1 day Ago By Lubna
Sign In Sign Up Top Stories The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that incorporated clubs are exempt from service tax on transactions with their members under the doctrine of mutuality but any refund claimed on such tax payments must satisfy the statutory test of unjust enrichment under Section 11B of the Central Excise Act. Rajpath Club Ltd., the appellant, an incorporated entity registered under various taxable service categories including “Club or Association Services,” filed a refund claim of Rs.
20.46 crore for service tax paid between April and September 2016. The refund was claimed because there was no service provider-recipient relationship between the club and its members based on the mutuality principle.
The adjudicating authority rejected the claim, but the Commissioner (Appeals) allowed it. Become PF & ESIC Pro: Basic to Advance Course – Enroll Today Read More: Goods Supplied Under Fraudulent Order Without Payment: AAR Rules GST Still Applicable on Issued Invoices Aggrieved by the appellate order, the Revenue filed an appeal before the CESTAT, arguing that the Finance Act , 1994, as amended from July 1, 2012, treated clubs and their members as distinct legal persons. The department counsel argued that the doctrine of mutuality could no longer be applied post-amendment and that refund eligibility must be tested under the lens of unjust enrichment.
They also argued that refunding the tax to the club without ensuring that the actual members who paid the tax were reimbursed would result in unjust enrichment. The respondent club countered that the mutuality principle, as upheld by the Supreme Court in State of West Bengal v. Calcutta Club Ltd.
and followed by various benches of the CESTAT, applied even after the 2012 amendments. The club also submitted affidavits showing that they had refunded substantial amounts to members and were continuing the refund process, including attempts to reach legal heirs of former members. Read More: CBIC issues Instructions for processing GST Registration Applications The two-member bench comprising Judicial Member Somesh Arora and Technical Member Satendra Vikram Singh explained that the doctrine of mutuality cannot be stretched to defeat the statutory framework of Section 11B.
The tribunal held that even though clubs and members may be the same entity for the purpose of taxability but they are not the same for refund purposes, particularly where individual members bore the tax burden. Master DTAA – International Taxation | Live Online Course The tribunal further observed that refunding the amount to the club without ensuring it reached the original payers would enrich the club at the cost of some members, leading to inequity and potential misappropriation. Considering that the club had made partial refunds and was in the process of completing the rest, the tribunal remanded the matter to the adjudicating authority for verification.
It directed that refunds be completed within two years, with unclaimed amounts and accrued interest to be transferred to the Consumer Welfare Fund. The Revenue’s appeal was allowed. Support our journalism by subscribing to Taxscan premium .
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