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SUPREME COURT OF INDIA
R.F. NARIMAN, SURYA KANT, V. RAMASUBRAMANIAN, JJ.
State of West Bengal & Ors. - Appellants
Versus
Calcutta Club Limited - Respondent
Civil Appeal No.4184 of 2009
With
Chief Commissioner of Central Excise and Service & Ors. – Appellant
Versus
M/s. Ranchi Club Ltd. - Respondent
Civil Appeal No. 7497 of 2012 with Civil Appeal No. 7773 of 2019 (Arising out of SLP (C) No.26883 of 2013) with Civil Appeal No. 7771 of 2019 (Arising out of SLP (C) No.22909 of 2013) with Civil Appeal No. 7772 of 2019 (Arising out of SLP (C) No.24977 of 2013) with Civil Appeal Nos.4377-4380 of 2015 with Civil Appeal No.5157 of 2015 with Civil Appeal No.7030 of 2015 with Civil Appeal No.8543 of 2015 with Civil Appeal No.7259 of 2015 with Civil Appeal No.7924 of 2015 with Civil Appeal No. 7774 of 2019 (Arising out of SLP (C) No.33249 of 2015) with Civil Appeal No. 7775 of 2019(Arising out of SLP (C) No.151 of 2016) with Civil Appeal No. 7781 of 2019 (Arising out of SLP (C) No.2491 of 2016) with Civil Appeal No. 7780 of 2019 (Arising out of SLP (C) No.2494 of 2016) with Civil Appeal No. 7783 of 2019 (Arising out of SLP (C) No.2490 of 2016) with Civil Appeal No. 7778 of 2019 (Arising out of SLP (C) No.4158 of 2016) with Civil Appeal No. 7779 of 2019 (Arising out of SLP (C) No.4156 of 2016) with Civil Appeal No. 7777 of 2019 (Arising out of SLP (C) No.4157 of 2016) with Civil Appeal No.5946 of 2016 with Civil Appeal No.5949 of 2016 with Civil Appeal No.6593 of 2016 with Civil Appeal Nos.7366-7367 of 2016 with Civil Appeal No.626 of 2017 with Civil Appeal No. 7776 of 2019 (Arising out of SLP (C) No.33377 of 2016) with Civil Appeal No.3584 of 2017 with Civil Appeal No.5087 of 2017 with Civil Appeal Nos.3819-3821 of 2017 with Writ Petition (Civil) No. 321 of 2017 with Civil Appeal No.10674 of 2017 with Civil Appeal No.11224 of 2017 with Civil Appeal Nos.72-73 of 2018 with Civil Appeal No.104 of 2019 with Civil Appeal No. 7790 of 2019 (D.No.5100 of 2019) with Civil Appeal No.5338 of 2019 with Civil Appeal Nos.5215-5217 of 2019 with Civil Appeal No. 7789 of 2019, (D.No.20271 of 2019)
Decided on : 03-10-2019
(A) Constitution of India – Article 366(29-A) – Doctrine of Mutuality – Application in context of a taxing Statute – If persons carry on a certain activity in such a way that there is a commonality between contributors of funds and participators in the activity, a complete identity between the two is then established – This identity is not snapped because surplus that arises from common fund is not distributed among members – It is enough that there is a right of disposal over surplus and in exercise of that right they may agree that on winding up, surplus will be transferred to a club or association with similar activities – Most importantly, surplus that is made does not come back to members of club as shareholders of a company in form of dividends upon their shares – Since members perform activities of club for themselves, fact that they incorporate a legal entity to do it for them makes no difference – What is of essence in applying this doctrine is that there is no sale transaction between two persons as one person cannot sell goods to itself. (Para 30)
(B) Taxation – Service Tax – From 2005 onwards, Finance Act of 1994 does not purport to levy service tax on members’ clubs in incorporated form – Expression “body of persons” cannot possibly include within it bodies corporate – Show-cause notices, demand notices and other action taken to levy and collect service tax from incorporated members’ clubs declared to be void and of no effect in law. [Explanation 3(a) to Section 65B(44 of Finance Act, 1994)] (Paras 83, 84 and 85)
Facts of the case:
Present appeal arises out of a reference order by a Division Bench of this Court, reported in State of West Bengal v. Calcutta Club Limited (2017) 5 SCC 356.
Findings of Court:
What has been stated in the present judgment so far as sales tax is concerned applies on all fours to service tax; as, if 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.
Result : Appeals of Revenue dismissed and Writ Petition (Civil) allowed.
Key Points: - The doctrine of mutuality continues to apply to both incorporated and unincorporated members’ clubs after Article 366(29-A) (p_207) - Sub-clause (e) does not apply to the taxed status of members’ clubs; sub-clause (f) pertains to food/drink in hotels/restaurants and not to members’ clubs (p_207, p_208, p_43, p_188) - Incorporated clubs’ service tax liabilities were not included in the pre-2012 regime and post-2012 the interpretation relies on changes to Section 65B definitions and Explanation 3, with courts in Jharkhand and Gujarat holding exemption for incorporated clubs in certain contexts (p_73, p_57, p_78, p_81, p_84)
JUDGMENT :
R.F. Nariman, J.
C.A. No.4184 of 2009
1. This Appeal arises out of a reference order by a Division Bench of this Court, reported in State of West Bengal v. Calcutta Club Limited (2017) 5 SCC 356. The facts of Civil Appeal No.4184 of 2009 are set out in the said reference order as follows:
“2. The facts that are necessary to be stated are that the Assistant Commissioner of Commercial Taxes issued a notice to the respondent Club assessee apprising it that it had failed to make payment of sales tax on sale of food and drinks to the permanent members during the quarter ending 30-6-2002. After the receipt of the notice, the respondent Club submitted a representation and the assessing authority required the respondent Club to appear before it on 18-10-2002. The notice and the communication sent for personal hearing was assailed by the respondent before the Tribunal praying for a declaration that it is not a dealer within the meaning of the Act as there is no sale of any goods in the form of food, refreshments, drinks, etc. by the Club to its permanent members and hence, it is not liable to pay sales tax under the Act. A prayer was also made before the Tribunal for nullifying the action of the Revenue threatening to levy tax on the supply of food to the permanent members.
3. It was contended before the Tribunal that there could be no sale by the respondent Club to its own permanent members, for doctrine of mutuality would come into play. To elaborate, the respondent Club treated itself as the agent of the permanent members in entirety and advanced the stand that no consideration passed for supplies of food, drinks or beverages, etc. and there was only reimbursement of the amount by the members and therefore, no sales tax could be levied.
4. The Tribunal referred to Article 366(29-A) of the Constitution of India, Section 2(30) of the Act, its earlier decision in Hindustan Club Ltd. v. CCT [Hindustan Club Ltd. v. CCT, (1995) 98 STC 347 (Tri)] , distinguished the authority rendered in Automobile Assn. of Eastern India v. State of W.B. [Automobile Assn. of Eastern India v. State of W.B., (2017) 11 SCC 811 : (2002) 40 STA 154 (SC)] and, eventually, opined as follows:
“Considering the relevant fact presented before us and the different judgments of the Supreme Court and the High Court we find that supplies of food, drinks and refreshments by the petitioner clubs to their permanent members cannot be treated as “deemed sales” within the meaning of Section 2(30) of the 1994 Act. We find that the payments made by the permanent members are not considerations and in the case of Members' Clubs the suppliers and the recipients (Permanent Members) are the same persons and there is no exchange of consideration.”
Being of this view, the Tribunal accepted the contention of the respondent Club and opined that it is not eligible to tax under the Act.
5. Being dissatisfied with the aforesaid order passed by the Tribunal, the Revenue preferred a writ petition and the High Court opined that the decision rendered in Automobile Assn. of Eastern India [Automobile Assn. of Eastern India v. State of W.B., (2017) 11 SCC 811 : (2002) 40 STA 154 (SC)] , was not a precedent and came to hold that reading of the constitutional amendment, as well as the provisions of the definition under the Act, it was clear that supply of food, drinks and beverages had to be made upon payment of consideration, either in cash or otherwise, to make the same exigible to tax but in the case at hand, the drinks and beverages were purchased from the market by the Club as agent of the members. The High Court further ruled that the members collectively was the real life and the Club was a superstructure only and, therefore, mere fact of presentation of bills and non-payment thereof consequently, striking off membership of the Club, did not bring the Club within the net of sales tax. The High Court further opined that in the obtaining factual matrix the element of mutuality was not obliter
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