Sterling Holiday Resorts (India) Vs. Commissioner of Service Tax - Court Judgment

Excerpt:
1. after examining the records and hearing both sides, we come across a challenge against demand of service tax of over rs. 2.5 crores confirmed against the appellants under the proviso to section 73(1) of the finance act, 1994 as also against penalties imposed on them under various other provisions of the said act. the subject matter of main dispute in this case is what is called "club or association" service covered under section 65(25a) of the above act. clause (25a) of section 65, which was inserted w.e.f. 16.6.2005, reads as under: club or association means any person or body of persons 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.....

Judgment:
1. After examining the records and hearing both sides, we come across a challenge against demand of service tax of over Rs. 2.5 crores confirmed against the appellants under the proviso to Section 73(1) of the Finance Act, 1994 as also against penalties imposed on them under various other provisions of the said Act. The subject matter of main dispute in this case is what is called "club or association" service covered under Section 65(25a) of the above Act. Clause (25a) of Section 65, which was inserted w.e.f. 16.6.2005, reads as under: Club or association means any person or body of persons 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 (iv) any person or body of persons associated with press or media; The impugned demand is on the total amount collected by the appellants from individuals/partnership firms/ companies who were admitted as "time-sharers", otherwise called "members", into holiday resorts run by them in various parts of the country. The period of dispute in this case is 16.6.2005 to 30.9.2006. A part of the gross amount collected by the appellants from the so-called 'members' was collected prior to 16.6.2005 and the remainder was collected on or after 16.6.2005. These amounts were determined on a pro-rata basis out of large amounts which were collected by the appellants from the members on long term basis.

The service recipients had a variety schemes provided by the appellants. Some of them could avail the facilities in the resorts for a short period, say, 5 years, some others could avail the same for a longer period, say, 25 years, and so on. The resort could be used, in this manner, even upto 99 years. The appellants collected various amounts from these time-sharers depending on the length of the time period. The gross amount for purposes of levy of service tax was determined pro-rata for the aforesaid period (16.6.05 to 30.9.06). The learned Commissioner passed the impugned order in adjudication of a show-cause notice which was issued on 8.3.2007. The appellants are challenging the demand of service tax both on merits and on limitation.

2. Ld. Sr. Advocate has argued that the appellants did not provide any taxable service in the aforesaid category to the time-sharers. It is submitted that, on the terms and conditions of the agreement entered into between the appellants and a time-sharer, the latter received a right to stay in the former's holiday resorts and avail various facilities, amenities and advantages for the prescribed period. He could enjoy the benefit under a "Certificate of Membership" issued by the company. Ld. counsel refers to this certificate as TRUMP CERTIFICATE. He also refers to the small periods of stay (one or two weeks) by a time-sharer or his nominee, as "Trump Units". Obviously, a large number of "trump units" spread over a long period of time is covered under the TRUMP CERTIFICATE. It is argued by the ld. counsel that as the TRUMP CERTIFICATE is freely transferable for a determinate value by a member to any other person at any stage, it qualifies to be "goods" within the meaning of this expression defined under the Sale of Goods Act. This argument further extends to claiming exemption under Notification No. 12/2003-ST dt. 20.6.2003. In this context, ld. counsel also relies on the Board's Circular No. 59/8/2003 dt. 20.6.2003. An alternate argument, which has been advanced without prejudice to the above arguments, is that the TRUMP CERTIFICATE should be regarded as a deed of conveyance of a right to reside in immovable property, that a major part of the amounts paid by the certificate-holder to the appellants is in the nature of rental for such right to reside in the resort, that such amount was not exigible to levy of service tax prior to 1.7.2007 and that, for the period of dispute, the appellants were not liable to pay any service in respect of the aforesaid amount. Ld.

counsel has also pleaded limitation against the impugned demand. It is submitted that the taxable service in question was introduced only w.e.f. 16.6.2005 and, therefore, the appellants cannot be held to have suppressed any fact material to that service, before the department, prior to the said date. It is, accordingly, argued that the extended period of limitation was not invocable in this case. For the present purpose, ld. counsel has also pleaded financial hardships for his client. It is submitted that, as on 31.3.2007, the company has incurred accumulated loss of over Rs. 140 crores. In this connection, ld.counsel has also referred to the Annual Report for the year ended 31.3.2007.

3. One important aspect emerging from the submissions of the ld.counsel, which we ought to have mentioned earlier in this order, is that certain decisions of the Hon'ble Supreme Court are in support of the appellants' plea that the TRUMP CERTIFICATES are liable to be regarded as "goods". It is pointed out that REP licences and EXIM scrips have been held to be goods liable to levy of sales tax. The decisions of the apex court, cited by the counsel in this context, are available on record.

4. We have also heard the ld. SDR for the Revenue. At the outset, she has sought to demolish the appellants' plea that they did not constitute any "club" or "association" for the purpose of levy of service tax under Section 65(25a) of the Finance Act, 1994. She has produced copies of the records of adjudication and is ready to produce the originals, if necessary. It is submitted, with reference to these records, that the so-called time-sharers, the beneficiaries of the holiday resorts run by the appellants, were, in fact, admitted as "members". What were issued to them upon such admission, were "Certificates of Membership". The term "member" was clearly defined in the instruments executed between the appellants and the time-sharers.

Ld. SDR has also invited our attention to the definition of allied expressions like "associate member". We have perused these records and have found the submissions of ld. SDR to be factually correct. What has been referred to by the Sr. Counsel as a saleable product appears to be a "Certificate of Membership", which signifies the so-called time-sharer having been admitted to "membership" for a specified period to enjoy a specified number of "Trump Units" in the holiday resort.

This document was issued upon an application for "membership" having been filed by the person concerned. Expressions such as "member", "membership", "associate member" etc. are seen oft-repeated in these records. Prima facie, it appears to us that it cannot be gainsaid that the time-sharers are members of the body into which they were admitted as members. The term "membership" presupposes a body of members, which may be called "association" or "club". Ld. counsel has sought to explain the commonplace features of a club. It has been submitted that a club is a body of determinate number of members, with elected/selected/nominated office-bearers, with periodical meetings of members, governed by a body of rules or by-laws. It is submitted that none of these features exists in the present case. As against these arguments, ld. SDR has referred to the definition of "club" or "association" given under Section 65(25a) of the Finance Act, 1994. We have already reproduced this definition in an earlier part of this order. It appears to us that this statutory definition would rule out the common parlance meaning of "club" or "association". What the stature lays down is the law. Prima facie,, each holiday resort run by the appellants answers the definition of "club" or "association" given under Section 65(25a) ibid. In this view of the matter, the appellants cannot be said to have made out a Prima facie, case against the impugned demand of service tax on merits. In the same view of the matter, the plea of "goods" and the alternate plea of "immovable property" will not be sustainable and, consequently, the case law cited by the ld. Sr. Advocate becomes irrelevant for the present.

5. It appears from the submissions of both sides that the period of limitation for a demand notice for service tax has to be reckoned with reference to the dates of filing of the service tax returns for the material period. We are told that, for the first half year of a fiscal, a return has to be filed on or before 24th October and, for the second half year, it has to be filed on or before the 24th April of the next fiscal. Ld. SDR has submitted that, on this basis, the demand of service tax covered by Annexure-I to the impugned order is within the normal period, amounting to over Rs. 1.34 crores. It is not claimed that the demand covered by Annexure-II to the order is within the normal period. In this frame of the case, we take the prima facie, view that the demand covered by Annexure-II to the order is beyond the normal period and the same may not be sustainable on the ground of suppression of facts inasmuch as the party could not have suppressed before 16.6.2005 any fact relevant to levy of service tax on "club" or "association" defined under Section 65(25a). Ld. Sr. Counsel has argued that nothing contained in Section 67 of the Finance Act, 1994 could be invoked to levy service tax on any amount collected by the appellants from their time-sharers prior to 16.6.2005. We have come across a circular of the Board which governs this area of dispute, which circular has been referred to in the impugned order as well. This circular clarified that, in respect of a taxable service, any amount collected prior to the date of introduction of that service, for a period after that date, would also form part of the taxable value under Section 67 of the Act. It is on record that the amounts collected by the appellants from their members for the period 16.6.2005 to 30.9.2006 included amounts collected in advance prior to 16.6.2005 also. Such amounts collected prior to 16.6.2005 have been apportioned pro-rata so as to cover the period of dispute. It is this apportionment which stands supported by the Board's circular. Ld. Sr. counsel has argued that this has no legal sanction. After a perusal of the full text of Section 67, we are unable to accept this argument. Nevertheless, we have found a case for the appellants on the ground of limitation insofar as the demand covered by Annexure-II to the impugned order is concerned. We are also taking into account the plea of financial hardships.

6. On an overall assessment of the case, including the plea of limitation, put forth by the appellants, we are of the view that the appellants should predeposit only a part of the amount of service tax covered by Annexure-I to the impugned order. We direct them to predeposit an amount of Rs. 30,00,000/- (Rupees thirty lakhs only) within six weeks and report compliance on 23.7.2008.