similarly worded and which, inter alia, indicate that in the Annual General Meeting of the members it affirmed that refund of Service Tax was grantable to the members on their filing a form along with necessary proofs, as per the guidance of the committee formed by the club. The refund will be processed based on details submitted in the forms and that the club had sent letters to its members requesting them to visit the club and complete refund form. All this was done in pursuance of refund order dated 20.04.2018 in favour of Rajpath Club which was not furth....
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....at post amendment in Finance Act, 1994 vide amendment carried out on 1st July, 2012, the definition of service contained in Section 65B(44) was still wide enough to include the 'doctrine of mutuality' at least in relation to incorporated clubs or association to claim exemption from Service Tax. The basis of principle propounded was that there cannot be a service and therefore the levy between the club and members, inter-se, as the member collectively constitute the club and cannot be stated to be providing service mutually. We also find that this Bench in the matter of Karnavati Club Vs. CST Ahmedabad vide its order dated 29.01.2013 as reported in 2013 (5)TMI-752-CESTAT-Ahmedabad had held that provision of Section 11B particularly in relation to unjust enrichment will not apply to club and members as they are not separate and as held by Hon'ble Gujarat High Court which view got endorsed by the Hon'ble Supreme Court in Culcutta club matter (supra) and, the principle of mutuality will apply in relation to refund also. This Hon'ble Bench vide its above decision held that the club and members not being separate, therefore the question of producing any other evidence in support of not p....
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....l as probably the "consumer Welfare Fund". His argument that the prayer of the department to subject the refund claim to unjust enrichment must be allowed even if silence on this aspect was maintained by the appellate authority, while allowing the refund due to levy provision having been interpreted by the Hon'ble Supreme Court in the matter of Calcutta Club (cited supra). That Section 11B has a statutory stipulation that refunds have to be subjected to scrutiny of "unjust enrichment" and same cannot be done away by unduly extending the scope of "mutuality" beyond levy. We find and concur that if for all aspects including refund "the members and club are considered as mutual" then such interpretation will lead to absurdity whereby all members will lose their right to be paid their dues which were recovered as a tax by the club. The levy if it is not sustained, but still the recovery has been made by the club, it cannot be allowed to enrich itself at the cost of members by treating them to be the same as themselves. The provision of unjust enrichment enjoins upon the person who collects a tax which is refunded as not being covered by lawful levy to either pay back the same to the pe....
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.... 4. It is in this backdrop the issue, as formulated in the first para above, arises for consideration. 5. Since the judgment of Solar Pesticides Pvt. Ltd. has been distinguished and held not applicable to the facts of the present case, we shall start our discussion by analysing the said judgment. In the said case the question which was formulated for decision was as under : "Whether the doctrine of unjust enrichment is applicable in respect of raw material imported and consumed in the manufacture of a final product is the question which arises for consideration in these appeals." 6. The Court in detail discussed the principle of unjust enrichment. At the outset it took note of the Constitution Bench judgment in Mafatlal Industries Ltd. and Others v. Union of India and Others [1997 (5) SCC 536 = 1997 (89) E.L.T. 247 (S.C.)] and the principles laid down therein. Thereafter the position in law on this aspect is succinctly summed up in paras 17 to 20 which are reproduced below : "17. Section 11B, along with Section 11-A, was introduced by Customs, Central Excises and Salt and Central Board of Revenue (Amendment) Act, 1978 with effect from 17-1....
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....d to in Rules 12 and 12A." 19. We may now set out Section 11-B, as amended by Act 40 of 1991. (Even subsequent to 1991, there have been certain minor amendments to the said section.) As it stands today, Section 11-B reads as follows (portions not necessary for the purposes of the present controversy omitted) : "11B. Claim for refund of duty.-- (1) Any person claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Commissioner of Central Excise before the expiry of six months from the relevant date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence including the documents referred to in section 12A as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty had not been passed on by him to any other person : Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this ....
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....of captive consumption as well. According to the Court the principle of unjust enrichment would be applicable in both the circumstances. 8. This case, therefore, makes it clear that the principle of unjust enrichment is applicable even when the goods are used for captive consumption. No doubt, in the said case the goods with which the Court was concerned was raw material, imported and consumed in the manufacture of the final product. The question is as to whether this principle would be extended to capital goods also, as it was in respect of raw material. This was left open in Mafatlal Industries case. As it falls for determination in the present case, we are addressing this issue. To answer this issue, we may drawn some sustenance from the judgment of this Court in the case of Indian Farmers Fertiliser Coop. Ltd. v. C.C.E., Ahmedabad [1996 (86) E.L.T. 177 (S.C.)]. Though that case is concerned with the exemption of Raw Naptha was used to produce ammonia which is used in effluent treatment plant. Notification No. 187/61-C.E. provided for exemption to such Raw Naptha as is used in the manufacture of ammonia provided such ammonia is used elsewhere in the manufacture of ferti....
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....r (AR), is also on record indicating that the progress is tardy, considering the time which has passed since the earlier refund was sanctioned. While we categorically state that in no situation, the club can be allowed to unjust enrich itself at the cost of Members which will be nothing but deception and misappropriation, we in the peculiar facts and circumstances of the matter note with satisfaction that considerable amount has been paid back to the Members and is still in progress for the past refunds. Even the legal heirs of the deceased members and also for those who took short term membership have been attempted to be traced. We also find that the exercise cannot go on endlessly and certain time bond limit say of up to two to complete the exercise needs to be considered while considering various aspects of "unjust enrichment". While the first right to any refund is of the members from whom it was recovered, in case, same cannot be paid back the amount it cannot be retained by the clubs. We therefore, while allowing request of the department for remanding the matter to examine the angle of unjust enrichment, allow it on the basis of certain caveats. While framing our caveats....
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....ollected, retained or not refunded, as the case may be, under the authority of law. Both the enactments are self-contained enactments providing for levy, assessment, recovery and refund of duties, imposed thereunder . Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. All refund claims except those mentioned under Proposition (ii) below have to be and must be filed and adjudicated under the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be. It is necessary to emphasise in this behalf that Act provides a complete mechanism for correcting any errors whether of fact or law and that not only an appeal is provided to a Tribunal which is not a departmental organ - but to this Court, which is a civil court. (ii) Where, however, a refund is claimed on the ground that the provision of the Act under which it was levied is or has been held to be unconstitution....
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.... in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition. The doctrine of unjust enrichment is a just and salutory doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched. (iv) It is not open to any person to make a refund claim on the basis of a decision of a Court or Tribunal rendered in the case of another person. He cannot also claim that the decision of the ....
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.... it lays down or is understood to have laid down propositions contrary to the propositions enunciated in (i) to (vii) above. It must equally be held that the subsequent decisions of this Court following and applying the said propositions in Kanhaiyalal have also been wrongly decided to the above extent. This declaration - or the law laid down in propositions (i) to (vii) above - shall not however entitle the State to recover the taxes/duties already refunded and in respect whereof no proceedings are pending before any Authority/Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared herein notwithstanding that the tax or duty has been refunded pending those proceedings, whether under the orders of an Authority, Tribunal or Court or otherwise. (ix) The amendments made and the provisions inserted by the Central Excises and Customs Law (Amendment) Act, 1991 in the Central Excises and Salt Act and Customs Act are constitutionally valid and are unexceptionable. (x) By virtue of sub-section (3) to Section 11B of the Central Excises and Salt Act, as amended by the aforesaid Amendment Act, and by virtue of the provisions cont....