In the recent case, the Hyderabad bench of the Customs, Excise And Service Tax Appellate Tribunal ( CESTAT ) has held that Explanation 3(a) to Sec.65(44)of the Finance Act does not apply to members of clubs/associations that are incorporated.
The issue in the Appeal is whether the Appellant, Villa Greens House Owners Welfare Association which is an association of house owners ( in group residential houses ), registered under the Andhra Pradesh Societies Registration Act, 2001, is liable to pay service tax on the amount of the contributions made by their members for their mutual benefit in the nature of maintenance charges, etc., during the period 01.04.2011 to 31.03.2016 under the category of “Club or Association services” as defined in Sec 65(25a) read with Sec 65(105)(zzze) of the Finance Act.
The Appellant was issued SCN by Addl. Commissioner of Central Excise, Customs & Service Tax, Hyderabad invoking extended period of limitation, wherein it was, inter alia, alleged that the Appellant has been providing services as an association, to its members for a subscription or other amounts, which are the receipts of the Appellant during the relevant period.
All receipts of the Appellant are towards the provision of services as an association to its members, and the same is reflected as incomes in the Income and Expenditure Statements in each financial year; iii) In terms of Circular No.175/01/2014-ST dt.10.01.2014, all the amounts collected by the Appellant are liable to service tax, since the Appellant has collected amounts beyond the threshold prescribed in the Mega Exemption notifications, per member, per month.
The activities of the Appellant were carried out for the collective interests of the owners of the villas viz., maintenance of the common property or area through representatives amongst themselves and by meeting the expenses through equal contribution. The Appellant is a non-profit association and is functioning on the doctrine of mutuality principle. Hence the Appellant did not take registration under service tax law.
It was submitted that since the Appellant has been formed for the mutual benefit of its members, the service provided by the Appellant to its members cannot be treated as a transaction between two different persons, to attract a levy of service tax, during the period in dispute.
Counsel further urged that admittedly, there being an element of mutuality and there being no commercial activity undertaken by the Appellant and the Appellant being under bonafide belief that their activity is not exigible to service tax, and there is no element of suppression or fraud, the extended period of limitation is not invokable and the Appeals are fit to be allowed on this score alone. It was evident on the face of the record that the taxable category of “Club or Association service” had been introduced before the disputed period. However, Revenue has issued SCN only after the issue of Circular No.175/01/2014-ST dt.10.01.2014 by the Board.
It was also clarified that companies and societies registered under the respective Acts are merely bodies formed and registered under these Acts and cannot be treated as established or constituted under these Acts. Therefore, companies or societies would fall outside the scope of clause (25a)(i) of Sec 65 of the Act.
A two-member bench comprising of Mr Anil Choudhary, Member ( Judicial ) and Mr A K Jyotishi, Member ( Technical ) observed that the Appellant is a body registered or incorporated under the Andhra Pradesh Societies Registration Act, 2001. Further explanation 3(a) to Sec 65(44) does not apply to members’ clubs/associations, which are incorporated.
While allowing the appeal, the CESTAT set aside the Impugned Orders and held the appellant entitled to consequential benefits. Shri B. Venugopal appeared for the Appellant. Shri V.R. Pavan Kumar appeared for the Revenue.
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