The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that charges collected towards club building as part of a residential construction project constitute a bundled service under construction and are not separately taxable under the category of “Club or Association Service.”
Shyam Construction, a unit of New Mount Trading & Investment Company Ltd., engaged in the construction of residential complexes, was issued a show cause notice alleging short payment and evasion of service tax under various service categories, including “Club or Association Service.”
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The department stated that an amount of Rs. 50,000 collected per flat from customers towards the development of club facilities such as a swimming pool, restaurant, and departmental store, constituted consideration for a service provided by a club, and was thus taxable under Section 65(105)(zzze) of the Finance Act, 1994.
The adjudicating authority upheld the demand on the ground that the fixed amount collected from customers was for future use of facilities and could not be treated as part of the construction cost alone. A separate service element was presumed, and abatement under the construction service notifications was denied.
Challenging the order, the appellant’s counsel argued that no club existed during the relevant period and the amounts collected were only towards the cost of constructing the club facility, which was part of the overall construction project. They also argued that no membership services or ongoing benefits were provided to customers, and the transaction did not meet the criteria of a “Club or Association Service” under the law.
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The bench, comprising P.K. Choudhary (Judicial Member) and Anil G. Shakkarwar (Technical Member), examined the statutory provisions and found that for a service to qualify as “Club or Association Service,” it must be provided by a club or association to its members in exchange for a subscription or other consideration. The club had not yet come into existence, no services were being provided to any members at the time, and the amount collected was merely part of the construction cost.
The tribunal explained that the payment collected was a one-time fixed charge for infrastructure creation and not for any recurring services. It observed that once the construction was complete, any service provision by the club, if separately charged and operated, could be taxed appropriately, but that did not apply to the present facts.
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The tribunal relied on precedent, including its own earlier rulings in SJP Infracon Ltd. and Vipul IT Infrasoft Pvt. Ltd., where similar charges included in total construction cost were held to be part of a bundled service and not taxable under separate service heads to deny abatement.
The tribunal held that the club building charges were to be treated as a bundled component of the construction service and not as an independent taxable service under “Club or Association Service.” The demand of Rs. 11,27,850 under this head was set aside.
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