TMI Blog2014 (5) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... GUJARAT HIGH COURT] Services provided by the appellants to non members and the consideration received for rendition of such service, fall outside the scope of the definition of ‘Club or Association’ service and the taxable service defined in Section 65(25a) read with Section 65(105)(zzze) of the Act, prior to 01.05.2011 Services provided by the appellant FICCI to non members subsequent to 01.05.2011, though presumably may fall within the expanded scope of the taxable ‘Club or Association’ service, (by virtue of the amendments by the Finance Act, 2011), the proportionate service tax and interest for these services provided subsequent to the amendments w.e.f. 01.05.2011 (not identified in the impugned order), cannot be sustained since the show cause notice dated 28.12.2012, issued to FICCI covering part of the post amendatory period omits to allege FICCI’s liability to tax on the basis of the amended provisions and thus there is denial of due process Invocation of the extended period of limitation for initiation of proceedings against both the appellants, to the extent the extended period is invoked and the confirmation of penalties, is unjustified and unsustainable - Decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of services, facilities or advantages for a subscription or any other amount; Section 65(25a) club or association means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include : (i) Any body established or constituted by or under any law for the time being in force; or (ii) Any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or (iii) Any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or (iv) Any person or body of persons associated with press or media; 6. Section 65(25a) was amended and renumbered as Section 65(25aa) by the Finance Act, 2011, dated 8-4-2011. Post the amendment, the provision reads : club or association means 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 - (i) any body established or constituted by or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowth of Indian business, to build international relations for making India a Global Player , to promote Indian business in matters of inland and foreign trade, transport, industry, manufacture, finance and all other economic subjects and to encourage Indian banking, shipping and insurance. (b) To encourage friendly feelings and unanimity among business community and associations on all subjects connected with the common good of Indian-business. ----- ---- ---- (e) To take all steps by lawful means which may be necessary for promoting, supporting or opposing legislation or other action affecting the aforesaid economic interests and in general to take the initiative to assist and promote trade, commerce and industry. (f) To provide for arbitration in respect of disputes arising in the course of trade and industry or transport or other business matters, and to secure the services of experts, technical and other men to that end, if necessary or desirable. (g) To conduct, undertake the conduct of and participate in national and international exhibitions. (h) To set up museums or showrooms, to exhibit the products of India and other countries and to partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was invoked under the proviso to Section 73(1) of the Act, for initiation of proceedings for levy and collection of service tax, interest and penalties. 12. During 27-7-2006 to 13-8-2010 (prior to issue of the first show cause notice dated 19-10-2010, covering the period 1-7-2006 to 30-6-2012), over twenty (20) letters were exchanged between Revenue and the appellant concerning the appellant s liability to service tax on services provided to its members and others, on amounts received by the appellant under various heads including subscription fees from its members. Eventually the show cause notice dated 19-10-2010 was issued, followed by the two subsequent show cause notices, covering later periods. Para 4 of the impugned order admits that the appellant vide a letter received on 14-5-2007 from Revenue had submitted its balance sheet, Memorandum Articles of Association and ST-3 returns filed for the periods 2005-06 to 2006-07. The correspondence between the parties is briefly adverted to in paragraphs 3 to 9 of the impugned order. 13. In response to the letter dated 27-7-2006 addressed by Revenue, the appellant vide its letter (received on 3-9-2006) intimated that it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in activities having objectives which are in the nature of public services and of a charitable nature, it is covered by the exclusionary, clause (iii) of Section 65(25a) of the Act and therefore not liable to levy of Service Tax, for having provided Club or Association service; (f) In view of the principles flowing from the several judgments of the Supreme Court (referred to in paragraph 24B.15 of the adjudication order), in particular the judgment in CIT, New Delhi v. Federation of Indian Chambers of Commerce and Industries - AIR 1981 SC 1408, the activities of the appellant having been declared (by the Supreme Court), to be clearly charitable in nature, the appellant is excluded from the ambit of the specified taxable service. Board s Circular Nos. 84/2/2006-S.T. and 96/7/2007-S.T., dated 19-9-2006 and 23-8-2007, which appear to suggest a limited scope for the expression charity , by reference to the definition in Black s Law Dictionary, are clearly misconceived, unsustainable and in any event would not prevail over the determination by the Supreme Court that the appellant is a body pursuing charitable activities. This is particularly so since the scope of exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for substantially similar reasons as pleaded for challenging invocation of the extended period of limitation, the proposal to impose penalties, is unsustainable. 15. As noticed in Paragraph 3 (supra) the last show cause notice is dated 28-12-2012 covering the period 1-7-2011 to 30-6-2012. We noticed in Paras 6 and 7 (supra) that by the Finance Act, 2011 the relevant provisions were amended; Section 65(25a) was also renumbered, as Section 65(25aa). Consequent on the amendment, Club or Association is defined to mean any person or body of persons providing facilities or advantages, primarily to its members. Prior to this amendment the services, facilities or advantages, provided by any person or a body of persons, for a subscription or any other amount, to its members, was the activity covered by the taxable service. By the same amendment Section 65(zzze) was also amended to enjoin that the defined taxable service provided to its members or any other person would be covered. Ld. DR contends that at least since 8-4-2011 (the date of the amendment), other services provided by the appellant - FICCI and the consideration received from arranging exhibitions; contributions from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the discussions and findings of the Authority. (i) The order rejects the appellant s claim (for exclusion on the ground that it is engaged in activities having objectives in the nature of public services and a charitable nature). In para 27.5, the reason for rejection of the claim is set out as predicated on the Board circular, dated 28-4-2008. This circular, issued purportedly in response to representations by trade associations merely states that such bodies fall within the scope of club or association; services provided by such associations are not of a charitable, religious or political disposition; that these bodies collect membership fees and other charges from their members and work for the interest of trade and industries and therefore do not have public service objectives. The Authority neither analyzed nor dealt with elaborate submissions by the appellant and copious references to relevant precedents including the judgment of the Supreme Court (AIR 1981 SC 1408, supra) whereby, in the appellant s own case (though under provisions of the 1961 Act), it was treated as a charitable organization, after an elaborate analysis of its aims, objectives and activities. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition or any other service. (emphasis supplied) Section 65A provides guidance on classification of services. It is not a provision for classification of the service provider. In Para 28.7 the order concludes that all services provided by the appellant would fall under the category of Club or Association service and altering the classification is contrary to Section 65A of the Act. (iii) The order concludes that provisions of Section 72 of the Act, were rightly invoked, since FICCI failed to furnish information and copies of balance sheets for 2005-2006 and 2009-2010, covering 16-6-2005 to 31-3-2010, despite letters seeking such information (Para 29). (iv) Para 30 of the order records that the extended period of limitation was rightly invoked since there is neither bona fide justification established for failure to remit the requisite quantum of service tax and there was wilful evasion of tax. The several precedents cited by FICCI to challenge invocation of the extended period were distinguished on the ground that facts are dissimilar. The Authority concluded that FICCI acted casually and in total disregard of legal provisions. (v) FICCI s claim for cum-tax benefit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the public in foreign countries the advantages of trade and commerce with India in electronic goods and computer software; (e) Collecting statistics and other information regarding the manufacture, trade or ultimate use of electronic goods and computer software in various countries; (f) Propagating information useful to manufacturers, traders and shippers of electronic goods and computer software by seminars, lectures, workshops, discussions, books, correspondence or otherwise; (g) Maintaining liaison with any agency which has been set up for laying down standards of quality and packing in respect of electronic goods and computer software; (h) Deputing officers of the Council to witness the inspection of electronic goods and computer software exported, in foreign countries, where such inspection is being conducted by the authorities in the importing countries; (i) Deputing officers of the Council to witness the survey of electronic goods and software exported or intended for export in foreign countries or in India, as a result of any dispute or difference between the parties to a contract for sale and purchase of electronic goods a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravention of the codes or practices laid down by the Council by any of the persons concerned, where such contravention would affect the exports of electronic goods and computer software; Provided that such advice or representation shall be only so far as such policies or measures have been directly or otherwise on the export of electronic goods and computer software . (iii) Clause 4 of the MOA covenants : 4. All the incomes, earnings, movable or immovable properties of the Council shall be solely utilized and applied towards the promotion of its aims and objects only, as set forth in this Memorandum and no portion thereof shall be paid or transferred directly or indirectly by way of dividends, bonus, profits or in any manner whatsoever, to the present or past members of the Council or to any person claiming through any one or more of the present or past members, provided that nothing herein contained shall prevail the payment in good faith of reasonable and proper remuneration to any officers, other than members, or employees or other persons in return for any actually rendered to the Council and provided further that no member shall be appointed to any salaried offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for transaction of business for EPC s, which shall be adopted with such modifications as the Central Government may approve having regard to the special nature or functioning of such EPC; that a list and product category of EPC s, including C.B. is provided in an Appendix; that Commodity Boards (CB) function as EPC s for products allotted to them; and EPC is the authority for issuing RCMC. The Appendix, which is part of the FTC lists and recognizes the assessee/ECSEPC as an EPC. (viii) ECSEPC s income includes subscription fee from its members and through other sources such as - (a) in discharge of administrative responsibilities by way of organizing promotional events such as marketing development schemes (introduced by the Commerce Department of Central Government and aided by the Government); (b) Fairs and Trade Fairs including India Soft , within and outside India, where participation fee is charged from member companies for putting up stalls; on the participation fee received for fairs organized within India, the assessee is remitting service tax, under the taxable business exhibition service ; (c) setting up of business incubation centres since outside India. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified; (e) That computation of the demand is incorrect; and (f) The assessee is entitled to avail credit on inputs and input services. (xi) The several contentions of the assessee were negated in the adjudication order. The claim of being a charitable organization, providing public service was rejected on grounds similar to those recorded in the adjudication order of FICCI. For levy of Service Tax on consideration received for the several activities and from non-members as well, the order records reasons similar to those recorded in the FICCI s adjudication order. ECSEPC was however granted benefit of exemption from service tax for the period 16-6-2005 to 31-3-2008 in view of Section 96J of the Act and cum-tax benefit for 2005-2009 and 2010-2011. 18. In view of the competing claims, contentions and assertions, the following Issues require to be considered : ISSUES : (a) Whether the assessee/appellants (FICCI and ECSEPC) are engaged in activities having objectives which amount to public service and of a charitable nature and consequently fall outside the ambit of Club or Association ; (b) Whether services provided by the appellants to their respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) All the purposes of an institution/body need not necessarily be charitable nor is it required that there should not be other objectives. If the primary or dominant purpose of a trust/institution is charitable, other objects which may not be charitable but which are merely ancillary or incidental to the primary or dominant purpose would not detract from the character of the activity being a valid charity, as pointed out by the Supreme Court in Commissioner of Income Tax, Madras v. Andhra Chamber of Commerce - [1965] 55 ITR 722 (S.C.). This principle is reiterated in Additional Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association, Surat - AIR 1980 SC 387. These binding precedents have referred to and quoted with approval English curial authorities, in Commissioner of Inland Revenue v. Yorkshire Agricultural Society - (1928) 1 KB 611 and Institution of Civil Engineers v. Commr. of Inland Revenue - (1931) 16 Tax Cas 156. (c) In FICCI s own case, the Supreme Court in CIT, New Delhi v. Federation of Indian Chambers of Commerce and Industries, New Delhi - AIR 1981 SC 1408 ruled that it is a charitable trust. The Court analysed FICCI s charter and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Film Chamber of Commerce - [1981] 129 ITR 22 (Mad); Addl. CIT v. Madras Jewellers and Diamond Merchants Association - [1981] 129 ITR 214 (Mad.); Addl. CIT v. Automobile Association of Southern India - [1981] 127 ITR 730 (Mad.); Hyderabad Stock Exchange Ltd. v. CIT - [1967] 66 ITR 195 (AP); Addl. CIT v. South India Hire Purchase Association - [1979] 116 ITR 793 (Mad.); Addl. CIT v. Delhi Brick Kiln Owners Association - [1981] 130 ITR 55 (Del.); and CIT v. Western India Chambers of Commerce and Industry Ltd. - [1982] 136 ITR 67 (Bom.). The analyses of the respective facts and characteristics of several organizations, considered in the several judgments guide us to the singular conclusion that FICCI and ECSEPC are institutions having public service objectives and of a charitable nature. (f) The analysis in the impugned adjudication order(s) leading to the conclusion that FICCI (and ECSEPC) is not engaged in activities having objectives which are in the nature of public service and of a charitable nature (para 27), is fundamentally misconceived. Despite noticing the several precedents cited on behalf of the assessee (earlier in the order), the Authority records an ipse dixit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi Club Ltd. and Sports Club of Gujarat Ltd. (supra)? (a) A full Bench of the Patna High Court in Commissioner of Income Tax v. Ranchi Club Limited - 1992 (1) PLJR 252 (Pat) (FB), followed the decision of the Supreme Court in Joint Commercial Tax Officer v. The Young Men s Indian Association - 1970 (1) SCC 462, to hold that income tax could be imposed on transactions of a club with its members. The Supreme Court in Young Men s Indian Association considered the issue whether supply of various preparations by each club to its members involved a transaction of sale within the meaning of the Sales of Goods Act, 1930 and provisions of the Madras General Sales Tax Act, 1959. The Court held that despite the definition of sale set out in Section 2(n) of the Madras Act read with Explanation 1 thereof, there was no occurrence of transfer of property from one to another, as a club even though a distinct legal entity is only acting as an agent for its members in the matter of supply of various preparations and no sale would be involved, as the element of transfer would be completely absent. Relying on these decisions, the Jharkhand High Court in Ranchi Club Ltd. (supra) ruled that on applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision of the Supreme Court in East India Commercial Company Limited v. Collector of Customs, Calcutta - 1983 (13) E.L.T. 1342 (S.C.), the Court held that since the Madras High Court in A. M. Sali Maricar - [1973] 90 ITR 116 (Mad.) had held that Section 140A(3) of the Income Tax Act, 1961 was held to be unconstitutional, being violative of the provisions of Article 19(1)(f) of the Constitution, the Income Tax Tribunal acting anywhere in the country must respect the law declared down by a High Court though of a different State, so long as there is no contrary decision of any other High Court on that question; and that being the position the Income Tax Tribunal at Mumbai was required to decide on the basis of the law pronounced by Madras High Court, namely on the footing that Section 140A(3) was non-existent. In All India Lakshmi Commercial Bank Officers Association v. Union of India, the Delhi High Court reiterated this position by observing that income tax Authorities acting anywhere in the country, must respect the law laid down by the High Court, whether of the State in which they are functioning or of a different State, in the absence of any contrary decision of any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notices (dated 7-10-2010 and 18-10-2011, covering the periods 2005 to 2009 and 2010 - 2011) pertaining to the other appellant - ECSEPC were issued on the premise that the entire consideration received by these appellants for a variety of services provided, whether to their members or others; and covering different facets, all fall within Club or Association service. In the FICCI adjudication order (as noticed in our analyses at Para 16(ii) supra), the adjudication order had concluded that the consideration received towards museum rent, contribution from allied organisation, by way of facilitation fees, on sale of its periodicals, sponsorship amount, miscellaneous receipts, other income and Government grants, all form part of the gross consideration received for rendition of Club or Association service. The Authority predicated this conclusion on provisions of Section 65A, a provision which provides guidance for classification of services and not for classification of the services provider. We noticed earlier that the show cause notice dated 28-12-2012 (issued to FICCI), clearly asserted in para 4 thereof that FICCI s liability to service tax arises on the basis of charges and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ratna - (1986) 4 SCC 537, reiterated in Oryx Fisheries Pvt. Ltd. v. Union of India - 2011 (266) E.L.T. 422 (S.C.), a notice to show cause is intended to provide the person proceeded against a reasonable opportunity of asserting his objections against the proposed charges, indicated in the notice. Though a show cause notice should not be read hyper-technically, the notice must clearly indicate and provide an impression to the noticee on the basis of which liability is alleged, so as to provide him an opportunity of contesting the assertion and submitting his defence, if any. A show cause notice is not an empty formality or a ritual without a purpose. Learned DR has contended that mere mention of a wrong provision of a law (in the show cause notice) would not be fatal when the power exercised is available though under a different provision and such omission by itself would not vitiate the proceedings. Reliance is placed on the decision in Collector of Central Excise, Calcutta v. Pradyumna Steel Ltd. - 1996 (82) E.L.T. 441 (S.C.). This decision, in our considered view, offers no assistance to Revenue in the present lis. In the present case the infirmity is not on account of mere men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the ambit of the Foreign Trade Policy, it is outside the purview of Club or Association , as defined. As noticed earlier (para 17 supra), this appellant is an Export Promotion Council constituted qua provisions of the Export-Import Policy. Its MOA and AOA enumerate its aims, objectives and functional responsibilities and clearly stipulate that provisions of its AOA shall be subject to provisions of the Foreign Trade Policy, as notified by the Central Government from time to time. We also noticed the basic objectives of Export Promotion Council as set out in the FTP; that the Handbook of FT procedure states that EPCs are non-profit organizations who are to be autonomous, competent to regulate their own affairs but subject to provisions of uniform bye-laws to be framed by the Central Government periodically for constitution and/or transaction or business by EPCs; and that EPCs are required to adopt such bye-laws with such modifications as the Central Government may approve, having regard to the special nature or functioning of such EPC. We also noticed that a list and product category of EPCs including Commodity Boards is set out in the Appendix to the FTP, stipulating EPC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lp to be a power conferred under the Act. The meaning of the word under the Act is well-knows. By an Act would mean by a provision directly enacted in the statute in question and which is gatherable from its express language or by necessary implication therefrom. The words under the Act would, in that context, signify what is not directly to be found in the statute itself but is conferred or imposed by virtue of powers enabling this to be done; in other words, by laws made by a subordinate law-making authority which is empowered to do so by the parent Act. This distinction is thus between what is directly done by the enactment and what is done indirectly by rule-making authorities which are vested with powers in that behalf by the Act. (vide Hubli Electricity Company Ltd. v. Province of Bombay, and Narayanaswami Naidu v. Krishnamurthi.) That in such a sense bye-laws would be subordinate- legislation under the Act is clear from terms of Sections 11 and 12 themselves. Section 11(1) enacts : 11. (1) Any recognized association may, subject to the previous approval of the Central Government make bye-laws for the regulation and control of forward contracts , and sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtue of positive enactment, of the words under the Act should be held to be a reference to powers gatherable by necessary implication from the provisions of the Act. As an instance learned Counsel referred us to the power of the Central Government to direct the Commission to inspect the accounts and other documents of any recognized association or of any of its members and submit its report thereon to the Central Government under Section 8(2)(c) and suggested that this would be a case of power of duty which would be covered by the words under the Act . We find ourselves wholly unable to accept this. If without the reference to the phrase as may be prescribed the words under the Act would comprehend powers which might be conferred under bye-law as well as those under rules we are unable to appreciate the line of reasoning by which powers conferred by bye-laws have to be excluded, because of the specific reference to powers conferred by rules . Undoubtedly, there is some little tautology in other use of the expression as may be prescribed after the comprehensive reference to the powers conferred under the Act , but in order merely to avoid redundancy you cannot adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reborn as IFCI Limited on its registration under the Companies Act. Clause (ii) of Section 4A(2) of the Companies Act alternatively authorized the Central Government to specify an institution as a public financial institution if not less than fifty-one per cent of the paid-up capital of such institution is held or controlled by the Central Government. It was not in dispute that the requirements of Section 4A(ii) of the Companies Act were not satisfied by IFCI Limited, namely majority holding of the share capital or control by the Central Government. The issue therefore was whether the requirements of clause (i) of Section 4A(2) of the Companies Act, namely of IFCI Limited being established or constituted by or under any Central Act, were satisfied. The High Court explained that the expression established or constituted under has a different connotation from the expression established or constituted by ; that the word under is wider in its sweep than the word by . Drawing guidance from the principles postulated by the Supreme Court in R.C. Mitter Sons v. CIT - AIR 1959 SC 868, the High Court ruled that the expression constituted under any Central Act would have refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or formed by acts of private persons but subsequent statutory enactment or an order or Notification issued by the appropriate Government can result in its constitution as an authority or institution of self-Government and conferring upon the said body, the status of an authority or an institution of self-Government . The word constituted must be liberally interpreted to include cases where an organisation or a body is already set up by virtue of a Notification or order passed by an appropriate Government or a statutory body is conferred and given status of authority or an institution of self-government ; the words established or constituted have to be so read as to effectuate the legislative intent in Section 2(h) of the Act, observed the Court. The Court went on to explain that the word under would include establishment or constitution under power or authority conferred on an authority/body by an enactment, Notification/order; that a Notification or order could also be issued in exercise of Executive power and be a result of power conferred by legislation or even by subordinate legislation on an authority/body. As earlier noticed, the definition of Club or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub or Association service. FICCI obtaining a legal opinion certifying its non-liability to tax is proof of its bona fide belief that such is the case. Further the essential information and material which would have enabled initiation of proceedings by Revenue was available at any rate by the middle of 2007, when FICCI submitted its financial records, MOA and AOA. On a holistic consideration and analyses of these facts and circumstances we find no justification for invocation of the extended period of limitation under the proviso to Section 73(1) of the Act, for initiation of proceedings against FICCI. For reasons alike as in the case of invocation of the extended period, levy of penalties under Sections 76, 77 and/or 78, as the case may be, on FICCI is unjustified and arbitrary. The facts and circumstances legitimize invocation of the discretion under Section 80 of the Act to eschew penalties. This conclusion is recorded without prejudice and alternative to our conclusions on the substantive aspects covered by issues (a) to (d), in the case of FICCI. Invocation of the extended period of limitation and imposition of penalties on the other appellant-ECSEPC is equally illegal a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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