Club’s Service Tax Exemption on Charges Collected from Members: Supreme Court to Examine Issue [Read Order]
The Telangana HC decision declaring certain provisions that levy service tax on club members as unconstitutional is being challenged in a Special Leave Petition
Supreme Court, Service Tax, Service Tax Exemption, Club’s Service Tax Exemption
Supreme Court, Service Tax, Service Tax Exemption, Club’s Service Tax Exemption
The Supreme Court will examine if charges collected by the club from members constitutes as a taxable service under the Finance Act or are these transactions protected under the principle of mutuality, which treats clubs as mutual associations and not engaged in profit-making.
The proceedings arise from the Telangana High Court’s judgment finding Section 65(105)(zzzzv) of the Finance Act, 1994, unconstitutional, a decision in line with the Apex Court's precedent in the State of West Bengal v. Calcutta Club Limited (2019).
Secunderabad Club, a social association was assessed for service tax on charges collected from members. The Club sought a declaration that Section 65(105)(zzzzv), as inserted by the Finance Act, 2011, was unconstitutional.
The contention was on the principle of mutual association, stating that the club does not provide "services" to members but collectively utilizes member contributions for common benefits. Judicial Precedents had upheld that legislative provisions taxing such mutual associations were ultra vires.
Before the High Court Petitioner’s contended that they are a social - recreational facilitation provider and not a profit-making organisation. They operate under mutuality, meaning no service is provided for consideration to members, where members and the club are indistinguishable. On the contrary, the Department urged that service tax was applicable on payments and subscriptions charged by the Club to its members.
The High Court in the light of Calcutta Club Limited (2019), upheld the unconstitutionality of the provisions sought to levy service tax on services provided by clubs to their members, allowing the writ petition by Secunderabad Club.
The Apex Court, subsequently granted four weeks to the sole respondent, Secunderabad Club for filing of counter affidavit indicating ongoing appellate review under the Special Leave Petition procedure.
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