Service Tax Cannot Be Levied on Clubs, SC Verdict

In a recent verdict by the Supreme Court, the Court upheld that c need not be charged on club services that are provided to its members. The ruling was based on the rationale that the club comprises its members and no members mean no club and vice versa. 

Clubs across the country had been contesting the levy of service tax and sales tax. Before GST was implemented, clubs had been asked to charge and pay VAT on food supplied. Further, service tax was levied on food, alcohol and membership fees. The landmark judgement provided that clubs are not entitled to charge, collect and pay service tax on any services made to its members. 

Also Read: CBIC reviews results, finds biggest ever Goods and Services Tax fraud

The decision was taken based on the principle of mutuality, and the assumption is that this concept even holds good under GST now. A club is not a dealer, as it does not make a ‘sale’ of any goods in the form of food, drink, etc. It merely supplies the same and there was the only reimbursement of the amount by the members. This cannot be treated as deemed sales.

Clubs would now like to know whether the ruling also applies under the Goods and Service Tax (GST) laws, which replaced Sales and Service tax over two years ago. As the rationale remains the same, it can be assumed but not concluded that the verdicts should hold good under GST too. However, only a clarification released by the CBIC can confirm the same.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in

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