No Service Tax Leviable on Amount Collected as Advance Fee from Applicants for Membership of Club

The CESTAT Bangalore has ruled that service tax is not applicable to advance fees collected from individuals applying for club membership. The tribunal found that the club's activities did not meet the definition of 'service' as per the Finance Act, particularly when membership is not automatic but conditional. This decision clarifies that such advance payments are not taxable under 'Club or Membership Association Service'.

The CESTAT, Bangalore in the case of M/s. Karnataka Golf Association v. The Commissioner of Service Tax and Another [Service Tax Appeal No. 21319-21320 of 2016 dated October 19, 2023] held that no service tax can be levied on the amount collected as an advance fee from the applicants for the membership of the club.

Facts

M/s. Karnataka Golf Association ("the Appellant") is a society registered under the Mysore Societies Registration Act, 1960. They are also registered with the Service Tax department and are discharging service tax under the category of ‘Mandap Keeper service.’ The DGCEI initiated an investigation regarding advance admissions/enrolment fees collected from prospective Members who apply for club membership.

It was alleged that the amounts so collected would be chargeable to Service Tax under the category of "Club or Membership Association Service." Consequently, show cause notices were issued to the Appellant for recovery of Service Tax for the period from 2005 to April 2012. 

Furthermore, two show-cause notices were issued to the Appellant demanding service tax of Rs.30,77,848/- and Rs.74,67,200/- for the period from April 2012 to March 2013 and April 2013 to March 2014 respectively. On adjudication, the demand notices were confirmed with interest and penalty.

Issue

Whether Service Tax can be levied on the amount collected as an Advance Fee, from the applicants for the Membership of Club?

Held

The CESTAT, Bangalore in Service Tax Appeal No. 21319-21320 of 2016 held as under:

• Observed that, the applicability of the definition of ‘service’ has not been raised, however, in the show-cause notice, it is alleged that the advances collected by the appellant would fall under the scope of ‘service’ as defined under Section 65B(44) of the Finance Act, 1994 ("the Finance Act").
• Further observed that, the activity of the appellant does not fall under the Negative List of services contained in Section 66D of the Finance Act.
• Relied on the judgement of The State of West Bengal & Ors. Vs. Calcutta Club Association [2019 (29) GSTL 545 (SC)], in which the Court held that the membership was not automatic but contingent and subject to conditions. Therefore, the definition of ‘Service’ under Section 66B(44) and the Finance Act was not fulfilled to attract Service Tax.
• Held that, no service tax can be levied on the amount collected as an advance fee from the applicants for the membership of the club.