Proceedings against club about service tax applicability quashed, HC

Facts in Brief:

1. This writ petition has been made by the Saturday Club Limited, a well-known club of the city of Calcutta (Kolkata) by the pen of the then Secretary and authorized representative of the same.

2. Such writ petition was filed in the year, 1998 praying inter alia declaration that the petitioner club is not a mandap keeper within the meaning of Chapter V of the Finance Act 1994 as amended by the Finance Act, 1997 and is not liable to pay any service tax under the Act along with various writs in the nature of mandamus, prohibition, certiorari with the incidental prayers virtually to restrain the authorities from giving effect and/or further effect of all the purported proceedings relating and/or including the communications dated 21st October, 1997, 17th December, 1997, 23rd April, 1998, 8th July, 1998 and 17th/21st July, 1998 and a direction upon the respondents to act in accordance with law.

3. Such writ petition was then formally entertained and interim order was granted by a Bench of this High Court. Directions for affidavits were also given.

HC held as under,

4. It is well known that show cause simpliciter normally should not be normally interfered with by the Writ Court. This is not such a case. Here such notice was followed by a further notice on 17th July, 1998 and ultimately adjudication case was fixed for registration and payment of service tax.

5. The very existence of the proceeding is challenged before this writ Court which cannot be said to be futile attempt. It is a question of jurisdiction of the authority. It is well-known by now particularly in view of the (Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Ors.) that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution.

6. However, the High Court makes a self-imposed restriction when the attentive and/or efficacious remedy is available. But when a dispute like the enforcement of fundamental right or violation of principles of natural justice or an action without jurisdiction or vires under any Act is available before a writ Court, such Court should intervene with the same irrespective of availability of alternative efficacious remedy.

7. Therefore, the petitioner in this case, cannot be said to be remediless before the Writ Court. That apart, at the stage of final hearing after entertaining the writ petition and after passing an interim order as far back as in 1998, the Court cannot refuse to enter upon the merit of the case on the ground of any alternative remedy. It is to be remembered that duty of the Constitutional Court not to allow or persist the litigation to go on and on but nip in the bud. For an example, if the proceedings is allowed to go having all such questions open it will result the same fate.

8. Then again the same will be challenged. In such circumstances, when available cause is apparent immediate step is to be taken by the Writ Court by intervention without waiting for the future. Totality says that the Writ Court was rightly invoked to avoid the perpetuity of the illegality and there is no bar upon the Writ Court in entertaining the same.

9. So far as the merit is concerned, law is well-settled by now that in between the principal and agent when there is no transfer of property available question of imposition of service tax cannot be made available. It is true to say that there is a clear distinction between the 'members' club' and 'proprietary club'. No argument has been put forward by the respondents to indicate that the club is a 'proprietary club'.

10. Therefore, if the club space is allowed to be occupied by any member or his family members or by his guest for a function by constructing a 'mandap' the club cannot be called as 'mandap keeper' because the club is allowing his own member to do so who is, by virtue of his position, principal of the club. If any outside agency is called upon to do the needful it may raise a bill along with the service tax upon the club and the club as an agent of the members, is supposed to pay the same.

11. The authority cannot impose service tax twice once upon the people carrying out the business of 'mandap keeper' as well as the members' club for the purpose of using the space for constructing or using it as 'mandap'. Therefore, apart from any other question possibility of double taxation cannot be ruled out.

12. If I explain my first query as above it will be crystal clear that if a person being an owner of the house allows another to occupy the house for the purpose of carrying out any function in that house it will not be construed as transfer of property. But if such person calls upon a third party 'mandap keeper' to construct a 'mandap' in such house then in that case such 'mandap keeper' can be able to raise bill upon the user of the premises along with the service tax. Therefore, I cannot hold it good that members' club is covered by the Finance Act, 1994 for imposition of service tax to use its space as 'mandap'. So far as the other point is concerned whether the ratio of the judgments can be acceptable herein or not I like to say 'yes it is applicable'. Income-tax is applicable if there is an income. Sales tax is applicable if there is a sale. Service tax is applicable if there is a service.

13. All three will be applicable in a case of transaction between, two parties. Therefore, principally there should be existence of two sides /entities for having transaction as against consideration. In a members' club there is no question of two sides. 'Members' and 'club' both are same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, I do not find it is prudent to say that members' club is liable to pay service tax in allowing its members to use its space as 'mandap'.

14. Therefore, the entire proceedings as against the club about the applicability of service tax stands quashed. Interim order, if any, stands confirmed. However, no order is passed as to costs. Thus, the writ petition stands disposed of. 

Case Reference - Saturday Club Ltd. vs Asstt. Commr., Service Tax Cell .