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M/s EMERALD LEISURES LIMITED Versus THE COMMISSIONER OF SERVICE TAX, MUMBAI-II, MUMBAI

2015 (10) TMI 297 - AUTHORITY FOR ADVANCE RULINGS

Club membership - Membership fee, Annual fee and other charges received from members - refundable security deposit - Whether the relationship between the applicant and members of the club could be considered as provision of ‘service’ by one person (service provider) to another person (service receiver) - Held that:- The relationship between the applicant and members of the club should be considered as provision of “service” by one person (service provider) to another person (service receiver) fo .....

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R/44/ST/07/2014 - Dated:- 11-9-2015 - V S Sirpurkar And Shri S S Rana, JJ. For The Appellant : Shri B J Raichandani, Adv For The Department : Shri Amresh Jain(AR RULING M/s Emerald Leisures Limited (hereinafter also referred to as applicant) is resident Public Limited Company. Applicant has entered into the business of establishing and running an indoor sports complex and club. The facilities and amenities to be provided at the upcoming indoor sports complex and club include lawn tennis courts, .....

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able membership fee for an amount ranging from ₹ 50,000/- to ₹ 5,00,000/- depending on the category of membership. The maximum term of membership is 20 years. The club facility shall be allowed to be used only by the members. 2. Applicant has raised following issues for determination by the Authority. (a) Whether the relationship between the applicant and members of the club could be considered as provision of service by one person (service provider) to another person (service receiv .....

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receiver)? (b) Whether refundable security deposit would be subject to Service Tax is in accordance with the applicable provisions of law, in particular, the definition of service contained in Section 65B(44) read with sections 66B, 66D and Section 66E of the Finance Act, 1994 or not. 3. Applicant submits that in order to attract Service Tax, the service provider has to undertake an activity for another person (service receiver) for a consideration; that in the instant case, all the ingredients .....

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4. Further, applicant submits that no service is being provided by one person to another as there is complete absence of identity between the contributors and the beneficiaries thereof; that for a service to be regarded as taxable service, there should be two distinct person i.e. service provider and service receiver; that in the case of the Dalhousie Institute 2005 (180) ELT 18 , the Hon'ble Calcutta High Court held that immoveable property let out by a club to its members would not be lia .....

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sale, which would be exigible to tax. The Hon'ble Supreme Court further observed 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 would be completely absent; that similar view was taken by Full Bench of the Patna High Court in case of CIT vs. Ranchi Club (1992 196 ITR 137 Patna) wherein it was inter-alia held that keeping in view the prin .....

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nd Section 66 of the Finance Act, 1994 to levy Service Tax in respect of services purportedly provided by the petitioner club to its members to be ultra vires; that above rulings would apply even after 01.07.2012 in respect of submissions made by the applicant; that explanation to Section 65 B(44) would not apply in the facts of the present case. 5. Revenue submits the as per Section 65B (37), person includes an association of persons or body of individuals, whether incorporated or not. Section .....

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b. To become a member of the Club, the person is required to pay Membership Entrance Fee (Non-Refundable) and Refundable Security Deposit as specified. Having become the member of the Club, in order to avail the services of the Club, member is required to pay Annual Subscription charge. For specified services provided by the Club, member is required to pay the consideration separately. Membership provides privilege to avail the facilities and service of the Club. Revenue further submits that as .....

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not merely seem to be an association or body of persons providing service to the members of such association or body of persons; that the activities under consideration undertaken or proposed to be undertaken by M/s Emerald Leisures Limited, is purely a business activity by M/s Emerald Leisures Limited for profit motives; that the name given The Club does not seem to signify the conventional Club providing services to its members, wherein there are no shareholders and consequently the question .....

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6B read with Section 65 B (37) and Section 65B (44), the services provided by the applicant, which is a Public Limited Company and the profit of the company is shared amongst shareholders and not to the so called members of the Club is clearly a taxable service provided by one person (applicant) to another person (members of the club) and are accordingly leviable to Service Tax. Principle of mutuality raised by the applicant does not seem to have relevance in view of the material facts on record .....

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nt, there is no activity ; that making available passive infrastructure to members by the club is not an activity; that activity means state of being active. Revenue submits that there are services liable to Service Tax, which does not contain state of being active. As example, Revenue state that as per Section 66E(e) of the Finance Act, 1994, agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act, is declared service and liable to Service Tax, tho .....

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ther as there is complete absence of identity between the contributors and the beneficiaries thereof. Further, for a service to be regarded as taxable service, there should be two distinct persons i.e. service provider and service receiver. Applicant has relied upon the judgment of Hon'ble Supreme Court in Joint Commercial Tax officer, Madras vs. Young Men's Indian Association, wherein it was held that if there is no transfer of property from one to another, there is no sale, which would .....

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members' club consistent with its incorporation, that is to say, where every member is a shareholder and every shareholder is a member, no license need to be taken out if liquor is supplied only to the members. If some of the shareholders are not members or some of the members are not shareholders that would be case of a proprietary club and would involve sale. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. The supply .....

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preme Court that with regard to incorporated club, if some of the shareholders are not members or some of the members are not shareholders that would be case of a proprietary club and would involve sale. In the instant case before us, members may not be shareholders and shareholders may not be members of the club. Therefore, members are not owners of or interested in the property of the club. Hence, ratio of the judgment is not helpful to the applicant. One interesting aspect is noticed from the .....

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l Bench of Patna High Court in CIT vs. Ranchi Club wherein it is held that members' club can seek exemption from the tax liability under the Income Tax Act only if it could satisfy the test of mutuality in respect of its receipts and not on any other ground, subject to the provisions of the Act. Whether the surplus in the hands of the club has resulted out of transactions entered into with a motive of profit earning which can be said to be tainted with commerciality, is wholly irrelevant for .....

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herefore, the principles of mutuality are not applicable to the issue before us. 14. Further, Hon'ble Supreme Court in Chelmsford Club vs. C.I.T.(MANU/SC/3001/2000) also mentioned 3 conditions stipulated by the Judicial Committee in the case of English & Scottish Joint Cooperative wholesale Society Ltd. vs. Commissioner of Agriculture Income Tax, Assam 1948 AC 405, existence of which establishes the doctrine of mutuality. They are; a) the identity of the contributors to the fund and the .....

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e members of the club and vice-versa. Further, the applicant's prime objective is profit making and dividends are distributed among share-holders, who may not be members. Therefore, condition number (b) and (c) above are not satisfied and thus principles of mutuality are violated. Similarly, ratio of judgments of Hon'ble High Courts relied upon by the applicant in Ranchi Club Ltd. vs. Chief Commissioner of Central Excise & Service Tax, Ranchi Zone (W.P. (T) NO. 2388 OF 2007, Dated:- .....

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High Court observed that principally there should be existence of two sides / entities for having transaction as against consideration - In a members club, there is no question of two sides - members and club, both are same entity. We observe that with effect from 01.07.2012, new system of taxation of services has been introduced by the Government. Besides other changes, the word service has also been defined under Section 65B (44) of the Finance Act, 1994. Explanation 3 (a) to said Section sta .....

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contention of the applicant that club and its members are not two distinct persons, is incorrect. 16. Second issue raised by the Applicant before the Authority for determination is; Whether refundable security deposit would be subject to Service Tax is in accordance with the applicable provisions of law, in particular, the definition of service contained in Section 65B(44) read with sections 66B, 66D and Section 66E of the Finance Act, 1994 or not. 17. Revenue inter-alia submits that notional in .....

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f gross consideration under Section 67 of the Finance Act, 1994; that if members do not give said interest free security deposits, the cost of providing services would increase and such burden would shift to members. Revenue further submits that the legislative intent for determining value under Section 67 ibid is to determine the true value of the service in ordinary course of trade and value should be such which must be the sole consideration for the service. Revenue also relied upon stay orde .....

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hat receipt of said deposit is a condition of the contract and not consideration. Applicant relied upon the judgment CIT vs. Tollygunge Club Ltd. (1977) 2 SCC 790 and CIT vs. Bijli Cotton Mills (P) Ltd (179) 1 SCC 496 in support of his contention, besides some other judgments. 19. Applicant submits that Section 67 of the Finance Act, 1994 provides that value of taxable services shall be the gross amount charged by the service provider for such services provided or to be provided by him; that the .....

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ce only if the Revenue is in a position to establish that same has led to depression or reduction in the value of taxable service; that such is not the situation here. 20. The question raised before this Authority in short is whether refundable security deposit would be subject to Service Tax. From the submission made by the applicant and Revenue, it is noticed that the thrust of arguments is - whether interest accruing on the refundable security deposit is liable to Service Tax. We proceed to e .....

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plicant has submitted that the facilities and amenities to be provided at the upcoming indoor sport complex and club include the following: lawn tennis courts, badminton court, squash court, swimming pool, table tennis, billiards, card room, board games, virtual sports, kids play area, a library, restaurant, spa, gymnasium, banquet hall and rooms to stay. Section 67(1) of the Finance Act, 1994 provides for the measure of levy. The said section reads as follows: (1) Subject to the provisions of t .....

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a case where the provision of service is for consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. 22. It is noticed from Section 67(1)(i) ibid that consideration received in money for services rendered is liable to Service Tax. In the case before us, refundable security deposit ranging from ₹ 1.50 lakhs to ₹ 10 lakhs is to be taken by the applicant for a period of 20 years, for most of the categories of members. Since refundable secur .....

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efunded to members. Further, Section 67(1)(i) ibid inter-alia envisages that Service Tax chargeable on any taxable service with reference to value, be the gross amount charged by the service provider for such service provided or to be provided by him. Therefore, charged means amount collected or to be collected by the service provider for service provided or to be provided by him. Notional interest on refundable security deposit is not a charge by the applicant. Since there is no charge , there .....

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b) and service receiver (member) is a condition of contract between two persons. Therefore, same would tantamount to additional consideration and be part of gross amount under Section 67 of the Finance Act, 1994. It is noticed that in CIT vs. Tollygunge Club Ltd. (1977) 2 SCC 790, the assessee was a Company and owned a Social and Sports Club, one of whose activities consisted of conducting horse races. It charged for admission into the enclosure of the club, admission fees to the guests introduc .....

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y a payment which a race-goer is required to make in addition to the price of admission ticket if he wants to witness the race from the Club enclosure, but on that account it does not become part of the price for admission. The admission to the enclosure is the occasion and not the consideration for the surcharge taken from the race-goer. 25. Applying the ratio of judgment of Hon'ble Supreme Court in CIT vs. Tollygunge Club Ltd. to the case before us, it can be concluded that refundable secu .....

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