Custom, Excise & Service Tax Tribunal
Tarjan Co Op Housing Society Limited vs Surat-I on 22 November, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
Service tax Appeal No. 10694 of 2019 - DB
(Arising out of OIA-CCESA-SRT-APP-AT-172-2018-19 dated 18/03/2019 passed by
Commissioner (Appeals) Commissioner of Central Excise, Customs and Service Tax-
VADODARA-II)
Tarjan Co Op Housing Society Limited ........Appellant
Tp 4 F P No 141 City Light Surat
Surat, Gujarat
VERSUS
Commissioner of C.E. & S.T.-Surat-i ......Respondent
New Building...Opp. Gandhi Baug, Chowk Bazar, Surat, Gujarat- 395001 APPEARANCE:
Shri Vipul Khandhar, Chartered Accountant for the Appellant Shri Mohit Agarwal, Commissioner (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. RAJU Final Order No. 12783/2024 DATE OF HEARING: 22.10.2024 DATE OF DECISION: 22.11.2024 RAMESH NAIR The brief facts of the case are that the appellant was engaged in providing taxable service under the category of construction of residential complex service, the appellant was charging and accepting advances from the respective customers in respect of booking of flats for their project namely "KRISH ENCLAVE". However, the appellant was engaged in providing taxable service under the category of construction of residential complex. However, the appellant have not registered themselves with service tax department. As per the case of the department the said service were taxable with effect from 01.07.2012 as defined under section 65(105) (zzq) of the Finance Act, 1994 as amended and not listed in negative list regime w.e.f 01.07.2012. Accordingly, the show cause notice dated 21.04.2016 was issued demanding service tax under the category of construction of residential complex service for the period 2011 (October, 2010 to March, 2011) to 2013-2014 along with proposal for interest and penalty. In the notice an
2|Page ST/10694/2019 -DB amount of Rs. 40 Lacs already paid by the appellant was proposed to be adjusted against total tax liability. The said show cause notice has been adjudicated by the adjudicating authority whereby the demand of service tax along with interest and penalties were confirmed and amount of Rs. 40Lacs paid by the appellant during investigation was appropriated. Against the said adjudication order dated 30.03.2017 passed by the Additional Commissioner, Central Excise , Customs and Service Tax- Vadodara, the appellant filed an appeal before the Commissioner (Appeals) who vide order-in-appeal No. CCESA-SRT (APP)-AT-172-2018-19 upheld the order-in-original and rejected the appeal filed by the appellant. Therefore, the present appeal is before us.
2. Shri Vipul Khandhar, Learned Chartered Accountant appearing on behalf of the Appellant submits that the appellant was constituted by the members for creation of the residential unit facilities for the members of the society only. The society has been procuring material, labour and technical assistance and get reimbursed the expenses from the members in proportionate, therefore, the appellant society has been working for their members only. The objective of the society as well as its translation is as under:-
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Translation
1) To construct the building of Society's Ownership/members of society, to purchase land or take the land on rent, and to dispose the excess land or to do the necessary.
(2) To separate the plots out of the land of the society in a proper manner and to allot the same plots to the members of the society for constructing building or to give on sub- lease and to do plot management for the purpose of members of society.
(3) To manage or to be managed for constructing building s or to get the construct of society's own building and/or for member of society.
(4) To manage borrowal of money for constructing society's own or member's building.
(5) To manage for improvement of health education and society activities of members. Further, to conduct educational training for members to make them aware about Co- operative activities of new trends.
2.1 He submits that from the above objective it is clear that the appellant society has been working for its members only, therefore, there is no service involved. He further submits that as per the relationship between the co-operative society and its members, the service should be correctly classifiable under club or association service. He further submits that the service will not fall under the category of Construction of residential complex service for the reason that to cover the activity under the said category it is necessary that the service is to be provided to any person by any other person in relation to construction of complex. In the present case, since between the society and members no different person are involved, therefore, even though the construction of residential complex has been carried out but the same do not fall under the definition of taxable service of construction of complex. Therefore, the activity between the society and its members is correctly classified under Club or Association Service. In support, he placed reliance on the following judgments :-
4|Page ST/10694/2019 -DB • Shrinandnagar -IV Co.Op Housing Society Ltd - 2011 (23) STR)439 (Guj.) • Calcutta Club Ltd - 2019 (29) GSTL 545 (SC) • Sujal Developers - 2013 (31) STR 523 (Guj.) • Rajasthan Co-Op Dairy Federation Ltd - 2022 (65) GSTL 350 (Tri.- Del) • Rajasthan Co-Op Dairy Federation Ltd - 2022 (65) GSTL 257 (SC) 2.3 He further submits that the entire demand is time bar as the same is under extended period. The show cause notice covering the period 01.10.2010 to 31.03.2014 was issued on 21.042016. Therefore, the show cause notice has invoked the extended period of limitation which in the facts of the present case is not sustainable as there is no suppression, wilful mis-statement on the part of the appellant, for the same reason penalties are also liable to be set aside. He submits that the entire demand of service tax, interest and penalty be set aside and amount of Rs.40 Lacs paid by the appellant during investigation may be ordered to be refunded.
3. Shri Mohit Agarwal, Learned Commissioner (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order. Post-hearing he also submitted a written submission dated 23.10.2024 which is taken on record.
3.1 He submits that the appellant has taken recourse to the Principle of Mutuality in respect of the stated incorporated society and buyers of the flat. However, Appellant has submitted no evidences till date to establish that the buyers of the flats sold by Appellant were the existing members of the Society. Appellant has even at no stage ever claimed either during the investigation or even subsequently that all flats were sold only to the existing members of the society. In such situation, when the status of the buyers with respect to society is not even known and available on record, the benefit of applicability of the case law can not be granted to the Appellant merely on surmise and assumptions.
5|Page ST/10694/2019 -DB 3.2 He also submits that the Authorized person of the Appellant had himself at the stage of investigation, stated that the Appellant were fully aware that the construction activity is taxable under Finance Act, 1994 and they did not pay service tax since they were of the opinion that service tax is not liable on Co-operative Society. They never stated that service tax liability did not exist on account of Principle of Mutuality.
3.3 He further submits that even at the later stage of Adjudication and Appeal before the Appellant Authority, the Appellant had contested the issue on classification as "Club and Association Service". It is for the first time that the issue of Principle of Mutuality has been pressed by the Appellant. At this stage, it is not known as to whether 154 flats constructed in 6 towers have been sold to the existing members or to the non- members. Without the fact being verified, it would be pre-matured and highly prejudicial to the revenue to decide the matter on assumptions.
3.4 He also submits that the case law would apply only when service has been rendered to the existing members in respect of all the 154 Flats. However, in this case as appears from the facts of the case that independent prospective buyers would approach the builder Tarjan Co-Op Housing Society Ltd. for purchase of flat and make advance payments for booking of that specific flat. In such case of advance booking of flats prior to obtaining the completion certificate from the Competent Authority; would not be covered by the principle of Mutuality even if the buyers subsequently become members of the Society.
3.5 He accordingly requested for remand back the matter.
4. We have carefully considered the submission made by both sides and perused the records. We find that in the facts of the present case the period involved is 01.10.2010 to 31.03.2014, therefore, both the periods i.e. prior to negative list regime and post negative list regime is involved. We find that the appellant vehemently argued that the relationship between the appellant and its members to whom the residential flats have been allotted are of association and its members. Therefore, there is no
6|Page ST/10694/2019 -DB service as the service provider and service recipient are not existing. As per the facts of the present case we find that there is no dispute that the appellant is a co-operative housing society constituted by its members for the objective of construction of residential complex exclusively for the members of the society. Therefore, it is not a case that of the independent builder has constructed the residential complex and sold to the unrelated buyers. Since, the concept of doctrine of mutuality is involved in the present case between the appellant and its members, it cannot be said that the society has provided any service to its members. Between the association and its members in such service no service provider and service recipient are involved. In this arrangement of society and its members, we are of the view that at most the activities are covered under club or association service. The principal of doctrine of mutuality has been considered in various judgments and finally the larger bench of the Hon'ble Supreme Court in the case of State of West Bengal vs. Calcutta Club and ors, it was decided that there is a doctrine of mutuality between the association and its members, therefore, no service exist. Accordingly, the same is not taxable. The Hon'ble Apex Court has considered both the period i.e. prior to 01.07.2012 and thereafter and held that even in both the period , the amount received by the association from its members shall not be liable to service tax.
4.1 The very identical issue has been considered by the Hon'ble Gujarat High Court in a tax appeal filed by the revenue against the Tribunal judgment in the case of Shrinandnagar -IV Co. Op Housing Society Ltd (Supra) wherein the housing society was asked to pay service tax under construction of residential complex wherein the Hon'ble High Court upheld the order of the Tribunal wherein it was held that the activity undertaken by society is and on behalf of its members, no service provided to the member. The said judgment is reproduced below:-
"This appeal is filed against the common judgment of the Tribunal dated 2nd July, 2009 [2009 (16) S.T.R. 440 (Tri.-Ahmd.)]. At the outset, we may notice that though the respondent is common, the Tribunal by the said judgment disposed of 4 second appeals involving the present respondent. Present tax appeal is filed by the revenue challenging the decision of the Tribunal in all the 4 appeals. We are afraid such common single appeal is not maintainable. We, therefore, at the choice of the counsel confine this appeal against the judgment of the Tribunal disposing of Appeal No. 104/A- IV/08. Insofar as other three appeals, namely, Tax Appeal Nos. 105/A-
7|Page ST/10694/2019 -DB IV/08, 106/A-IV/08 and 107/A-IV/08 are concerned, it would be open for the appellant to file separate appeals, if so advised.
2. Question of law presented for our consideration are as follows :
(i) In view of the facts of this case whether the Co-operative Housing Society and its members are different legal entity or otherwise?
(ii) Whether the construction activity being performed/undertaken by the Society as a service to its members, is a taxable activity or not?
(iii) Whether Hon'ble CESTAT has committed error in interpreting the Board's Circular No. 108/2/009-S.T., dated 29-1-2009 by not distinguishing a co-operative housing society, which is providing service to its members from a developer/promoter?
3. We have heard learned counsel for the appellant and the respondent. Brief facts are that respondent Co.-Op. Housing Society had availed of the services of Contractor for constructing the residential units for use of the members of the Housing Society. Initially, the Society had paid service tax. Subsequently, however, the society carried a belief that it was not liable to pay service tax. Society filed refund claims which were dismissed. The issue, ultimately, reached the Tribunal. Tribunal by the impugned judgment relying on the Board's Circulars and Clarifications, formed an opinion that if the activity is undertaken by the Society for and on behalf of the members, it cannot be stated that the Society provided the services to its members.
4. Counsel for the respondent drew our attention to the judgment of Division Bench of this Court rendered in Tax Appeal No. 1550 of 2010 dated 22nd April, 2011 in case of Commissioner of Service Tax v. M/s. Sujal Developers in which, judgment of the Tribunal impugned in the present appeal, was also under challenge. The Bench upheld the view of the Tribunal where the respondent-assessee was developer who had developed housing complexes for future sale. The Bench held and observed as under :
"13. From the statutory provisions, circulars as well as clarifications issued by the Board referred to hereinabove, it appears that for being chargeable to tax under section 65(105)(zzzh) of the Act is that the person concerned should render service to another person in relation to construction of complex. Thus the basic requirement for falling within the ambit of the said provision is that there has to be a service provider and a service receiver. In the present case as noticed earlier, the land on which the residential complex has been constructed belongs to the society. The society has entered into a development agreement with the respondent. Under the agreement between the society and the respondent-developer, the work of construction and development of the housing project has been entrusted to the respondent. The respondent-developer has agreed to develop the said land by attending to construction and development work and to complete the scheme duly and diligently on the terms and conditions contained in the agreement. Under the agreement, the developer is required to carry out every act necessary to complete construction and development of the project directly or indirectly, which includes preparation and approval of plans, getting the buildings constructed directly or by sub-contracting and/or purchase of material, hiring labour, arrangement of finance, marketing and advertising the project, enroll members, collect money, etc. The respondent is permitted to use the property in question for the purposes mentioned in the agreement. The respondent is entitled to construct and/or arrange to construct the building as per the plan and specifications prepared by the Architects. Thus, as per the agreement, the respondent-developer is entitled to make construction on the land in question, enroll members as well as collect amounts towards the units
8|Page ST/10694/2019 -DB allotted to such members. The finances for the purpose of development are to be arranged by the respondent-developer. In the circumstances, from the development agreement, it does not appear that the respondent- developer is a contractor who is executing the construction work on behalf of the society. Here, the developer is using its own finances and developing the land in question and selling the property constructed thereon to the members of the society. Thus, in the light of the clarification issued by the Board, viz., when it is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then, the ownership of the property gets transferred to the ultimate owner, in such a case, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed, would be in the nature of "self-service" and consequently, would not attract service tax.
14. In the facts of the present case, there is nothing to indicate that the respondent has been hired as a contractor by the society so as to bring the activities of the respondent within the ambit of taxable services as contemplated under section 65(105)(zzzh) of the Act. In the absence of there being any service provider and service recipient in relation to the transaction in question, the Tribunal was justified in holding that the transaction in this case cannot be considered as taxable".
5. Counsel for the respondent further submitted that the Society cannot be stated to be providing any services to the members. He submitted that the contractor who undertakes the task of constructing the residential units on behalf of the society for the use of the members would be liable to pay service tax on such services rendered but in no case, society can be stated to have rendered any services to its members.
6. Counsel for the revenue, however, drew our attention to explanation to sub-clause (zzzh) added by virtue of Finance Act, 2010 to contend that such explanation was not noticed by the Bench in its judgment in case of M/s. Sujal Developers (supra). We wonder whether only on this count the judgment of the Bench would be rendered vulnerable.
7. From the record, we find that the impugned judgment of the Tribunal came to be upheld by the Division Bench in case of M/s. Sujal Developers (supra), relevant portion of which, we have already quoted in this order. We notice that in the said case before the Division Bench, it was a developer who was contending that not having provided any services he was not liable to pay any services tax. Only point of difference in this case is that it is a housing society who is putting forth a similar claim on the premise that the contractor who undertakes the construction work, would be liable to pay service tax but the society in turn, cannot be said to have supplied any services to its members. We are of the opinion that the question is substantially covered by the decision of Division Bench; wherein, similar questions were framed and answered against the revenue. Insofar as the explanation relied on by the counsel for the revenue is concerned, the same reads as under :
(e) in sub-clause (zzzh), the following Explanation shall be inserted, namely-
"Explanation. - For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorized by the builder before the grant of completion certificate by the authority competent to
9|Page ST/10694/2019 -DB issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer."
8. We are not inclined to discuss whether by virtue of such explanation legal situation in factual background arising in present appeal, would or would not be any different. Suffice it to note that the explanation was brought in the statute book long after the taxing event in the present case had arisen.
9. In absence of any indication in the amendment to make it either retrospective or explanation being merely declaratory or clarifiacatory in nature, such statutory change cannot be made applicable to the long past events.
10. In the result, we do not find that any question of law arises. Tax Appeal, is therefore, dismissed."
4.2 In an another case of Sujal Developers (Supra) Hon'ble Gujarat High Court held that service of construction of complex can be taxable only when there is service from one person to another person. In the said case the developer using its own finances and developing the land in question and selling the property constructed there on to the members of the society. The relevant part of the judgment is reproduced below:-
"9. Sub-section (105) of Section 65 of the Finance Act, 1994 defines "taxable service" to mean any service enumerated thereunder. The taxable service as provided under clause (zzzh) thereof is "to any person, by any other person, in relation to construction of complex".
10. Section 65(91a) of the Finance Act, 1994 which defines "Residential Complex", reads as under:
"(91a) "residential complex" means any complex comprising of --
(i) a building or buildings, having more than twelve residential units;
(ii) a common area; and
(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.
Explanation. -- For the removal of doubts, it is hereby declared that for the purposes of this clause,
(a) "personal use" includes permitting the complex for use as residence by another person on rent or without consideration; 10 | P a g e ST/10694/2019 -DB
(b) "residential unit" means a single house or a single apartment intended for use as a place of residence;"
11. Vide Circular F. No. 332/35/2006/TRU, dated 1-8-2006, the Board has issued various clarifications as regards legal position in respect of service tax. In respect of the issue as to whether service tax is applicable to a builder, promoter or developer, who builds a residential complex with the services of his own staff and employing direct labour or petty labour contractors whose total bill does not increase 4.0 lacs in one P/Y, it has been clarified that in a case where the builder, promoter or developer builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of such residential complex, the contractor shall be liable to pay service tax on the gross amount charged for the construction services provided, to the builder/promoter/ developer under "construction of complex" service falling under Section 65(105)(zzzh) of the Finance Act, 1994. It has been further clarified that if no other person is engaged for construction work and the builder/promoter/developer undertakes construction work on his own without engaging the services of any other person, then in such cases in the absence of service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. The Board, in the clarification dated 29-1-2001, which has also been reproduced by the Tribunal in the impugned order, has clarified that "generally, the initial agreement between the promoters/builders/ developers and the ultimate owner is in the nature of 'agreement to sell'. Such a case, as per the provisions of the Transfer of Property Act, does not itself create an interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of "self-service" and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter/builder/developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of 'residential complex'. However, in both these situation, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax."
12. It may be noted that the Tribunal has passed a common order in appeals filed by two cooperative societies and the respondent who is a developer. In the consolidated order, the Tribunal has, upon appreciation of the evidence on record found that there is no dispute that the cooperative societies have not taken services of the contractor for construction of residential complex, but have chosen to construct complexes on their own. Where they have taken the service of the contractor, the society has handed over the land to the contractor and the contractor provides the service to the individual who purchases the residence. In all these cases, the transaction is between the members of the society and either the society or the developer. The Tribunal has referred to the Circular issued by the Board on 1-8-2006 as well as clarification dated 29-1-2001 and found that in absence of a contractor hired by the society and nature of the transaction between the parties and in the light of definition of service and its liability for service tax, the transaction in the present case cannot be considered taxable. The Tribunal, accordingly, allowed the appeal and remanded the matter to the original adjudicating authority in view of the 11 | P a g e ST/10694/2019 -DB fact that the aspect of unjust enrichment would have to be examined before granting refund and also for verification of the correctness of the claim.
13. From the statutory provisions, circulars as well as clarifications issued by the Board referred to hereinabove, it appears that for being chargeable to tax under section 65(105)(zzzh) of the Act is that the person concerned should render service to another person in relation to construction of complex. Thus the basic requirement for falling within the ambit of the said provision is that there has to be a service provider and a service receiver. In the present case as noticed earlier, the land on which the residential complex has been constructed belongs to the society. The society has entered into a development agreement with the respondent. Under the agreement between the society and the respondent-developer, the work of construction and development of the housing project has been entrusted to the respondent. The respondent-developer has agreed to develop the said land by attending to construction and development work and to complete the scheme duly and diligently on the terms and conditions contained in the agreement. Under the agreement, the developer is required to carry out every act necessary to complete construction and development of the project directly or indirectly, which includes preparation and approval of plans, getting the buildings constructed directly or by sub-contracting and/or purchase of material, hiring labour, arrangement of finance, marketing and advertising the project, enroll members, collect money, etc. The respondent is permitted to use the property in question for the purposes mentioned in the agreement. The respondent is entitled to construct and/or arrange to construct the building as per the plan and specifications prepared by the Architects. Thus, as per the agreement, the respondent-developer is entitled to make construction on the land in question, enroll members as well as collect amounts towards the units allotted to such members. The finances for the purpose of development are to be arranged by the respondent-developer. In the circumstances, from the development agreement, it does not appear that the respondent- developer is a contractor who is executing the construction work on behalf of the society. Here, the developer is using its own finances and developing the land in question and selling the property constructed thereon to the members of the society. Thus, in the light of the clarification issued by the Board, viz., when it is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then, the ownership of the property gets transferred to the ultimate owner, in such a case, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed, would be in the nature of "self-service" and consequently, would not attract service tax.
14. In the facts of the present case, there is nothing to indicate that the respondent has been hired as a contractor by the society so as to bring the activities of the respondent within the ambit of taxable services as contemplated under Section 65(105)(zzzh) of the Act. In the absence of there being any service provider and service recipient in relation to the transaction in question, the Tribunal was justified in holding that the transaction in this case cannot be considered as taxable.
15. In view of the foregoing discussion, it is not possible to state that the impugned order of the Tribunal gives rise to any question of law, as proposed or otherwise, much less a substantial question of law. The appeal is, accordingly, dismissed."
12 | P a g e ST/10694/2019 -DB 4.2 The similar issue has been considered by the principal bench of the CESTAT, New Delhi In the case of Rajasthan Co-Op Dairy Federation Ltd (Supra) wherein the following order was passed :-
"8. It is undisputed that the appellant is registered as a cooperative society under the Rajasthan State Cooperative Act, 2001 and the district cooperatives and milk unions are its members. As an apex cooperative society, the appellant is a legal entity by itself. The milk unions are also legal entities by themselves. The milk unions are engaged in purchasing milk, processing it and selling milk and milk products. The appellant is providing various services to support the milk unions in this endeavour and is charging a fee which is called RCDF cess at the rate of 1.25% on the turnover of the milk unions. The question which falls consideration is whether in this factual matrix the services provided by the appellant to its own members (who are also separate legal entities) can be considered as service provided by one entity to another.
9. We find that the Constitution Bench of the Supreme Court has in State of West Bengal v. Calcutta Club Ltd. discussed at length the doctrine of mutuality under Article 366(29A)(e) of the Constitution and held that doctrine of mutuality continues to be applicable to incorporated and unincorporated members' clubs after the 46th Amendment to the Constitution and, therefore, no sales tax is payable to the State by the Calcutta Club. It was further held that the same logic applies to service tax levied on members' clubs. Paragraphs 49, 50, 54, 55, 72, 73, 76, 77, 78, 79, 80 and 85 of this judgment are reproduced below :
"49. In light of the view that we have taken, it is unnecessary to advert to Shri Dwivedi's arguments that the explanation (1) to Section 2(10) of the West Bengal Sales Tax Act is a stand-alone provision and not an explanation in the classical sense. We, therefore, answer the three questions posed by the Division Bench in State of West Bengal v. Calcutta Club Limited (supra) as follows :
(1) The doctrine of mutuality continues to be applicable to incorporated and unincorporated members' clubs after the 46th Amendment adding Article 366(29A) to the Constitution of India.
(2) Young Men's Indian Association (supra) and other judgments which applied this doctrine continue to hold the field even after the 46th Amendment.
(3) Sub-clause (f) of Article 366(29A) has no application to members' clubs.
50. Having gone through the judgment and order of the West Bengal Taxation Tribunal dated 3rd July, 2006 and the impugned Calcutta High Court judgment dated 1st February, 2008, and in view of the answers to the three questions referred to the present Three Judge Bench (as listed hereinabove), we are of the view that no interference is called for in the findings of fact or declaration of law in this case. Accordingly, C.A. No. 4184 of 2009 stands dismissed.
C.A. No. 7497 of 2012 and other connected matters :
54. Likewise, the Gujarat High Court by the judgment dated 25th March, 2013, followed the judgment of the High Court of Jharkhand and declared the following :
13 | P a g e ST/10694/2019 -DB "8. In the result, these petitions are allowed and it is hereby declared that Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance (No.
2) Act, 1994 as incorporated/amended by the Finance Act, 2005 to the extent that the said provisions purport to levy Service Tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires. Rule is made absolute with no order as to costs."
55. The appeals that are listed before us concern impugned judgments that have in essence followed these two judgments, insofar as Service Tax that is levied on members' clubs is concerned. The vast majority of cases before us concerns members' clubs that have been registered as Companies under Section 25 of the Companies Act, or registered cooperative societies under various State Acts, such societies being bodies corporate under the aforesaid Acts.
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72. The definition of "club or association" contained in Section 65(25a) makes it plain that any person or body of persons providing services for a subscription or any other amount to its members would be within the tax net. However, what is of importance is that anybody "established or constituted" by or under any law for the time being in force, is not included. Shri Dhruv Agarwal laid great emphasis on the judgments in DALCO Engineering Private Limited v. Satish Prabhakar Padhye and Ors. Etc., (2010) 4 SCC 378 (in particular paragraphs 10, 14 and 32 thereof) and CIT, Kanpur and Anr. v. Canara Bank, (2018) 9 SCC 322 (in particular paragraphs 12 and 17 therein), to the effect that a company incorporated under the Companies Act cannot be said to be "established" by that Act. What is missed, however, is the fact that a Company incorporated under the Companies Act or a cooperative society registered as a cooperative society under a State Act can certainly be said to be "constituted" under any law for the time being in force. In R.C. Mitter & Sons, Calcutta v. CIT, West Bengal, Calcutta, (1959) Supp. 2 SCR 641, this Court had occasion to construe what is meant by "constituted" under an instrument of partnership, which words occurred in Section 26A of the Income Tax Act, 1922. The Court held :
"The word "constituted" does not necessarily mean "created" or "set up", though it may mean that also. It also includes the idea of clothing the agreement in a legal form. In the Oxford English Dictionary, Vol. II, at pp. 875 & 876, the word "constitute" is said to mean, inter alia, "to set up, establish, found (an institution, etc.)" and also "to give legal or official form or shape to (an assembly, etc.)". Thus the word in its wider significance would include both, the idea of creating or establishing, and the idea of giving a legal form to, a partnership. The Bench of the Calcutta High Court in the case of R.C. Mitter and Sons v. CIT [(1955) 28 ITR 698, 704, 705] under examination now, was not, therefore, right in restricting the word "constitute" to mean only "to create", when clearly it could also mean putting a thing in a legal shape. The Bombay High Court, therefore, in the case of Dwarkadas Khetan and Co. v. CIT [(1956) 29 ITR 903, 907], was right in holding that the section could not be restricted in its application only to a firm which had been created by an instrument of partnership, and that it could reasonably and in conformity with commercial practice, be held to apply to a firm which may have come into existence earlier by an oral agreement, but the terms and conditions of the partnership have subsequently been reduced to the form of a document. If we construe the word "constitute" in the larger sense, as indicated above, the difficulty in which the Learned Chief Justice of the Calcutta High Court found himself, would be obviated inasmuch as the section would take in cases both of firms coming into existence by virtue of written documents as also those which may have initially come into existence by oral agreements, but which had subsequently been constituted under written deeds."
73. It is, thus, clear that companies and cooperative societies which are registered under the respective Acts, can certainly be said to be constituted under those Acts. This being the case, we accept the argument on behalf of 14 | P a g e ST/10694/2019 -DB the respondents that incorporated clubs or associations or prior to 1st July, 2012 were not included in the Service Tax net.
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76. What has been stated in the present judgment so far as Sales Tax is concerned applies on all fours to Service Tax; as, if the doctrine of agency, trust and mutuality is to be applied qua members' clubs, there has to be an activity carried out by one person for another for consideration. We have seen how in the judgment relating to Sales Tax, the fact is that in members' clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply on all fours when we are to construe the definition of "service" under Section 65B(44) as well.
77. However, Explanation 3 has now been incorporated, under sub-clause
(a) of which unincorporated associations or body of persons and their members are statutorily to be treated as distinct persons.
78. The Explanation to Section 65, which was inserted by the Finance Act of 2006, reads as follows :
"Explanation. - For the purposes of this section, taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration."
79. It will be noticed that the aforesaid explanation is in substantially the same terms as Article 366(29A)(e) of the Constitution of India. Earlier in this judgment qua Sales Tax, we have already held that the expression "body of persons" will not include an incorporated company, nor will it include any other form of incorporation including an incorporated cooperative society.
80. It will be noticed that "club or association" was earlier defined under Section 65(25a) and 65(25aa) to mean "any person" or "body of persons"
providing service. In these definitions, the expression "body of persons"
cannot possibly include persons who are incorporated entities, as such entities have been expressly excluded under Section 65(25a)(i) and 65(25aa)(i) as "anybody established or constituted by or under any law for the time being in force". "Body of persons", therefore, would not, within these definitions, include a body constituted under any law for the time being in force.
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85. The appeals of the Revenue are, therefore dismissed. Writ Petition (Civil) No. 321 of 2017 is allowed in terms of prayer (i) therein. Consequently, show cause notices, demand notices and other action taken to levy and collect Service Tax from incorporated members' clubs are declared to be void and of no effect in law."
10. We further find that following Calcutta Club Ltd. the Bangalore Bench of this Tribunal held in Karnataka Co-operative held that no service tax is payable on the services rendered by the member's federation to its members.
11. The law laid down in Calcutta Club is that a club and its members are one and the same and the club is formed for the purpose for mutual benefit of its members. Therefore, any amount paid by the members to the club and the services rendered by the club to its members are self service and cannot be taxed. The fact that the club is incorporated as a separate legal entity makes no difference. We find no good reason not to apply the same principle to the appellant, which is also a cooperative federation of milk unions who are its members. Although the milk unions (district cooperative societies) and the appellant (apex society) are registered under the Cooperative Societies Act of the State and are, therefore, distinct legal entities, the nature of relationship between the appellant and the milk unions continues to that of club to its members. Therefore, no service tax is payable on the services rendered by the appellant to the milk unions. 15 | P a g e ST/10694/2019 -DB
12. Thus, in view of the judgment of the Constitution Bench of the Supreme Court in Calcutta Club, and the decision of the Tribunal in Karnataka Co-operative Milk Producers Federation Limited it has to be held that no service tax was payable by the appellant for the services rendered to its members.
13. Accordingly, the demand confirmed by the impugned order cannot be sustained. The interest on the demand and the penalties imposed also need to be set aside and are set aside. The appeal is, accordingly, allowed and impugned order is set aside with consequential benefits to the appellant, if any."
4.3 The above judgment has been upheld by the Hon'ble Supreme Court reported as 2022 (65) G.S.T.L. 257 (S.C.) considering the constitution bench judgment in the case of Calcutta Club Ltd 2019 (29) GSTL 545 (S.C.) 4.4 In view of the above judgments, on the very same issue, we are of the view that in a case the appellant being a society consisting of members provided the residential complex to its members does not amount to service in the light of settled legal position in Calcutta Club (Supra). Therefore, the demand is not sustainable.
4.5 The objection raised by the Ld. AR that whether society is incorporated registered with competent authority with details or not and whether member list has been approved with competent authority where society has been registered. In this context we have perused the registration certificate produced by the appellant and find that the Appellant is co-operative hosing society registered on 04.11.1999. Further the society Audit report has been produced by the Appellant before the investigating officer. We also find that in para 7(C) of impugned show cause notice a chart has been prepared by the revenue on the basis of Balance Sheet, Bank Book, Ledgers regarding year wise details of advance received by Appellant from their members.
4.6 We also find that as regard the objection of Ld. AR that the buyers of the flat was existing members of society or not and were all prospective buyers in respect of all 154 flats were members on date of receipts of first advance from them, We find that the said issue was already considered by 16 | P a g e ST/10694/2019 -DB the Ld. Commissioner (Appeals) in the impugned order when he confirmed the said disputed demand. The Ld. Commissioner in impugned order at para 8 lastly held as under:-
" In view of the discussing in the foregoing paras, I hold that the appellant-co-operative housing society providing construction service to its members is taxable service and the Appellant is liable to pay service tax on amount received from its members in connection with construction of flats."
4.7 We also find that the Ld. AR strongly argued that the Appellant has pressed first time in CESTAT for principal of mutuality. In this context we observed that the said contention of the Ld. AR is not correct. We have gone through the page No. 84 to 86 of order-in-original and find that the Appellant before the adjudicating authority specifically submitted that the Society has been working for the members only, there were no service has been provided to other than members. Appellant also rely upon the judgments related to principal of mutuality before the Ld. Lower Adjudicating authority and Ld. Commissioner (Appeals) also.
4.8 We have also seen the impugned show cause notice and adjudication orders and find that all the disputed issue raised by the Ld. AR in present matter has already been duly considered by the Ld. Adjudicating authority in adjudication process. In such circumstances, we do not agree with the submission of the learned AR that the matter needs to be remanded.
4.9 We further find that the appellant have strongly argued that the demand is time barred. In this regard we find that the demand is for the period October, 2010 to March, 2014 and the show cause notice was issued on 21.04.2016 i.e. beyond the normal period. We find that this issue being very contentious and decided by various high courts and finally the issue came to be settled in the case of Calcutta Club Ltd by the Hon'ble Apex Court. Therefore, the issue being involved interpretation of law, no malafide can be attributed to the appellant. Therefore, there is no suppression of fact or wilful mis-statement. Accordingly, the demand is not sustainable on the ground of time bar also.
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5. As per our above discussion and finding, the demand adjudged in the order-in-original and upheld in the impugned order are not sustainable. Hence, the impugned order is set aside. Appeal is allowed with consequential relief.
(Pronounced in the open court on 22.11.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Raksha