CESTAT Sets Aside Tax on Club Membership Fees, Citing Supreme Court’s Kolkata Club Decision [Read Order]

CESTAT quashes tax on club fees, applying Supreme Court’s Kolkata Club ruling

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed two connected appeals filed by the Lotus Club (Appellant), holding that service tax on membership fees and subscription charges is unsustainable in view of the Supreme Court’s ruling in State of West Bengal vs. Kolkata Club Ltd. (2019).

The dispute began when the department initiated proceedings alleging that the appellant had not paid service tax under “Membership of Club or Association Service” for the period 2005–06 to 2008–09.

Separate demands were also raised for 2009–10 to 2010–11, along with demands under “renting of immovable property service” for 2009–10 to 2011–12. A demand on “sale of space or time for advertisement” was also raised but subsequently dropped.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

The adjudicating authority confirmed the demand under “Club or Membership Service” for 2009–10 to 2010–11, but dropped the demand for 2011–12 on the ground that the appellant had begun paying service tax under “Hotel, Inn, Club and Guest House Service” from July 2011 and as no bifurcation was provided in the SCN.

The Commissioner (Appeals) upheld the tax liability on membership fees, noting that the appellant had not produced any evidence to claim charitable status.

Before the Tribunal, the appellant submitted that the only surviving issue was the service tax demand on membership and subscription charges, and argued that the matter was no longer res integra after the Supreme Court’s judgment in State of West Bengal vs. Kolkata Club Ltd. (2019), which held that transactions between clubs and their members are not liable to service tax due to the doctrine of mutuality.

The Bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) examined the Supreme Court judgment and noted that a club and its members cannot be treated as distinct persons for purposes of levy, as no one can render service to oneself.

Accepting the appellant’s submissions and applying the binding precedent, the Tribunal held that the demands under “Membership of Club or Association Service” were unsustainable, and consequently, the penalties also could not survive.

Accordingly, the Tribunal set aside the impugned orders in both appeals and allowed them with consequential relief.

The Appellant was represented by Gaurav Shah, while Rajashekar. B. N. N appeared for the Revenue.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates