3-Judge
Bench
of
the Supreme
Court
has
held that
no
sales
tax
or
service
tax
is
leviable with respect to supplies made by incorporated clubs to its members.
Facts
A reference was
made
by
a Division Bench of
the
Supreme Court in State
of
West
Bengal v. Calcutta Club Limited [(2017) 5
SCC 356] to
the Larger Bench to answer whether the doctrine
of mutuality is still applicable to
incorporated clubs after the
46th
Amendment to Article 366(29-A) of the Constitution of India. The reference was made in the context of applicability of sales tax under the West
Bengal
Sales Tax
Act, 1994. However,
in the
same batch,
the Supreme Court was
also
concerned with the applicability of the principle of
mutuality under the service tax law.
Mr. V. Lakshmikumaran represented several assessees
in
the
service tax
appeals.
Principle
of mutuality
The
six-judge bench of the Supreme Court in
Joint
Commercial Tax Officer, Harbor Division, -
II Madras
v. The Young Men’s Indian Association,
Madras and
Ors.
[1970
(1) SCC
462] had applied the principle of mutuality in respect
of
incorporated
clubs and
held that
supply of various preparations by a club to its members would not involve a transaction of sale. It was
held that if
the
club
even though a distinct legal entity
is only
acting
as
an agent for
its members in matter of supply of
various
preparations to them, no sale would be involved as
the
element of
transfer
is completely
absent.
High Court Order
Sales
Tax:
The
Calcutta High Court held that the
principle
of mutuality continues to apply with respect to incorporated
clubs
even after the 46th
Amendment
to Article 366(29-A)
of the Constitution of
India.
Accordingly, the supplies of food and
other
articles by Calcutta Club to its members was held to be outside the scope of the West Bengal Sales Tax Act, 1994.
Service Tax: The High Court of Jharkhand and the High Court of Gujarat in
Ranchi Club Ltd. [2012 (26) S.T.R. 401 (Jhar.)] & Sports Club of Gujarat Ltd. [2013 (31) S.T.R. 645 (Guj.)] had held
that the principle of
mutuality
as
laid down
by the
Supreme
Court in Young Men’s Indian Association will apply
equally
to service tax. Consequently, it was held that clubs cannot
be
said to be providing services to its
members
and the demand of
service
tax under the category
of club
or association service was set
aside.
Supreme Court Judgment
The
Supreme Court in its judgement dated 3-10-2019 answered the reference as under:
(1)The doctrine of mutuality continues to be applicable to incorporated and unincorporated members’ clubs after the 46th
Amendment
adding Article 366(29-A)
to
the
Constitution
of India.
(2)Young Men’s Indian Association and other judgments which applied this doctrine continue
to
hold the
field
even
after the
46th Amendment.
(3)Sub-clause (f) of
Article
366(29-A)
has no application
to members’
clubs.
Consequently,
it
was held
that
no sales
tax or
service
tax is leviable under the
category
of club
or
association with respect to services provided by incorporated clubs to its members.
The Supreme Court has further held that even post 01.07.2012 under the negative list regime,
no service tax is
leviable
with respect to services provided
by
an
incorporated
club
to its members as
the
expression
‘body
of persons’
will not cover incorporated clubs.
Appeal by department dismissed
The Civil Appeals filed by the department were dismissed and the impugned orders passed
by the High Court /Tribunal were upheld.
Implications
The
judgment
of the
Supreme
Court is important for all pending
service
tax
demands
on clubs or associations. Further, it is also
important to
understand
the applicability of this principle under the Goods and Services Tax regime. It is also worthwhile to examine whether clubs can claim any refund of service tax paid by them.
No comments:
Post a Comment