1. Heard both sides. The issue involved is whether the appellants are liable to pay service tax as "Mandap Keepers" under Section 65(67) of the Finance Act 1994 for providing services of salt water swimming bath to prompt and encourage the sport of swimming and letting out the premises to members for celebration of some events.
2. The ld. Counsel for the appellants interalia contended that the taxable service in relation to the Mandap Keepers under Section 65(4)(i) of the Finance Act 1994 defines " as any service provided to a client by Mandap Keepers in relation to the use of Mandap in any manner including the facilities provided to the client in relation to such use and also the services, if any, rendered as a caterer." His contention is that the relationship between the members and the trust is not one of a client and professional. Letting of the premises to its members was not his normal line of work. Since the many activities of the trust are to maintain the salt water swimming bath for promotion of swimming activities and for both reason the appellant cannot be termed as Mandap Keeper. Members of the trust who, engage the premises of the trust cannot be described as clients. The word 'client' has definite meaning and this has a particular connotation in the Act. Black Law Dictionary describes a client as an individual, corporation, trust, or state that employs professional to advise or assist it in the professional line of works, such professional includes, but are not limited to consultants accountants, architects etc., His submission is that by using the word "client" in the definition of taxable service of 'Mandap Keepers' the intention was not to tax every case where Mandap as described in the Transfer of Property Act, were let out for consideration. This position becomes clear when seen in the context a the definition given to the various taxable services under Section 65, wherein the recipient of the services have been described such as, "Insurer, subscriber, policy holder, client, customer, any person" with the exception 'any person' which would cover all recipient of that particular service or other services, beneficiaries, who have been subsequently described in order to tax only that service without it is bringing to the beneficiary of the service. His further submission is that the members from whom funds are primarily received, do not approach the trust, as a client hood, since it is they, who constitute the trust and therefore the relationship cannot be that of professional and client as in the said Service Tax Act. His further submission is that the principle of mutuality has been recognized and supported by the Hon'ble Supreme Court and High Court as per the following decisions: Even though all the decisions cited above are in the context of Income Tax Act 1961, the principle laid down therein, i.e. a club/trust/association, cannot trade with its members since they are the same in universal application. It recognizes the concept of mutuality in the context of club/trust.
4. "As has been held in CIT v. Merchant Navy Club the supplies made by a club to its members for a price was not a sale for profit. Registration of a club as a society did not affect the nature of transactions. The club in all such cases is only acting as an agent of the members for making supplies to the members. In fact, the property, although in law, it belonged to the club was for all practical purposes the property of the members. The club was registered as a society.
5. Finlay J. said in National Association of Local Government Officers v. Walknis 18 Tax cases 499, 503, 506 (King's Bench Div.)" It is a fallacy to say in the case of such a club that, where a member ordered a dinner & consumes it, there is any sale to him. There is not a sale.
The fundamental thing is that the whole property is vested in the members. The members have a right to participate in the whole. There is no trade among the members. They cannot trade with themselves.
6. Finally ld. Counsel submitted, that appellant is a charitable trust & does not run business for profit & gains. Nobody was to personally benefit out of evasion, if any And hence, the penalties are uncalled for.
7. Further to illustrate his point that the appellant is not liable to pay service tax, he has also relied on the decision in the case of Saturday Club Limited v. ACST (Cal) wherein it has been held that Club is not liable to service tax as a "Mandap Keeper".
He also made reference to the Finance Bill 2005 presented on 28.2.05 which proposed to insert Section 65 25(a) as under: Club or association" means "any person providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include- i) any body established or constituted by or under any law for the time being in force; or ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or 8. The above proposed section clearly shows that the definition of "Mandap Keeper" Under Section 65 (67) RW Section 65 (105)(m) of the Finance Act, 1994 was never intended to cover 'Club or Association or Trust' rendering services to its members within it. Otherwise there was no need to insert this new section.
9. The ld. JDR appearing on behalf of the Revenue has reiterated the impugned order.
10. After hearing and perusal of the records, the case laws cited by the ld. Counsel for the appellant it becomes clear that the whole purpose of constituting the trust by its members is to avail facilities of salt water swimming bath, promotion and encourage sports of swimming in major restaurant and Bar. The trust has not been constituted for any gainful purpose. The whole purpose of the trust is charitable, the services to be provided to them are not attracted to the service tax.
The ld. Counsel with reference to the service tax Act has also relied on the decision in the case of Joint Commercial Tax Officer Madras v.Young Women India Association reported in 1970 (SC-II) G.J. Act 0048- Supreme Court, wherein it has been interalia held that Member's, clubs, cannot be made subject to the provisions of the licensing Act concerning sales, because the members are joint owners of all the club property including the exercisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded to be a sale.
For the levy of sales-tax, there must be a sale or refreshments, beverages and other preparations by the club to its members. If there is no transfer of property involved in the supply or distribution of goods by a club it would not fall within Explanation I contained in the definition of sale in Section 2(n) nor can the club be regarded as a dealer within Section 2(g) read with Explanation I and cannot be taxed.
11. The supply of refreshment to its members did not constitute sale within the meaning of Section 2(n) of the Act, therefore, not liable to tax.
12. Drawing analogy from the cases referred to above, it could safely be said that the appellant is not liable to pay service tax on the activities in question. I, therefore, set aside the impugned order and allow the appeal filed by the appellant.