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Service Tax - Service by club to its members held ultra vires: Gujarat HC

By TIOL News Service

AHMEDABAD, JULY 09, 2013: THREE different clubs of City of Ahmedabad, named, Sports Club of Gujarat Limited, Rajpath Club Limited and Karnavati Club Limited are before the High Court making almost identical prayers.

To issue a writ of or in the nature of mandamus declaring Section 65(25a), Section 65(105) (zzze) and Section 66 of the Finance (No.2) Act, 1994 as incorporated /amended by the Finance Act, 2005 to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, as being ultra vires, beyond the legislative competence of the Parliament, unconstitutional, illegal and void.

It is also prayed,

To issue a writ of or in the nature of mandamus commanding the respondents to forebear from imposing or enforcing the provisions of the Finance (No.2) Act, 1994 as amended by the Finance Act, 2005 or Rules, Notifications or Orders thereunder so as to levy service tax in respect of services purportedly provided by the petitioner club to its members.

The Counsel for the petitioners argued that the issue is covered by a judgement of the Jharkhand High Court in Ranchi Club Ltd. v. Chief Commr. of C.Ex & S.T., Ranchi Zone, reported in 2012-TIOL-1031-HC-JHARKHAND-ST. The Jahrakhand High Court had observed,

"As we have noticed that petitioner's contention is that petitioner is a club and also registered company under the Companies Act, 1956. The petitioner is giving service to its members but the club is formed on the principle of mutuality and, therefore, any transaction by the club with its member is not a transaction between two parties.

Xxxx

Since the issue whether there are two persons or two legal entity in the activities of the members' club has been already considered and decided by the Hon'ble Supreme Court as well as by the Full Bench of this Court in the cases referred above, therefore, this issue is no more res integra and issue is to be answered in favour of the writ petitioner and it can be held that in view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form including as mandap keeper, then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing. However, so far as services by the club to other than members, learned counsel for the petitioner submitted that they are paying the tax."

The High Court observed that Revenue could not set out any convincing grounds on which this Court should not follow the decision of the Division Bench of Jharkhand High Court.

In the result, these petitions are allowed and it is declared that Section 65(25a), Section 65(105) (zzze) and Section 66 of the Finance (No.2) Act, 1994 as incorporated / amended by the Finance Act, 2005 to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires.

(See 2013-TIOL-528-HC-AHM-ST)


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