By TIOL News Service

CHENNAI, OCT 09, 2018: THE appellant is providing taxable service under the category of "Club or Association Services" in respect of holiday and leisure service provided in the resorts, amongst others.

The first appeal concerns the period from 1.4.2005 to 31.3.2010 wherein the allegation is that the appellant has collected the amounts over and above membership fees towards room rental, usage of telephone, fax etc. interest on instalment payments, income from securitization, exchange fee and which should be included in the taxable service as gross amount received for rendering the services. The Commissioner confirmed the demand of service tax of Rs.22,24,69,008/- along with interest and penalties.

In the matter of Stay application filed against this order, the CESTAT had ordered the appellant to make a pre-deposit of Rs.2 crores. We reported this order as - 2013-TIOL-1090-CESTAT-MAD .

Similar demands followed for the latter period and appeals came to be filed before the CESTAT.

All the appeals were heard in June and the orders were passed recently.

After considering the submissions made by both sides supported with case laws, the Bench made its observations on each of the issues in question as under -

I. Interest on instalments:

+ There is no difference between a member being upfront and a member availing instalment facility and there is no finding from the lower authority that the benefits of membership accruing to either of the aforesaid members vary.

+ Interest on instalments is only a financial arrangement for the deferred payment which is only to set-off any financial loss on account of deferred payment and that this kind of interest is not a taxable entity under the tax net. Hence, the denial and the reason attributed for denying applicability of Notification No. 04/2006-ST is not sound and proper. Karur Vysya Bank Ltd.  -  2015-TIOL-635-CESTAT-MAD:

+ 'Any other amount' in the definition of "Club or Association" [Section 65 (25aa)] is not an independent entry.

+ The provision of services/facilities or advantages to members for a subscription or any other amount, should be read in ejusdem generis and hence, 'any other amount' can only be of the same class of 'subscription'. A subscription is paid by all of the members, whereas any other amount is not being paid by all but only by such members who opt for instalments and hence the logic or arguments of the Revenue cannot be accepted.

Held: Interest on instalment is not includible as it cannot partake the character of consideration for the services provided.

II. Securitization Income:

+ Accounting Standard makes it mandatory for an assessee to maintain its accounts in a particular manner. It is essentially to act as a balancing factor. It is only an entry made in the balance sheet and it is a settled position that a balance sheet entry could never become an income or an expenditure, as the case may be.

+ Hence, viewed from this angle, an amount showed in the balance sheet could neither be an income nor a consideration nor a payment or the gross amount charged in terms of Section 67(a) and (c) and hence, it is nothing but a financial adjustment in the nature of book entry.

+ When a member cancels membership, there is nothing for the appellant to claim as receivable and hence, the same gets adjusted by this notional amount since there is nothing on record to suggest that the appellant received any amount towards cancellation fees.

Held: Securitization income is not liable to service tax, demand on this issue is set aside.

Reliance Infratel Ltd. - 2015-TIOL-2160-CESTAT-MUM, Greenwich Meridian Logistics - 2016-TIOL-869-CESTAT-MUM, Phoenix International Freight Service Pvt. Ltd. - 2016-TIOL-2353-CESTAT-MUM and Thermax Instrumentation Ltd. - 2015-TIOL-2736-CESTAT-MUM relied upon.]

III. Rental Income :

+ Adjudicating authority/Commissioner (Appeals) records that the assessee-appellant has not submitted any document with regard to its claim that the rentals were collected only from non-members.

+ Appellant directed to furnish all such details that are relevant before the lower authority to arrive at a proper finding after appreciating such documents furnished by the appellant.

Held: Matter remanded to the file of adjudicating authority.

IV. Exchange Services :

+ Exchange Services are offered by the appellant for facilitating its members to avail services of RCI.

+ Service of facilitation could be availed only by virtue of being a member and not if such person is an outsider.

+ Hence, this activity tantamounts to an activity of service provided to a member under mutuality concept and hence, not taxable. Ranchi Club Ltd. -   2012-TIOL-1031-HC-JHARKHAND-ST and Sports Club of Gujarat Ltd. -   2013-TIOL-528-HC-AHM-ST relied upon.

Held: The appeal on this score is, therefore, allowed.

V. Telephone and Fax :

+ It is indeed common knowledge that most, if not all, clubs/resorts do not charge just the actual telephone/fax charges, but also there is inevitably a mark-up thereon.

+ Though the revenue from telephone and fax could not be equated to 'any other amount', we are of the considered view that the appellant should prove with supporting documents to establish that it has not collected anything over and above the actuals charged by the operator for facilitating such telephone and fax services, before the lower authority.

Held: This issue is remanded to the file of the adjudicating authority.

Penalties:

+ Appellant acted in a bona fide manner and there was reasonable cause for their failure to discharge service tax liability in the situations where it was otherwise required to.

+ Revenue has placed reliance on the balance sheet of the appellant which could only lead to an irresistible conclusion that no suppression or intention to evade payment of tax could be levelled.

Held: Imposition of penalties is unjustified. Same are set aside by invoking s.80 of FA, 1994.

The appeals are partly allowed in the above terms.

(See 2018-TIOL-3052-CESTAT-MAD)