Summary
The Court considered sales tax and service tax on dealings between members’ clubs and their members under the statutory regimes before it. Mutuality survived the Forty-sixth Constitutional Amendment; the relevant deeming provisions did not displace it for incorporated members’ clubs. It rejected the revenue appeals and invalidated service-tax collection action against incorporated members’ clubs under the provisions examined.
Issues
- Whether the Forty-sixth Amendment displaced mutuality for members’ clubs.
- Whether the Finance Act, 1994 imposed service tax on incorporated members’ clubs before or after July 2012.
Provisions considered
- Article 366(29-A)(e) and (f), Constitution of IndiaThe limited deeming fiction did not abolish mutuality; clause (f), concerning food and drink service transactions, did not apply to members’ clubs. (¶¶ 7, 33, 35, 37, 38, 39, 40, 41, 42, 49)
- Sections 65(25a), 65(25aa) and 65B(44), Explanation 3(a), Finance Act, 1994Incorporated clubs were excluded before July 2012, and the later distinct-person deeming provision did not extend to bodies corporate. (¶¶ 58, 60, 66, 72, 73, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84)
Held
- For a genuine members’ club, property is held for members and the contributor and participator classes coincide. Incorporation does not itself defeat mutuality; proprietary clubs and dealings with non-members stand differently. Young Men’s Indian Association continued to govern. (¶¶ 20, 22, 24, 25, 26, 29, 30, 49)
- Article 366(29-A)(e)’s reference to an unincorporated association or body of persons did not encompass incorporated clubs. Its limited fiction did not remove the mutuality principle or create a sale by a person to itself. Mutuality continued for both incorporated and unincorporated members’ clubs after the amendment. (¶¶ 32, 33, 34, 35, 36, 37, 38, 45, 46, 48, 49)
- Clause (f) addressed food-and-drink supply transactions in hotels and restaurants and the judgments concerning their service component. It did not independently bring members’ clubs within sales tax. (¶¶ 39, 40, 41, 42, 43, 44, 49)
- Before July 2012, companies and registered cooperative societies were bodies constituted under law and excluded from the relevant club-or-association service-tax definition. After July 2012, service still required activity by one person for another for consideration; Explanation 3(a)’s narrower body-of-persons language did not deem incorporated clubs and members distinct. The Court held that the examined Finance Act regime did not tax incorporated members’ clubs from 2005 onwards. (¶¶ 58, 60, 65, 66, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84)
Result
The West Bengal sales-tax appeal and the Revenue’s service-tax appeals were dismissed. Writ Petition 321/2017 was allowed in terms of its first prayer. Show-cause notices, demands and other action to levy and collect service tax from incorporated members’ clubs were declared void under the regime considered.