Club Services to Members Not Taxable as One Cannot Render Services to Oneself: CESTAT Applies Mutuality Principle [Read Order]

Umed Cub, the appellant, is a registered society engaged in offering restaurant, accommodation, and other services to its members in Jodhpur. The appellant had mistakenly paid service tax on these services under the category of “club or association service” and subsequently filed a refund claim of ₹21,04,836, contending that such tax was not payable based on the principle of mutuality.

The Assistant Commissioner rejected the refund claim, stating that the club and its members were separate entities after the introduction of the negative list regime on July 1, 2012. It was held that the services provided by the club were taxable under the amended definitions of "service" and "person" under the Finance Act.

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The Commissioner (Appeals) upheld this order, relying on decisions from the Authority for Advance Rulings, and ruled that mutuality no longer applied post-2012. The Commissioner also rejected earlier tribunal decisions cited by the appellant on the ground that they pertained to the period before the change in law.

The appellant’s counsel argued that the Supreme Court's decision in State of West Bengal v. Calcutta Club Ltd. clearly covered both the pre- and post-2012 regimes and held that clubs and their members are not distinct persons for the purpose of service tax. They submitted that the services rendered by a club to its members are not taxable because they are essentially services to oneself, which is outside the scope of taxable activity.

The revenue counsel argued that the appellant should have challenged the self-assessment order before claiming a refund. They argued that the changes in law after July 1, 2012, treated the club and its members as separate legal entities, making the services taxable. The department raised the issue of unjust enrichment, claiming that the burden of tax may have been passed on to the members.

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The two-member bench comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) observed that the decision of the Supreme Court in Calcutta Club clearly laid down that mutuality applies even under the post-2012 service tax regime. It held that a club cannot render services to itself and thus such services are not taxable.

The tribunal also observed that the decisions of the Authority for Advance Rulings relied upon by the Commissioner (Appeals) stood overridden by the Supreme Court judgment. It found that the Assistant Commissioner had raised the issue of unjust enrichment without giving any reasoning, and held that the principle did not apply when services are provided to oneself.

The tribunal set aside the Commissioner’s order and allowed the refund claim with consequential relief to the appellant.

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