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2024 (6) TMI 1471 - AT - Service TaxTaxability of Membership of Club or association Service - mutuality of service - amounts received by the appellant club from M/s Swagat Caterers Pvt. Ltd. purportedly as rent for carrying out outdoor catering business on club premises - HELD THAT - The purpose of the club is to serve their members and not to provide any service relating to business or commerce the club do not have any profit making motive out of the facilities provided to the members. The objective of the club to have restaurant in the premises is for the benefit of the members. Therefore the club entered into agreement with M/s. Swagat Caterers Pvt. Ltd. to operate restaurant jointly inside premises of the club - In the present matter tenant is not in absolute possession. In case of rental property tenant enjoy the right to use and possession of the property rented. In the present matter M/s Swagat Caterer Pvt. Ltd. is not in possession of restaurant place kitchen. The same is always with the appellant. Further the alleged rent amount is retained by the appellant is for meeting common expenses incurred by the club for restaurants on the basis of concept of mutuality. That the appellant had retained certain amount towards meeting the expenses incurred by the club. The said retention amount is not the value of any Renting of immovable Property Services rendered by the appellant to M/s. Swagat Caterers Pvt. Ltd. and therefore in our considered view appellant is not liable to pay Service tax on such retained amount under Renting of Immovable Property Services . There is no dispute that the appellant is member s club and the amount received from members is not provisions of service. The club was established by mutual consent for a common purpose and for the benefit of members and hence applying the principle of mutuality there cannot be liability to Service tax as there is no service by one person to another. The activity carried out by the appellant club is not of commercial nature as it is carried out only for the benefits of its members. Therefore Appellant made agreement with M/s Swagat Caterers Pvt. Ltd. to provide food and beverages to the members of club only hence this cannot be covered under the definition of Renting of immovable property service - The Tribunal in Royal Western India Turf Club Ltd. Vs. CST Mumbai 2012 (11) TMI 526 - CESTAT MUMBAI held that the activities of the appellants to make available space within the premises of the club by way of stall for consideration cannot be taxed under BSS. Conclusion - i) The amounts retained by the appellant do not constitute consideration for renting immovable property services and therefore are not liable to service tax under this category. ii) The principle of mutuality applies and the club s activities and receipts are not liable to service tax. iii) The club s activities do not attract service tax liability on the basis of commercial character. The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability of Amounts Received as Rent under "Renting of Immovable Property Services" Relevant legal framework and precedents: The Finance Act, 1994, defines "Renting of Immovable Property Services" as providing the use or right to use immovable property for any purpose. The appellant relied heavily on the Supreme Court's larger bench decision in the case concerning membership of clubs, which clarified the scope of taxable services vis-`a-vis mutuality and club activities. Several prior orders and judgments, including those from this Tribunal and other High Courts, were cited to support the non-taxability of such amounts when related to club premises and member benefits. Court's interpretation and reasoning: The Tribunal noted that the appellant club's purpose is to serve its members and not to engage in profit-making commercial activities. The club does not lease out immovable property in the traditional sense but provides facilities to the caterers to operate within the club premises for the benefit of members. The club retains certain amounts purportedly as rent; however, these amounts are for meeting common expenses like water, electricity, and maintenance, not for transferring possession or use of immovable property. Key evidence and findings: The agreement between the club and the caterers was examined, revealing that the caterers did not have absolute possession or exclusive use of the premises. The club retained control over the restaurant and kitchen areas, and the caterers were allowed to use the facilities only in conjunction with the club's services. The amounts retained were for shared expenses, not for rental consideration. Application of law to facts: Since possession and exclusive use are essential elements for renting immovable property, the absence of these factors negates the applicability of service tax under the renting category. The Tribunal applied the principle that mere sharing of expenses or allowing use of facilities without transferring possession does not amount to renting. Treatment of competing arguments: The Revenue argued that the amounts received were rent and liable to service tax. The Tribunal rejected this, emphasizing the absence of a lease or rental agreement and the club's non-commercial objective. The appellant's reliance on Supreme Court and Tribunal precedents was accepted. Conclusion: The Tribunal concluded that the amounts retained by the appellant do not constitute consideration for renting immovable property services and therefore are not liable to service tax under this category. Issue 2: Application of Principle of Mutuality and Non-Taxability of Club Services Relevant legal framework and precedents: The principle of mutuality exempts transactions between members of a club or association from being treated as taxable services, as there is no supply of service from one person to another but a mutual arrangement for common benefit. The Supreme Court's larger bench decision in the cited case reaffirmed this principle in the context of clubs and associations. Court's interpretation and reasoning: The Tribunal observed that the club was established by mutual consent for the benefit of its members. The services provided, including those facilitated through the caterers, were exclusively for members and their guests. The club's receipt of amounts from members does not amount to provision of taxable service. Key evidence and findings: The club's non-commercial nature and the fact that services were rendered only to members and their guests were emphasized. The arrangement with the caterers was to facilitate food and beverage services for members, not for independent commercial exploitation. Application of law to facts: Applying the principle of mutuality, the Tribunal held that no taxable service was rendered by the club in the context of amounts retained or received from members or the caterers acting for members. Treatment of competing arguments: The Revenue's contention that the club's receipt of amounts from the caterers was taxable was rejected based on the mutuality principle and the non-commercial objective of the club's activities. Conclusion: The Tribunal held that the principle of mutuality applies, and the club's activities and receipts are not liable to service tax. Issue 3: Nature of the Club's Activities and Commercial Character Relevant legal framework and precedents: Service tax liability arises only if the activity is commercial in nature and involves the provision of taxable service. Precedents including the Tribunal's decision in the Royal Western India Turf Club Ltd. case were cited, where making space available within club premises for consideration was held not to attract service tax under Business Support Services. Court's interpretation and reasoning: The Tribunal noted that the club's activities are not commercial but are carried out solely for the benefit of its members. The agreement with the caterers was to provide food and beverages only to members, not to the public or independent customers. The club's retention of amounts was for common expenses, not for commercial profit. Key evidence and findings: The club's non-profit motive, limited scope of services to members, and absence of commercial exploitation were established from the record and agreement terms. Application of law to facts: Since the activities are non-commercial and for mutual benefit, the service tax provisions do not apply. Treatment of competing arguments: The Revenue's argument that the club's arrangement with caterers was a commercial activity was rejected. Conclusion: The Tribunal concluded that the club's activities do not attract service tax liability on the basis of commercial character. 3. SIGNIFICANT HOLDINGS The Tribunal held, inter alia, that:
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