By TIOL News Service

NEW DELHI, MAY 05, 2014: THE appellant: FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY

Who are they? - Founded on 16.03.1956 FICCI is a company registered under Section 26 of the Indian Companies Act, 1913 and was established inter alia to serve India's national, social and economic goals through the promotion of appropriate policies covering increase in gainful employment through expansion of production of goods and services for domestic/ export markets;raising living standard of rural/ urban population by promoting balanced economic development through industry, commerce, and services;and for achievement of the foregoing, to promote growth 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 etc.

The Case & the Service Tax demand : Proceedings were initiated, on assumption by Revenue that all receipts by FICCI including amounts received towards Admission Fee/ Subscription from Ordinary, Associate and Corporate Members;receipts in respect of meetings;for organising seminars exhibitions, annual meetings;contributions received from allied organisations such as the All India Organisation of Employers;Indian Council of Arbitration;ICC India;Joint Business Councils;FICCI Ladies Organisation;Confederation of Indian Food & Trade Industry;Misc. Receipts;Receipts from its publications;Facilitation Fees;Hire Charges;Commission Room and receipts on museum rentals;Sale of Periodicals;sponsorship amounts and even Government grants, comprise as the gross consideration received (by FICCI) for having provided Club or Association-service, during the periods in issue.

Against FICCI, t he Commissioner, Service Tax, New Delhi passed a common adjudication order in respect of three show cause notices dated 19.10.2010;21.10.2011 and 28.12.2012 and confirmed service tax demand of Rs.49,61,32,867/-;Rs.21,73,55,168/- and Rs.5,67,38,578/- apart from interest and penalties as specified therein, in respect of the three show cause notices, respectively.

The appellant : ELECTRONIC AND COMPUTER SOFTWARE EXPORT PROMOTION COUNCIL

Who are they? ECSEPC is an Export Promotion Council registered under the Societies Registration Act, 1860. It is a registrant under the provisions of the Act and remits service tax after filing returns periodically. This assessee was constituted as per provisions of the Export-Import Policy.

The case & the Service Tax demand: ECSEPCs 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 assessee sets up facilitation centres overseas under the market access initiative scheme promoted by the Department of Commerce, to enable participating member companies to enter overseas markets. This initiative is approved by the Department of Commerce and is funded by 50% contribution from the Department of Commerce and matching contribution borne by participating Indian companies;(d) subscriptions received towards periodicals and mailings. Assessee publishes a monthly journal, providing information regarding export of electronics and IT industry and receives subscriptions constituting sale consideration from member companies;(e) Assessee also provides information and news about tenders and procurement opportunities to its members by way of business opportunities news, on a daily basis through e-mail and receives consideration for providing the service. Service tax is remitted on this consideration under the taxable - business auxiliary service;(f) other incomes of miscellaneous nature such as income from TDS service, sale of miscellaneous items, tender fee etc. is also received. During 2005-09 this assessee earned income from conducting award ceremonies i.e. giving awards to deserving companies for outstanding export performances. Assessee incurred expenditure for organizing these ceremonies and received contributions/ sponsorship amounts from award winning companies, to meet only the expenditure incurred for conducting the ceremonies. In addition income was received from its publications and as contribution from the National Book Trust of India, for setting up a stall at the Frankfurt Book Fair. Proceedings were initiated alleging that the appellant is providing taxable service of ‘Club or Association'.

Appeal is preferred by the assessee ECSEPC against the adjudication order dated 18.10.2012. Service tax demand of Rs.1,39,32,621/- and Rs.32,95,542/- stands confirmed for the period 2005-09 and 2010-11, covered by show cause notices dated 07.10.2010 and 18.10.2011, respectively, apart from interest and penalties.

The issues before the Bench& observations thereon:

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 Associationas defined in Section 65(25a) or 65(25aa), as the case may be?;

++ Clause (iii) of the definition excludes 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 from the scope of Club or Association. The meaning of Charitable Purpose as per dictionaries Law Lexicons and in several statutory provisions such as the Charitable Endowments Act (6 of 1980), the Income Tax Act, 1961 or in Foreign Trade (Regulation) Rules, 1993, includes, gifts for general public use;for benefit of an indefinite number of persons;designed to benefit them from educational, religious, moral, physical or social standpoint;a charitable purpose containing elements of benefiting the public;a trust, the object and scope of which is public utility;and for advancement of any other object of general public utility. Public service normatively connotes a service performed for the benefit of the public specially by a non-profit organization see The American Heritage Dictionary of the English Language;

++ 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 (SC). This principle is reiterated in Additional Commissioner of Income Tax vs. Surat Art Silk Cloth Manufacturers Association, Surat 2002-TIOL-839-SC-IT-CB.

++ In FICCIs own case, the Supreme Court in CIT, New Delhi vs. Federation of Indian Chambers of Commerce and Industries, New Delhi AIR 1981 SC 1408 ruled that it is a charitable trust.

++ 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.

++ 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, is fundamentally misconceived.

++ Instead, the Authority relied on a Board Circular dated 28.04.2008 which was issued in response to a dispute presented by trade associations, to the levy of service tax. The Board had clarified that these bodies fall within the scope of the taxable entity and services provided by them are not of charitable, religious or political nature, since they collect subscription fee and other charges from members and work for the interest of trade and industry.

++ The adjudication order is stricken with the vice of gross judicial indiscipline. The learned Commissioner must be considered as having misconducted himself in refusing to follow the clear and direct judgment of the Supreme Court, which is conclusive on the principle and in the light of the analysis therein, that FICCI is a charitable organization having objectives and pursuing activities of general public utility, this being its dominant purpose.

On the aforesaid analysis, FICCI and ECSEPC fall outside the ambit of Club or Association as defined under the Act. This issue is answered accordingly.

B. Whether services provided by the appellants to their respective members and the consideration received therefor is exigible to tax, in view of the principle of mutuality declared in several judgments including in Ranchi Club Limited vs. Chief Commissioner of Central Excise & Service Tax 2012-TIOL-1031-HC-JHARKHAND-ST;

C. Whether service tax is leviable under the taxable category Club or Association-service, in the light of the judgment of the Gujarat High Court in Sports Club of Gujarat Ltd. Vs. Union of India 2013-TIOL-528-HC-AHM-ST;

++ On the basis of the precedential guidance adverted to, we conclude that in view of the decision in Ranchi Club Limited (supra), on application of the principle of mutuality, services provided by the appellants to their respective members would not fall within the ambit of the taxable Club or Association-service nor the consideration whether by way of subscription/ fee or otherwise received therefor be exigible to service tax. In view of the decision of the Gujarat High Court in Sports Club of Gujarat Limited, as the relevant provisions (namely Section 65(25a), Section 65(105)(zzze) and Section 66 of the Act), to the extent these provisions purport to levy service tax in respect of services provided by a Club or Association to its members is declared ultra vires, we hold that there are no operative legislative provisions of the Act legitimizing the levy and collection of service tax from the appellants, for providing Club or Association-service, in so far as these relate to any services provided to members of these appellants.

D. Whether services provided by FICCI and ECSEPC to non-members and consideration received for rendition of such services, is liable to be classified / computed as Club or Association-service;

E. Whether levy and demand of service tax on FICCI for the period subsequent to 01.05.2011 is sustainable;

++ The issue is whether services provided by FICCI / ECSEPC to non-members and consideration received for rendition of such services, are liable to be classified/ computed under Club or Association-service;and whether levy and demand of service tax on FICCI for the period subsequent to 01.05.2011, is sustainable?

++ The three show cause notices (dated 19.10.2010, 21.10.2011 and 28.12.2012, covering the periods 01.07.2006 to 30.06.2010;01.07.2010 to 30.06.2011;and 01.07.2011 to 30.06.2012) pertaining to FICCI and two show cause notices (dated 07.10.2010 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;and also predicate the demand on provisions of Sections 65(25a) and 65(105)(zzze), as these provisions stood prior to their amendment by the Finance Act, 2011.

++ By the 2011 amendatory process, the scope of Club or Association-service was expanded to cover facilities or advantages provided by a Club or Association to other than its members as well, provided such facilities or advantages are primarily intended for members vide amendment of the definition in Section 65(25a) pre-numbered as Section 65(25aa). Similarly Section 65(105)(zzze) was amended in 2011 to recast the taxable service to cover services provided by a Club or Association to any other personas well. The show cause notices however cover periods prior and subsequent to the amendments, but asserting that the liability attributed arises under Section 65(25a) and Section 65(105)(zzze), without indicating the effect of the amendments by the Finance Act, 2011.

++ As there is no attribution in the show cause notices issued to either FICCI alleging liability to service tax on services provided to non-members, as arising consequent on amendments introduced by the Finance Act, 2011, it requires to be held that there was no specific charge alleged nor was conformation of the levy and demand of service tax recorded after following the due process of law.

++ Amendments to the relevant provisions were introduced by the Finance Act, 2011 w.e.f. 01.05.2011. These show cause notices however neither referred nor adverted to the effect of the amendments nor even asserted that services provided by FICCI to non-members would fall within the ambit of the taxable service, in view of the amendments.

++ FICCI was, therefore, denied the opportunity to respond to any such attribution of liability, on account of the amendments.

++ A show cause notice is not an empty formality or a ritual without a purpose.

++ In the present case the infirmity is not on account of mere mention of a wrong provision of the Act. The 2011 amendments expanded the scope of taxable service to cover services provided to non-members of a Club or Association, as well. The expanded scope of the taxable service is thus clearly prospective. It is therefore incumbent that the show cause notice should assert that FICCIs liability to tax (after 01.05.2011) arises under and in the context of the amended provisions.

++ This is not a case of a mere mention of a wrong provision of law but one of substantial failure of natural justice resulting in transgression of due process.

++ In any event, prior to the 2011 amendatory dynamics, services provided by FICCI to non-members would clearly be outside the scope of Club or Association-service, qua the un-amended definition of Club or Association-service under Section 65(25a) read with Section 65 (105) (zzze), of the Act.

We hold that services provided to non-members fall outside the ambit of Club or Association-service prior to 01.05.2011 and subsequent to this date there is no specific allegation that the services provided to non-members fall within the expanded scope of this taxable service qua provisions of the Finance Act, 2011. The period in issue, of the other appellant ECSEPC is prior to the amendments and hence services provided by this appellant to non-members is beyond the scope of the taxable service.

F. Whether ECSEPC is a body constituted by or under any law and therefore falls outside the purview of the definition of Club or Association, in view of clause (i) of Section 65(25a) of the Act;and

++ Clause (i) of Section 65(25a) excludes from the purview of the definition (of Club or Association), anybody established or constituted by or under any other law for the time being in force.

++ ECSEPC claims that being an organization formed to effectuate the policy under the Foreign Trade (Development and Regulation) Act, 1992, and being an Export Promotion Council falling within the ambit of the Foreign Trade Policy it is outside the purview of Club or Association, as defined.

++ As earlier noticed, the definition of Club or Association excludes from its ambit anybody established or constituted by or under a law for the time being in force. The appellant ECSEPC though a body registered under the Societies Registration Act, 1860, is notified to be an EPC and is enumerated to be so qua the Appendix to the FTP;the appellant is obliged to confirm to uniform bye-laws as may be periodically framed by the Central Government regulating the constitution and / or transaction of its business. ECSEPC is also chartered to function as an EPC and authorised to issue RCMC (Registration cum Membership Certificate).

We therefore conclude that the appellant - ECSEPC is a body established or constituted under a law for the time being in force, namely the Foreign Trade (Development and Regulation) Act, 1992 read with the Foreign Trade Policy and is excluded from the scope of the definition of Club or Association qua Clause (i) of Section 65 (25a) of the Act.

G. Whether invocation of the extended period of limitation and imposition of penalties is justified in the facts and circumstances;

++ During 27.07.2006 to 13.08.2010 (prior to issue of the first show cause notice dated 19.10.2010) over twenty letters were exchanged between Revenue and FICCI, concerning FICCIs liability to service tax on services provided to its members and others;and on amounts received under various heads including as subscription fee from its members. 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.

++ Invocation of the extended period of limitation and imposition of penalties on the other appellant ECSEPC is equally illegal and unsustainable, for similar reasons as recorded by us in the case of FICCI, namely existence of a serious and bonafide dispute as to interpretation of the relevant provisions;whether this appellant falls within the taxable scope of the defined entity Club or Association-service, which is liable to tax and in the context of an additional disputed aspect as to whether this appellant falls outside the scope of the defined entity, being a body constituted under any law for the time being in force qua the exclusionary clause (i) in Section 65 (25a) of the Act.

Issue is accordingly answered, in favour of the appellants and against Revenue.

The appeals were allowed.

(See 2014-TIOL-701-CESTAT-DEL)