2025 (6) TMI 764 - AT - Service Tax

Levy of service tax - restaurant services - mutuality of services - existence of service provider service receiver relationship between the Members and the Club or not - premises given to Astor for running the restaurant - Advertising Agency Service - Rental services rendered by the appellant - refund claim - Time limitation - suppression of facts or not. Levy of service tax - restaurant services - mutuality of services - existence of service provider service receiver relationship between the Members and the Club or not - HELD THAT - In the present case there is no dispute that the appellant is an incorporated Public Limited Company. The factual details clarify that the facilities are meant purely for the usage of its members. In the Restaurants run within the Club only the Members get access to the facilities of food beverages. They may bring in their own guests as per the rules of the club. But the Bills are raised only the Members who are liable to pay the amount in question. Thus it is clear the facilities are not open to general public and cannot be used any person other than a person who is the Member of the club. The Hon ble Supreme Court in the case of CALCUTTA CLUB LIMITED 2019 (10) TMI 160 - SUPREME COURT has considered in detail the amendments brought in with effect from 1.7.2012 and has come to a conclusion that even after this date in case of services provided by an incorporated body to their members the same would not be liable for any Service Tax for the services provided. Therefore even without getting into the argument as to whether the services provided are that of Restaurant as has been canvassed by the Revenue or not as has been vehemently argued by the appellant on the sole ground that the service rendered to the members cannot be made liable to Service Tax the confirmed demand of Rs.57, 24, 877/- on account of Restaurant Service set aside. Levy of service tax - premises given to Astor for running the restaurant - HELD THAT - It is seen from the factual matrix and the Agreement that the Club is not only providing the space but also several infrastructure facilities to Astor. But there is no Lease Agreement wherein the Lessee would be required to pay a fixed rent per month. Astor is given the menu of various items to be prepared and supplied to the Members who pay the amount to the Club. The Club retains 20% of the amount and gives back 80% to Astor. The overall structure of the transaction is not that of lessor and lessee between the appellant and Astor. Therefore the confirmed demand of Rs.3, 21, 147/- set aside. Advertising Agency Service - HELD THAT - In the present case if any Adverisement is published in the souvenir or any display is carried out in the Club premises that in itself cannot make the appellant liable for payment of Service Tax. Therefore the confirmed demand of Rs.2, 49, 342 set aside. Rental services rendered by the appellant - refund claim - HELD THAT - In case of one party they have admitted that they have charged the Service Tax and hence paid the Service Tax on 2, 40, 000/- before Adjudication. Hence if they have charged the Service Tax on the Rental Value it has to be presumed that even on the second part they have to pay the Service Tax on the Rent value only. In respect of the second party the same will have to be verified with the Agreement and the monthly payments to ascertain as to whether the rent can be treated as inclusive of Service Tax. Since issue pertains to period 2008-09 to 2012-13 which is more than one decade old the time and effort towards the same does not justify the amount in question. Further the appellant has paid the same in 2016. If they had paid excess Service Tax it was for them to file a refund claim within one year from that date so as to meet the requirement of Section 11B of the CEA 1944. Considering these aspects their submissions to consider their request to grant the refund rejected. Time limitation - suppression of facts or not - HELD THAT - The confirmed demand is for the period April 2008 to March 2013. The Show Cause Notice was issued on 22.04.2014 by invoking the extended period provisions - there are force in the arguments of the appellant that all the details were properly reflected in their records. They also would be carrying Bonafide belief that there is no requirement to pay the Service Tax when the Restaurant service is being provided to their Members. Several decisions of the High Courts favoured their belief. Even in respect of Astor transactions decisions were in favour of the appellant. Therefore the Revenue has not made out any case of suppression against the appellant. Conclusion - i) The confirmed Service Tax demand on Restaurant Service of Rs. 57, 24, 877 was set aside. ii) The confirmed demand of Rs. 3, 21, 147 under Renting of Immovable Property Service related to Astor was set aside. iii) The confirmed demand of Rs. 2, 49, 342 under Advertising Agency Service was set aside. iv) The confirmed demand relating to renting of immovable property to other parties was not contested and stands paid; refund claims were rejected. v) The demand confirmed for the extended period of limitation was held to be time-barred. Appeal allowed.

Summary

The core legal questions considered by the Tribunal include:

1. Whether the services provided by a members-only club, incorporated as a Public Limited Company, to its members can be classified as "Restaurant Service" liable to Service Tax under Section 65(105)(zzzzv) of the Finance Act, 1994.

2. Whether the appellant's arrangement with a third party (M/s. Astor) for cooking and supplying food to members constitutes "Renting of Immovable Property Service" attracting Service Tax.

3. Whether the income earned by the appellant from display of advertisements/banners at club events or in the club souvenir qualifies as "Advertising Agency Service" under Section 65(105)(e) of the Finance Act, 1994, thereby attracting Service Tax.

4. Whether the confirmed demand for Service Tax for the period April 2008 to March 2013 is barred by limitation, specifically concerning the invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994.

5. Whether the appellant is entitled to cum-tax benefit and refund in respect of Service Tax paid on renting of immovable property.

Issue 1: Liability to Service Tax on Restaurant Service Provided by the Club to Its Members

Relevant Legal Framework and Precedents: Section 65(105)(zzzzv) defines "Restaurant Service" as any service provided by a restaurant having air-conditioning and license to serve alcoholic beverages, in relation to serving food or beverages in its premises. The term "restaurant" is commonly understood as a public eating place. The appellant relied heavily on the Supreme Court judgment in the case of State of West Bengal vs Calcutta Club Limited, which addressed the applicability of Service Tax to services provided by a members' club incorporated as a company.

Court's Interpretation and Reasoning: The Tribunal examined the nature of the appellant's club, which is an incorporated Public Limited Company providing facilities exclusively to its members, their spouses, and guests accompanied by members. The club facilities, including dining rooms and restaurants within the club premises, are not open to the general public. The Tribunal noted the Supreme Court's reasoning that the doctrine of mutuality applies to members' clubs and that an incorporated club and its members are not distinct persons for the purpose of Service Tax, as there is no "service provider" and "service receiver" relationship between them. The Explanation 3 to Section 65B(44), which treats unincorporated associations and their members as distinct persons, does not apply to incorporated clubs.

Key Evidence and Findings: The club's bye-laws restrict access to members and their guests only. The club's dining rooms are not public eating places. The Supreme Court clarified that incorporated clubs are outside the purview of Service Tax on services rendered to their members.

Application of Law to Facts: Applying the Supreme Court's ruling, the Tribunal held that the appellant's restaurant services to its members do not constitute taxable services under the Finance Act, as the services are rendered within the mutuality framework of the incorporated club.

Treatment of Competing Arguments: The Revenue contended that the club was operating restaurants with all facilities and should be liable to Service Tax. The Tribunal rejected this, emphasizing the exclusivity of membership and the absence of a public service provider-customer relationship.

Conclusion: The Tribunal set aside the confirmed Service Tax demand of Rs. 57,24,877 on account of Restaurant Service.

Issue 2: Service Tax on Renting of Immovable Property Service in Relation to the Agreement with M/s. Astor

Relevant Legal Framework and Precedents: Renting of Immovable Property Service is taxable when there is a lease or tenancy agreement involving payment of rent. The appellant relied on a prior CESTAT Ahmedabad decision holding that clubs in similar arrangements are not liable for Service Tax under this category.

Court's Interpretation and Reasoning: The Tribunal analyzed the agreement between the appellant and M/s. Astor, noting that Astor was allotted space with infrastructure to cook and serve food exclusively to club members, with no tenancy or lease rights granted. The payment structure involved Astor receiving 80% of the food price charged to members, with the club retaining 20% as margin.

Key Evidence and Findings: The agreement explicitly denied any tenancy or licence rights to Astor. The arrangement was for service provision to members, not a commercial rental transaction.

Application of Law to Facts: The Tribunal concluded that the arrangement did not constitute renting of immovable property but was a service contract for food supply to members.

Treatment of Competing Arguments: The Revenue argued the 20% share constituted rent. The Tribunal rejected this, emphasizing the absence of fixed rent or tenancy rights.

Conclusion: The Tribunal set aside the confirmed demand of Rs. 3,21,147 under Renting of Immovable Property Service related to Astor transactions.

Issue 3: Service Tax on Advertising Agency Service

Relevant Legal Framework and Precedents: Advertising Agency Service under Section 65(105)(e) requires the service provider to be engaged in making, preparation, display, or exhibition of advertisements. Mere canvassing of advertisements on commission basis is not taxable under this category but under Business Auxiliary Service as per CBIC Circular No. 96/7/2007-ST.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant did not engage in preparation or display of advertisements but only allowed advertisers to display banners or advertisements at club events or in souvenirs and collected charges for the same. The appellant's role was limited to canvassing or facilitating advertisement space.

Key Evidence and Findings: The appellant's activities did not meet the statutory definition of an advertising agency.

Application of Law to Facts: The Tribunal applied the CBIC circular and concluded that the appellant's activities do not attract Service Tax under Advertising Agency Service.

Treatment of Competing Arguments: The Revenue contended that the appellant earned advertisement income and was liable. The Tribunal rejected this, distinguishing between actual advertising agency services and mere canvassing.

Conclusion: The Tribunal set aside the confirmed demand of Rs. 2,49,342 on account of Advertising Agency Service.

Issue 4: Limitation and Extended Period of Limitation

Relevant Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994 provides for a normal limitation period of 18 months for issuing show cause notices for Service Tax demands. The proviso allows extended limitation in cases of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax. Supreme Court judgments have clarified that suppression requires deliberate omission of material facts.

Court's Interpretation and Reasoning: The Tribunal found that the appellant maintained proper records and had a bona fide belief, supported by earlier judicial decisions, that no Service Tax was payable on services rendered to members. There was no evidence of deliberate suppression or evasion.

Key Evidence and Findings: The appellant's conduct did not demonstrate intent to evade tax. The Revenue's invocation of extended limitation was unjustified.

Application of Law to Facts: The Tribunal held that the extended period of limitation was inapplicable and part of the confirmed demand was time-barred.

Treatment of Competing Arguments: The Revenue justified extended limitation due to failure to register and pay Service Tax. The Tribunal rejected this, emphasizing absence of suppression.

Conclusion: The Tribunal held the confirmed demand for the extended period as barred by limitation.

Issue 5: Cum-Tax Benefit and Refund on Renting of Immovable Property Service

Relevant Legal Framework and Precedents: Section 67(2) of the Finance Act, 1994 provides that if the service provider has not collected Service Tax from the service recipient, the service provider may be entitled to cum-tax benefit and refund.

Court's Interpretation and Reasoning: The appellant sought refund on the ground that Service Tax was not collected from lessees. The Tribunal noted that the appellant had admitted charging and paying Service Tax on one party and that the issue for the other party required verification of agreements and payments. However, given the age of the demand and the fact that the appellant had paid the tax in 2016, no refund claim was filed within the prescribed time limit under Section 11B of the Central Excise Act, 1944.

Key Evidence and Findings: No timely refund claim was filed. The appellant's entitlement to refund was not established conclusively.

Application of Law to Facts: The Tribunal declined the request for refund on grounds of limitation and procedural non-compliance.

Treatment of Competing Arguments: The appellant's request was considered but rejected due to lack of timely claim and evidentiary support.

Conclusion: The Tribunal rejected the appellant's plea for refund and cum-tax benefit.

Significant Holdings:

"What has been stated in the present judgment so far as Sales Tax is concerned applies on all fours to Service Tax; as, if the doctrine of agency, trust and mutuality is to be applied qua members' clubs, there has to be an activity carried out by one person for another for consideration. We have seen how in the judgment relating to Sales Tax, the fact is that in members' clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply on all fours when we are to construe the definition of 'service' under Section 65B(44) as well."

"Explanation 3(a) to Section 65B(44) does not apply to members' clubs which are incorporated."

"The overall structure of the transaction is not that of lessor and lessee between the appellant and Astor."

"Merely canvassing advertisements for publishing, on commission basis, is not classifiable under the taxable service falling under section 65(105)(e). Such services are liable to service tax under business auxiliary service [section 65(105)(zzb)]."

"The extended period of limitation is inapplicable in absence of suppression of facts and hence, absence of an intent to evade payment of duty."

Core principles established include:

- Services provided by an incorporated members' club exclusively to its members do not constitute taxable "Restaurant Service" under the Finance Act.

- An arrangement involving the provision of space and facilities to a third party for cooking and serving food to members, without tenancy rights or fixed rent, does not attract Service Tax under Renting of Immovable Property Service.

- Mere canvassing of advertisements for commission does not amount to "Advertising Agency Service" liable to Service Tax.

- Extended period of limitation for Service Tax demands can only be invoked in cases of deliberate suppression or evasion, which must be proven with evidence.

- Refund claims must be filed within prescribed limitation periods; failure to do so results in rejection of refund claims.

Final determinations on each issue were:

- The confirmed Service Tax demand on Restaurant Service of Rs. 57,24,877 was set aside.

- The confirmed demand of Rs. 3,21,147 under Renting of Immovable Property Service related to Astor was set aside.

- The confirmed demand of Rs. 2,49,342 under Advertising Agency Service was set aside.

- The confirmed demand relating to renting of immovable property to other parties was not contested and stands paid; refund claims were rejected.

- The demand confirmed for the extended period of limitation was held to be time-barred.