Q : Whether there is any liability of service tax on entrance fee collected by Club from its member ?
Where collection of entrance fee by club from its members :
(a) did not confer members any access to services, facilities or advantages; and
(b) was to meet expenses necessary for sustenance and survival of club and maintenance of its assets, then, entrance fee, not being a consideration, was not chargeable to service tax
Analysis of Full Judgement on the issue of service tax on entrance fee collected by club from its members :-
CESTAT, MUMBAI BENCH
Cricket Club of India Ltd.
Commissioner of Service Tax
AND C.J. MATHEW, TECHNICAL MEMBER
ORDER NO. A/3117/2015/STB
APPEAL NO. ST/20/2009
SEPTEMBER 21, 2015
Vipin Kumar Jain and Rashil Nichani, Advocates, for the Appellant. K.S. Mishra, Addl. Commissioner (AR) for the Respondent.
Assessee Club paid service tax on entrance fee under Protest :-
C.J. Mathew, Technical Member – This appeal of M/s Cricket Club of India, Mumbai (CCI) relates to payment of service tax of Rs. 96,06,434, along with interest of Rs. 4,86,855, on the entrance fee of Rs. 9,41,80,745 collected from new members during the period from 16 June 2005 to 30 January 2006. This amount was remitted ‘under protest’ on 27 February 2006 following letters issued by Superintendent of Central Excise (Tax Group XIV), Mumbai in early 2006 consequent upon introduction of levy of tax for rendering of “club or association service” under section 65 (105) (zzze) of Finance Act, 1994 with effect from 16th June, 2005. Refund of this amount was sought in application dated 7th June 2006 claiming that the entrance fee was not liable to tax. The Assistant Commissioner of Central Excise, Division II, Service Tax Commissionerate, Mumbai rejected the claim vide order-in-original no AKS/R02/2008 dated 18th January 2008 and, the Commissioner of Central Excise (Appeals), Mumbai Zone-I, in order-in-appeal YG(19)/STC/2008 dated 29th October 2008, upheld the rejection of claim while modifying the tax levy to the extent Rs. 9,34,244 on the ground that the taxable value was to be reduced as service tax had not been collected from members. Aggrieved by the rejection of their refund claim the appellant is before us.
2. The appellant is a company limited by guarantee having no share capital and was incorporated in 1933 under Indian Companies Act, 1913; these, till recently, were governed by the provisions of section 25 of the Companies Act, 1956 and now under section 8 of Companies Act, 2013. For this reason it is claimed to be a members’ club as opposed to the other category of clubs, viz., proprietary clubs. While both accord facilities to its members, the former are run by the members themselves through appropriate management bodies and the latter by promoters in the business of running clubs. Statutorily, in the event of winding-up, the assets of the appellant devolve on its members who are also liable to make good any deficits during the existence of the club.
Appellant sought refund of service tax on entrance fee :-
3. The appellant had sought refund of the tax paid by them for the above period on the ground that they were not liable to tax on the amounts collected as entrance fee for admission of new members. The claim was based on the principle of mutuality which was well-settled in law relating to income tax and sales tax and, in accordance with which, club and members being indistinguishable, the scope of transactions between the former and the latter was held to be beyond the scope of taxation. The decision of the Tribunal in Breach Candy Swimming Bath Trust v. CCE  6 STT 275 (Mum.) which relied upon the principle of mutuality as applied to clubs by the Hon’ble Supreme Court in Chelmsford Club v. CIT 243 ITR 89/109 Taxman 215 (SC), CIT v. Bankipur Club Ltd.  (22G) HR 97 (SC), that of Hon’ble High Court of Delhi in CIT v. National Sports Club of India  230 ITR 777 (Delhi), CIT v. Delhi Gymkhana Club Ltd.  155 ITR 373 (Delhi) and that of Hon’ble High Court of Andhra Pradesh in CIT v. Merchant Navy Club  96 ITR 2GI (AP) was cited by the appellant. It was further contended that entrance fees are not subscription and hence beyond the scope of definition of taxable service in section 65(105)(zzze) of Finance Act, 1994; that this amount could not be correlated to any service rendered by the appellant thereby eliminating it from scope of levy of service tax as held by the Tribunal in Cochin International Airport v. CCE 2007 taxmann.com 43 (Bang. – CESTAT) and Euro RSCG Advertising Ltd. v CST  16 STT 232 (Bang. – CESTAT). Anticipating the resort to “unjust enrichment” for denying the refund claim, the appellant also intimated the lower authorities that no amount over and above the stipulated entrance fee had been collected and that the amount remitted as tax, under compulsion from the jurisdictional Central Excise officer, was from the funds of the club. These contentions and citations did not impress the authority competent to sanction refunds who rejected the claim on the ground that the cited decisions on mutuality, pertaining as they did to income tax and other taxes, could not be extended to service tax and that the decision in re Breach Candy Swimming Bath Trust (supra) was not applicable to M/s Cricket Club of India. Further, it was held that entrance fees were tantamount to advance payment for facilities of the club and that the charging section relating to taxation of “clubs or associations” was extendable beyond subscriptions to include any other amounts collected from members. The same were reiterated in the proceedings before the first appellate authority who has, however, endorsed the findings of the Assistant Commissioner.
4. Ever since “clubs or associations” were brought under the ambit of section 65(105)(zzze) of Finance Act, 1994, the extent and reach of the levy has been the subject of dispute on various counts at different forums. Geographically, such disputes have not been restricted to our borders having received judicial response in England and elsewhere and, historically, the dispute in India dates further back in time to the 1950s under other tax laws. The distinctive features of clubs have, thus, been deliberated upon threadbare and articulated in judgments at the highest level in India and other countries with similarly strong traditions of jurisprudence. That such disputes have arisen, and that they attracted juristic attention, is not surprising considering that clubs and clubbing have been culturally ingrained in human life across space and time. Fulfilling as it does the basic human need for socializing, any curbs or restrictions cast on these by tax officials, in particular, have been resisted with fervour by recourse to judicial intervention. All these disputes have arisen because of presumption of legislative intent. Most often, this presumption emanates from ignorance, compulsion, ideology or philosophy; none of which should ever have crept into the discharge of statutory duties on the part of tax administrators.
As per appellant No service tax on entrance fee as it only a fee paid for acquiring membership which does not assure any other facility without further payment :-
5. Certain developments in relation to service tax liability of clubs, in the inter regnum between the issue of the impugned order and the present hearing, are brought to our attention by learned Counsel for the appellant. The decision of the Hon’ble High Court of Jharkhand in Ranchi Club Ltd. v. CCE & ST  36 STT 64 (Mag)/22 taxmann.com 217 (Jharkhand) has drawn a distinction between members’ clubs and proprietary clubs while holding that, in accordance with the principle of mutuality, the two entities required to complete a taxable transaction are not in existence in relation to the former. Referring to this decision, Hon’ble High Court of Gujarat has, in Sports Club of Gujarat Ltd. v. Union of India  40 STT 486/35 taxmann.com 557 (Guj), in which the cases of Rajpath Club Ltd and Karnavati Club Ltd. (supra) were also tagged, decided against Revenue to hold the levy of service tax on transactions of clubs with its members to be ultra vires. Besides seeking the application of this decision in their dispute with the service tax authorities, it is also canvassed on behalf of the appellant that the entrance fee is not a consideration for any service; that it is a fee paid for acquiring membership which is not only not a service but does not, of itself, assure any other facility without further payment. This is a fundamental issue raised on behalf of the appellant that goes beyond the principle of mutuality.
6. The contention of the appellant in this case is that they were made to deposit a tax which is not leviable. According to them, the amount collected as entrance fee was not a consideration for rendering of any service and, even if deemed to be a consideration, it is not taxable being a transaction with members who are not distinguishable from the club itself. The latter flows from the fundamental premise that transactions with or restricted to oneself is beyond the ambit of taxability as enunciated by the Hon’ble Supreme Court in Jt. CTO v. Young Men’s Indian Association AIR 1970 SC 1212. It was also brought to our notice that attention of the lower authorities had been drawn to the decisions of the Tribunal in India International Centre v. CST  9 STT 473 (New Delhi – CESTAT) and Dehradun Club Ltd. v. CCE  10 STT 114 (New Delhi – CESTAT) all of which uniformly relied on the principle of mutuality to set aside the taxes demanded and that these arguments and the judicial pronouncements did not appear to find favour at the adjudication and first appellate stages despite the ruling of the Hon’ble High Court of Bombay in CIT v. Smt Godavaridevi, Saraf Tumsar [1978 (2) ELT (J624) (Bom.)] about the binding nature of judicial pronouncements.
7. The learned Authorized Representative submits that appeals against the cited decisions relating to service tax have been filed in the Hon’ble Supreme Court and further countered the claim of the appellant that entrance fee is not subscription with a reference to the use of the phrase ‘for a subscription or any other amount’ in section 65(25aa) of Finance Act, 1994.
8. The principal of mutuality applies squarely to the appellant as a members’ club and the ruling of the Hon’ble High Court of Gujarat would settle the case in favour of the appellant. Nevertheless, the fundamental question raised by the appellant calls for a response from this Tribunal for two reasons: firstly, the pendency of the appeals before the Hon’ble Supreme Court is likely to be construed as sufficient cause for continuing to not only demand service tax on clubs and associations but also to adjudicate thereon without acknowledging the mutuality principle and secondly, the incorporation of Explanation 3 in section 65B(44) of Finance Act, 1994 is likely to be interpreted as extending latitude to overcome the impediment of mutuality. Accordingly, we turn our consideration to this primary contention put forth by the appellant that it was never the intent of the legislature to tax the entirety of payments received by a “club or association” from its members.
9. Our jurisdiction to entertain this plea exists only in a limited sphere in the context of the general supposition that legislation will not ever stray beyond the bounds of constitutionality (Principles of Statutory Interpretation – Justice GP Singh pp 44-45, Thirteenth Edition 2012) and is derived from that supposition. This does not, however, rule out the possibility of the tax administrator assuming a jurisdiction beyond legislative intent; all too often, this is the outcome of ignorance of or the assumption that the statute administered by them is not bound by the limits embodied in the parent statute – the Constitution – to circumscribe legislative and executive authority. While Chapter V of Finance Act, 1994 is unambiguously clear about the objectives and scope of the tax, the provisions therein often resorted to without regard to the nature of the tax. This occurs when provisions of the statute are selectively read.
10. Chapter V of Finance Act, 1994 is intended to tax services. The relevant charging section, therefore, cannot and should not be read beyond the transaction that is intended to be taxed. Plainly expressed, only services can be taxed. Habituated to tax on tangible goods, the concept of tax on services may not be easily appreciated for the very reason of its intangibility. The form of the transaction not being apparent until its benefit is perceived in the hands of the recipient and signified by readiness to recompense the provider, the tendency to seize upon the tangibility of the flow of compensation to presume the existence of a service becomes irresistible. And that is when the tax determination exceeds legislative intent.
service tax on entrance fee should not be imposed as there is no recipient :-
11. Owing to its inherent intangibility, a service transaction becomes recognizable only if a benefit accrues to a recipient and that explains the use of the phrase “provided or agreed to be provided” to determine taxability. It is taxable only if and when any, or a particular, service is rendered to a recipient. Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. Without an identified recipient who compensates the identified provider with appropriate consideration, a service cannot be held to have been provided. In a taxation scheme that specifies the particular targets of taxation, tax liability will arise when a provider conforming to the relevant description in the charging section performs an activity that conforms to the relevant description in the charging section on the request, and for the benefit, of a recipient conforming to the relevant description in the charging section. Service, its taxability and the provision of the taxable service to a recipient, in that order, are necessary pre-requisites to ascertaining the quantum of consideration on which ad valorem tax will be levied. This fundamental will not alter in the scheme of the negative list too; a service that is clearly identifiable has to be provided or agreed to be provided before it can be taxed. The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient.
12. For that very reason, mere capacity to deliver a service cannot be equated with providing or agreeing to provide a service; such service has to reach the recipient in exchange for the consideration or the consideration is made over in exchange for a schedule of delivery of the service. In a combined human activity, contribution of, or agreement to contribute, funds cannot, therefore, be construed as consideration to be taxed under Finance Act, 1994 unless attributable to an activity or performance or promise thereof on the part of an identified provider to an identified recipient. Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transaction will not arise. Contributions for the discharge of liabilities or for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit so derived.
13. The activities of the appellant need to be considered in this light. A “club or association” is the aggregation of a group of individuals for fulfilment of social instinct of human beings. The formality of the structure assumed by this aggregation is not relevant. Such an aggregation may have the wherewithal to provide services —and some of them taxable – but such capacity does not render the “club or association” liable to tax merely for that reason. Neither can monetary contribution of the individuals that is not attributable to an identifiable activity be deemed to be a consideration that is liable to be taxed merely because a “club or association” is the recipient of that contribution. The definition of “taxable service” in section 65(105), in relation to every entry appurtenant thereto is preceded by the phrase “services provided or to be provided” which when read, in the context of the appellant, at (zzze) i.e. “to its members, or any other person, by any club or association in relation to provision of services, facilities or advantages for a subscription or any other amount” and with section 65(25aa) defining “club or association” i.e. “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……” precludes any alternative interpretation of legislative intent. Accordingly, every fee or charge payable by members to a “club or association” does not, ipso facto, become taxable.
14. “Clubs or associations” generally charge entrance fees as well as periodical subscriptions. They may and, often do, provide facilities for recreational, social and victualing requirements of its members. Such facilities may or may not entail an identifiable charge but, most often, do – certainly they do so for the latter two facilities. To the extent that any of these collections are directly attributable to an identified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable.
No service tax on entrance fee as no access to services, facilities or advantages is being offered by the club or association is solely dependent on the entrance fee :-
15. The entrance fee is a one-time payment that is visited upon members of “clubs or association”. It affords their inclusion into the restricted group that constitutes membership of the club or association. Such entrance fees do not usually confer access to services, facilities or advantages for which membership of the club or association is keenly sought. Membership is contingent upon tendering prescribed subscription at prescribed intervals. Therefore, a provision of service is not perceptible as a quid pro quo for payment of entrance fees. Unless access to services, facilities or advantages offered by the club or association is solely dependent on the entrance fee, there is no logical reason to assume that such fees can be considered as “other amount” as defined in section 65(105)(zzze) of Finance Act, 1994. Learned Counsel for the appellant has drawn attention to the manifold assets that have been acquired by the appellant since its establishment and that a proportional share of the value of the asset would devolve on members should the establishment be wound up. Being the present value of a future distribution of sale proceeds and bringing naught other than acknowledgement as a member of the club or association, it is not attributable to a service rendered by the appellant. This contention is convincing in the absence of an alternative explanation for the charging of entrance fee and we, therefore, conclude that service tax is not leviable on such entrance fees.
16. ‘Clubs or associations’ are entities that need funds to exist in the form that they have assumed or evolved. Wages of employees and costs of running the establishment, such as energy charges, maintenance and repairs etc., are necessary expenses for such sustenance. Implicit in membership of clubs and associations is the obligation to share in such expenses. These are required for maintaining the assets of the club or association for which a service provider may or may not be contracted but the contributing members are not the direct beneficiaries of such services. Contribution to expenses cannot, by any stretch, be deemed to be consideration for any identified service rendered to individual members by access to the facilities or advantage that is within the wherewithal of the “club or association”. However, to the extent that it is possible to identify the facilities, advantage or services of the “club or association” utilized without further payments specifically attributable to such facility, advantage or service, the subscription will be taxable.
Appellant is eligible for refund of service tax on entrance fee:-
17. In the instant case of the appellant, the principle of mutuality laid down in the cited decisions supra and the findings above on the entrance fee would render the rejection of their contention of non-taxability by the lower authorities to be contrary to law. The appellant is, therefore, eligible for refund of such tax collected without authority of law.
18. We observe that tax was paid on the entrance fee without collecting the tax amount from the new members. Though the first appellate authority has granted the benefit of a cum-tax computation of the entrance fee, it must be borne in mind that the tax liability was discharged before the re-computation allowed in the impugned order. It, therefore, does not alter the origin of the funds utilized for discharge of tax liability, viz. from the common funds of the appellant without recourse to the members who paid nothing more than the entrance fee. Moreover, entrance fees are fixed in the bye-laws without reference to tax leviable, if any, thereon. For both these reasons, it can be concluded that tax burden has not been transferred to the members from whom entrance fees were collected. Clearly, the service tax so paid does not carry the taint of unjust enrichment.
19. Consequently, the appeal is allowed with consequential relief.