Incorporated members' clubs are not subject to service tax under mutuality principles; service tax demand against the appellant based on erroneous distinction from P&I Club rejected.

Per AJAYAN T.V.

M/s. Poompuhar Shipping Corporation Limited, the appellant herein, has challenged the Order in Appeal No.147/2016 (STA-II) dated 30-08-2016 (the impugned order) whereby the Appellate Authority upheld the Order in Original No.156/2015-16–ST–II dated 28-3-2016 passed by the Adjudicating Authority confirming the demand of service tax of Rs..48,21,639/- along with applicable interest, appropriation of the amount of Rs.48,21,639/- paid and the penalty of Rs.4,82,000/- imposed under Section 76 of the Finance Act, 1994 (the Act). The Appellate Authority, however set aside the penalty of Rs.10,000/- imposed under Section 77 (1) of the Act.

2. The brief facts of the case are that the Appellant, a Government of Tamil Nadu Undertaking is a registered service provider of supply of tangible goods service. During scrutiny of records of the Appellant, it was noticed that during the period 2007-08 to 2011- 12 the Appellant had paid Protection and Indemnity fees to Steamship Mutual Underwriting Association (Bermuda) Limited, London, (SMUABL) which is a P&I Club, for covering third party liabilities. The Department formed an opinion that the services provided to the Appellant by the P & I Club located outside India for covering third party liabilities, was a service that was taxable under the extant General Insurance Service for which the Appellant was liable to pay service tax under reverse charge mechanism in terms of Section 66A . Accordingly, a Show Cause Notice (SCN) was issued demanding service tax payable for the period from April 2007 to March 2012. For the further period from April 2012 to June 2012 a similar demand was made by issuing a Statement of Demand (SOD), and both the SCN and the SOD so issued were adjudicated vide Order in Original dated 12.09.2014. Although the Appellant preferred appeals against the said OIO, subsequently, the Appellant opted for the Sabka Vishwas Scheme and vide Final Order No.40701-40702/2021 dated 13.01.2021, the matter was closed and the appeals were dismissed.

3. However, inasmuch as the Appellant had not discharged the service tax for the period from July 2012 to March 2014, the Department issued another SCN No.28/2014 dated 09-12-2014 invoking the provisions of the Finance Act as was applicable post 01-07-2012, read with Rule 3 of the Place of Provision of Service Rules, 2012 which interalia provided that the place of provision of service shall be the location of the service recipient, and Notification No.30/2012-ST dated 20-06-2012, which provided at Sl.No.10 thereof that in respect of any taxable service provided or agreed to be provided by any person who is located in a non- taxable territory, the extent of service tax payable by the person who receives the services is 100%, alleging that the Appellant therefore continued to be liable to pay service tax under reverse charge and demanding service tax and proposing to impose penalties. After due process of law, the learned adjudicating authority passed the Order in Original aforementioned. Aggrieved by the said Order the Appellant preferred an appeal before the Commissioner of Service Tax (Appeals-II), Chennai, who has however, vide the impugned order, upheld the Order in Original of the Adjudicating Authority as detailed above. Hence this Appeal.

4. Shri. N. Sriprakash, learned advocate, appearing on behalf of the appellant contended that The first Appellate Authority held against the Appellant on the ground that the aforesaid M/s SMUABL was an unincorporated Association or a body of persons of which the Appellant was a member and relying on Explanation 3 to Section 65B (44) of the Act, the Appellate Aut