| With effect from 16.06.2005, Service Tax was levied | | | | ‘mandap’ in such house then in that case |
| on Club or Association Services. Club or Association | | | | such ‘mandap keeper’ can be able to raise |
| was defined under Section 65(25a) as, | | | | bill upon the user of the premises along with the |
| Club or Association means any person or body of | | | | service tax. Therefore, I cannot hold it good that |
| persons providing services, facilities or advantages, | | | | members’ club is covered by the Finance Act, |
| for a subscription or any amount to its members. | | | | 1994 for imposition of service tax to use its space as |
| The purpose of this paper to examine as to whether | | | | ‘mandap’. So far as the other point is |
| trade or industry association can be liable to pay | | | | concerned whether the ratio of the judgments can |
| Service Tax under this head or under any other head. | | | | be acceptable herein or not I like to say ‘yes it is |
| In general a trade or industry association is a society | | | | applicable’. Income-tax is applicable if there is an |
| registered under Societies Registration Act. Various | | | | income. Sales tax is applicable if there is a sale. |
| business units are its members. They pay a | | | | Service tax is applicable if there is a service. All three |
| subscription charges to the association. The | | | | will be applicable in a case of transaction between |
| association uses that money to provide services to | | | | two parties. Therefore, principally there should be |
| its members like diffusion of knowledge, trade fairs, | | | | existence of two sides/entities for having transaction |
| seminars/workshop etc. The association is a non | | | | as against consideration. In a members’ club |
| profit organization controlled by the members | | | | there is no question of two sides. ‘Members’ |
| themselves. They decide what activities will be | | | | and ‘club’ both are same entity. One may |
| undertaken by the association. If any surplus left with | | | | be called as principal when the other may be called as |
| the association, it is further used for the benefits of | | | | agent, therefore, such transaction in between |
| the association. The accounts of the associations are | | | | themselves cannot be recorded as income, sale or |
| periodically checked by the members. | | | | service as per applicability of the revenue tax of the |
| Can it be argued that association and members are | | | | country. Hence, I do not find it is prudent to say that |
| same, i.e. they are not two different persons to | | | | members’ club is liable to pay service tax in |
| establish a service provider/client relationship | | | | allowing its members to use its space as |
| necessary for levy of service tax. | | | | ‘mandap’. |
| No Service Tax on Self-Service: | | | | Therefore, the entire proceedings as against the club |
| It is a settled principle in law of service tax that to | | | | about the applicability of service tax stands quashed. |
| impose liability of service tax, there must be two | | | | Interim order, if any, stands confirmed. However, no |
| parties, one service provider and the other, service | | | | order is passed as to costs. Thus, the writ petition |
| receiver. When service provider and service receiver | | | | stands disposed of.” |
| is same, it is “self service” and there is no | | | | It is submitted that in that case the entire proceeding |
| service tax on self service. In Precot Mills Ltd. v. | | | | was quashed at the Show Cause Notice stage itself |
| Commissioner of Central Excise [2006(2) STR 495], | | | | by Kolkata High Court. Further, the order was |
| Hon’ble Tribunal held, | | | | accepted by the Board and no appeal was filed |
| “In a member’s club, there is no question of | | | | against the order in Supreme Court. |
| two sides. Members and Club both are the same | | | | It is seen that the principle of mutuality was applied in |
| entity. One may be called as principal when the other | | | | numerous cases by the Hon’ble Tribunal, wherein |
| may be called as agent, therefore, such transaction in | | | | the tribunal held that there is no service tax liability in |
| between themselves cannot be recorded as income, | | | | cases of mutual association. Some of the cases are |
| sale or service as per applicability of the revenue tax | | | | as follows: |
| of the country. Hence, members club are not liable to | | | | A. Shri Mulam Club v. CCE [2006 (1) STR 111] |
| pay service tax in allowing its members to use its | | | | B. Breach Candy Swimming Bath Trust v. CCE [2007 |
| space as mandap. The ratio of the above case law is | | | | (5) STR 146] |
| clearly applicable to the present case. M/s. Precot Mills | | | | C. India International Centre v. Commissioner of |
| Ltd. is a Corporate entity. It has got various units | | | | Service Tax [2007 (7) STR 235] |
| which function as separate profit centers. When | | | | D. Dehradun Club Limited v. CCE [2007 (7) STR 519] |
| service is rendered by one unit to the other, debit | | | | E. Phase 1 Entertainment v. Commissioner, Service |
| note is raised for the value of service in order to | | | | Tax [2008 (10) STR 49] |
| evaluate the performance of a particular unit. | | | | It is further submitted that on numerous occasions |
| Ultimately there is only one Balance sheet for the | | | | Hon’ble Supreme Court and High Courts |
| legal entity for M/s. Precot Mills Ltd. and not for the | | | | examined the nature of Trade association and held |
| separate unit. In other words, the appellants, M/s. | | | | that such associations are mutual association and their |
| Precot Mills Ltd. do not receive any valuable | | | | activity is not tainted by commerciality and hence |
| consideration for services rendered by one unit of | | | | principle of mutuality is applicable. |
| the appellant to the other unit, in view of the fact | | | | A. Mill Owners Mutual Insurance Association Ltd. v. |
| that the each unit is part of the same legal entity | | | | CIT [6 ITC (Bom) 7] |
| which is the appellant. To put it differently, when one | | | | B. CIT v. Ferozpur Ice Manufacturer’s |
| renders service to oneself, as in the present case, | | | | Association [1972 (84) ITR 607]. |
| there is no question of leviability of service tax. The | | | | C. CIT v. West Godavari District Rice Millers |
| Asst. Commissioner’s order is correct and legal. | | | | Association [1984 (150) ITR 394] |
| Hence we do not find any merit in the impugned | | | | D. CIT v. Northern India Motion Pictures Association |
| orders of the Commissioner which ignore the main | | | | [1994 (207) ITR (St.) 10] |
| point that there is no client relationship in the present | | | | Principle of Mutuality: |
| transactions. In these circumstances, no penalty is | | | | When principle of mutuality is accepted, both a |
| leviable. Thus we allow the appeal with consequential | | | | parties of the transaction are treated as one and |
| relief.” | | | | same and there cannot be business transaction. |
| It is submitted that applying the ratio of the above | | | | Between two such entities these can not be sale (no |
| judgment in the present case, it is seen that trade | | | | body can sell something to oneself), there cannot be |
| association does not get any consideration to provide | | | | generation of Income (no body ca earn income from |
| services to its members, as whatever surplus is left | | | | oneself) or there cannot be service (no body can |
| belong to the members themselves and used for the | | | | provide service to oneself). The principle which is |
| benefits of members only. Thus a trade association | | | | widely known in the Income Tax is squarely |
| and its members are not two different entities, but | | | | applicable in Sevice Tax. |
| one and same. Thus a trade association is merely and | | | | Existence of Separate Legal Entity is not relevant: |
| instrumentality of the members to serve themselves. | | | | Sometime it is argued that a registered society is a |
| It is submitted that a trade association is a mutual | | | | separate legal entity from its members. Similarly an |
| association; formed and controlled by members to | | | | incorporated company is a separate legal entity. The |
| avail services themselves. Such transaction is not | | | | issue was examined in various cases. In CIT v. Royal |
| even a business transaction. Such services are self | | | | Western India Turf Club [(1953) 24 ITR 551 (SC)], |
| service, not tainted with commerciality and hence not | | | | Supreme Court held that mere incorporation is no bar |
| liable to service tax. The principle has been approved | | | | to mutuality. The proposition was based on |
| by Supreme Court in case of CIT v. Darjeeling Club | | | | Style’s Case [(1889) 2 TC 460 (HL)], wherein |
| [1985 (153) ITR 676], CIT v. Bankipur Club [1997 | | | | three points was seen, |
| (226) ITR 97] and Chelmsford Club v. CIT [2000 | | | | (a) Identity of the contributors of the fund and |
| (243) ITR 89]. The principle of mutuality laid down in | | | | recipient of the fund. |
| these cases was squarely applied in Service Tax law | | | | (b) Where incorporation was merely for convenience |
| by Kolkata High Court in Saturday Club Ltd. v. | | | | of the members. |
| Assistant Commissioner of Service Tax [2005 (180) | | | | (c). Impossibility of the contributors to derive benefit |
| ELT 437], wherein the Hon’ble High Court held, | | | | from the contribution made by themselves. |
| “So far as the merit is concerned, law is | | | | The question come up specifically before Supreme |
| well-settled by now that in between the principal and | | | | Court in a group of Sales Tax cases, Joint |
| agent when there is no transfer of property available | | | | Commercial Tax Officer v. Young Men’s Indian |
| question of imposition of service tax cannot be made | | | | Association [1970 (26) STC 241], wherein it was |
| available. It is true to say that there is a clear | | | | specifically held that mere incorporation does not rule |
| distinction between the ‘members’ club’ | | | | out principle of mutuality. It is seen that the Kolkata |
| and ‘proprietary club’. No argument has been | | | | High Court applied principle of mutuality in case of |
| put forward by the respondents to indicate that the | | | | Saturdays Club Limited, which is an incorporated |
| club is a ‘proprietary club’. Therefore, if the | | | | company. |
| club space is allowed to be occupied by any member | | | | When the principle of mutuality is applicable, service |
| or his family members or by his guest for a function | | | | tax cannot be levied irrespective of the fact that |
| by constructing a ‘mandap’ the club cannot | | | | under what category the services are falling. The |
| be called as ‘mandap keeper’ because the | | | | questions raised in Saturday Claub case was with |
| club is allowing his own member to do so who is, by | | | | respect to Mandap Keeper Service. |
| virtue of his position, principal of the club. If any | | | | Other Grounds: |
| outside agency is called upon to do the needful it | | | | Service Tax on trade Association can also be assailed |
| may raise a bill along with the service tax upon the | | | | on other grounds. The club and association service |
| club and the club as an agent of the members, is | | | | exclude charitable organizations and trade union. |
| supposed to pay the same. The authority cannot | | | | Normally these exclusion clauses will be applicable to |
| impose service tax twice once upon the people | | | | trade associations. A detailed examination of these |
| carrying out the business of ‘mandap | | | | issues is beyond the ambit of this paper. However, |
| keeper’ as well as the members’ club for | | | | examination of such issues is required only when the |
| the purpose of using the space for constructing or | | | | principle of mutuality is excluded, i.e. the association is |
| using it as ‘mandap’. Therefore, apart from | | | | not a mutual association. Once an association is not a |
| any other question possibility of double taxation | | | | mutual association then only examination of these |
| cannot be ruled out. If I explain my first query as | | | | exclusion clauses are required. If an association is not |
| above it will be crystal clear that if a person being an | | | | a mutual association, but fall under any exclusion |
| owner of the house allows another to occupy the | | | | clause, it will exempt service tax on club or |
| house for the purpose of carrying out any function in | | | | association service and not on other services. |
| that house it will not be construed as transfer of | | | | |
| property. But if such person calls upon a third party | | | | (Views expressed are personal views of the |
| ‘mandap keeper’ to construct a | | | | author)custom. |