By TIOL News Service

MUMBAI, OCT 30, 2018: THE appellant is a co-operative housing society registered under the Maharashtra Co-operative Societies Act, 1960. The members of the appellant's society contribute towards maintenance and up-keep of the building and common expenses, as per the bye-laws adopted by the society under the Act of 1960. The appellant collects the contribution in the proportion decided by the Management Committee for each member and spends the same for the common benefits of all those, who have made the contribution.

During the period July 2015 to January 2017, the appellant had paid "Under Protest" service tax amount of Rs. 20,77,586/- under the category of "Club or Association service", in respect of the contributions received from its members.

Refund claims (six numbers) were later filed claiming that there are no distinct persons viz. service provider and service receiver and since the person contributing and benefiting are the same, as per the principles of mutuality, the activities should not be subjected to levy of service tax.

Claims were rejected by the adjudicating authority and the Commissioner(A) upheld such rejection on the ground that in the light of Explanation 3(a) to Section 65B(44) ibid (inserted by FA, 2012, w.e.f 01.07.2012), the appellant and its members are to be treated as distinct entities and, therefore, the appellant has correctly paid service tax.

The referred Explanation reads -

Explanation 3.-- For the purposes of this Chapter,-

(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;

Aggrieved with this order, the appellant is before the CESTAT.

It is submitted that there is no involvement of any 'consideration' inasmuch as the appellant only recovers contribution from the members and its apportionment is pre-decided in accordance with the bye-laws of the society; that due to the principle of mutuality, there are no distinct persons and, therefore, the transaction does not fall within the ambit of first part of the definition of "service"; that due to the incorporated status of the appellant, the Explanation 3(a) of Section 65B(44) of the Finance Act, 1994 does not apply for levy of service tax.

Reliance is placed on the decisions in Federation of Indian Chambers of Commerce & Industry - 2014-TIOL-701-CESTAT-DEL, Matunga Gymkhana - 2015-TIOL-108-CESTAT-MUM to state that both under the un-amended and amended provisions of Finance Act, 1994, service provided by the society/club to its members shall not be leviable to service tax, in view of mutuality.

The AR emphasized that as per the concept of "negative list" of services defined under Section 66D ibid (w.e.f. 01.07.2012), any service if not categorized thereunder or specifically exempted under any notification, shall be considered as a taxable service, for the purpose of levy of service tax.

The Single Member Bench considered the submissions and after extracting the statutory provisions both prior to after 01.07.2012 observed thus -

++ There is not much of difference for recognition of the taxable service in dispute, for levy of service tax, under both the un-amended and amended provisions of the service tax statute. In order to be categorized as a "taxable service", there must be existence of two parties i.e. the service provider and the service receiver.

++ Since the association was formed or constituted and existed for the exclusive purpose of catering/meeting to the requirements of its members, as per the laid down policy in the bye law, it cannot be said that there is involvement of two persons, one to be termed as the service provider and the other as the service receiver. Thus, the incorporated association and its members being one and the same, the activities undertaken or the services provided by the former will not be considered as a service, exigible to service tax under the principle of mutuality.

Insofar as the decisions cited by the appellant are concerned, the Tribunal noted -

"…Though the said decisions were rendered under the un-amended definition of taxable service (effective up to 30.06.2012), but the ratio laid down therein is squarely applicable to the post amended definition of "service' contained in the negative list regime (w.e.f. 01.07.2012), inasmuch as, in absence of presence of both service provider and service receiver, the transaction cannot be statutorily terms as taxable service and will not be exigible to service tax…"

In the matter of ascertaining the status of the appellant, whether an incorporated body or otherwise, for the purpose of consideration of applicability of Explanation 3(a) appended to Section 65B of the Act, the CESTAT referred to Section 36 of the Maharashtra Co-operative Societies Act, 1960, clauses 67 & 69 of Maharashtra Co-operative Housing Society Bye Laws and observed -

++ Upon registration of the society, the same is legally accepted as a body corporate and thereafter, its function and operation are strictly guided as per the laid down bye laws, provided for the purpose. In this case, it is no doubt a fact that the appellant is a co-operative society and is duly incorporated under the Act of 1960.

++ The appellant also do not provide any service to its members, who pay the amount towards their share of contribution, for occupation of the units in their respective possession. Further, the fact is also not under dispute that the appellant do not provide any facilities or advantages for subscription or any other amount paid. Thus, under such circumstances, the appellant cannot be termed as an unincorporated association or a body of persons, for the purpose of consideration as a 'distinct person'.

++ Accordingly, the Explanation furnished under clause 3(a) in Section 65B of the Act will not designate the appellant as an entity, separate from its members. Furthermore, the purpose for which the appellant's society was incorporated, clearly demonstrate that it is not at all providing any service to its members and the share of contribution is to meet various purposes as stated above.

++ I am of the considered view that the case of the appellant is not confirming to the requirement of 'service', as per the definition contained in Section 65B(44) of the Act.

Concluding that the activities undertaken by the appellant does not fall within the scope and ambit of taxable service, for payment of service tax, the service tax amount paid was held eligible for refund.

The impugned order was set aside and the appeals were allowed.

In passing : Also see 2015-TIOL-1828-HC-MUM-ST.

(See 2018-TIOL-3296-CESTAT-MUM)