Clubs welcome SC verdict on service tax

‘Principle of mutuality upheld’

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The Supreme Court’s ruling that clubs need not pay sales tax/valued-added tax or service tax has been welcomed by local establishments.

“Clubs across the country, including those from Tamil Nadu, were contesting the levy of sales tax as well as service tax. The simple contention was that a club and its members are one and the same based on the principle of mutuality and agency. Hence there cannot be a sale or service by a club to its members,” said K. Vaitheeswaran, who was counsel for Cosmopolitan Club, one of the respondents in the case.

“All these contentions have been accepted by the Supreme Court in a batch of cases. This is good news for member clubs operating on the principle of mutuality,” he said.

VAT on food

According to sources, clubs were asked to pay VAT on food supplied to the members.

After emergence of the service tax regime, they where asked to pay service tax on membership fees, food and alcohol served to members which ranged from 10-14%, which was subject of the dispute.

“This decision vindicates the stand of the club taken decades ago on mutuality. Some of our old matters on sales tax that are pending will get resolved,” said K. Santhanakrishnan, Secretary, Cosmopolitan Club.

Divergent views

However, there are divergent views on whether the verdict will be applicable under the Goods and Services Tax regime, where the current rate is 18%.

Mr. Santhanakrishnan said it was too early to comment.

G. Natarajan, Advocate and Partner of Swamy Associates, said that this judgment will be applicable under GST also, as the provisions similar to VAT Acts/Service Tax Acts are contained in the GST Acts also.

“As per this ruling, various food and beverages supplied by a club or association to its members and various services such as accommodation, spa, sporting facilities, swimming pools, halls, etc. provided by the clubs and associations to its members shall not be chargeable to GST,” according to him.

Since mutuality as a concept continues, it may be possible to apply the same even for GST, Mr. Vaitheeswaran said.