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In this article we would be going through the provisions of service tax which are relevant to associations.



Þ    What is meant by Indirect Tax?

Service Tax is an indirect Tax which is received by the service provider from the service recipient. It can be termed as an indirect tax as it is levied on the goods and services as against the Income Tax which is directly levied and collected from persons like individuals, companies etc.


What is Service & Service Tax?

Þ     What is a service?

Though the levy is on the “service”, the Finance Act under which the levy is imposed and being collected does not define the word “Service”. Black’s Law Dictionary defines the term ‘service’ to mean “an intangible commodity in the form of human effort such as use of labour, skill or knowledge for the benefit of another.” Webster’s Dictionary gives various meanings for the term ‘service’ and one such meaning goes thus – “performance of any duties or work for another; helpful or professional activity.” In other words, service is a value addition achieved by performing duties or work for another.


Þ    What is meant by Service Tax?

Service tax is a destination based consumption tax. Levy of any tax should be under the authority provided in the Constitution of India. For levying the service tax by the Union, there was no specific power in the constitution. Therefore levy and collection of service tax, was initially made under entry 97 of the List I to Seventh Schedule to the Constitution of India. For Service Tax purposes, if there is no Service, then there should be no tax. In other words, service tax is a tax on value addition achieved by providing services and that services would mean performance of duties or work for another.


Levy and collection of service tax

Þ     What is the event for levy of service tax?

The service tax levy is attracted in respect of defined taxable services set out in Section 65(105).  However where any advance was received for the service to be provided in future, the point of levy and crystallization of levy happened at a single point of time. This is because the taxable service definition as per Section 65(105) read as under-“taxable service” means any service to be provided or to be provided.


Þ    What is the point of Crystallization of the Levy?

The service tax levy which is attracted at the time of provision of taxable services. It crystallizes at the earliest of following: date of receipt of advance or date of completion of provision of service. This is vide Point of Taxation Rules, 2011.


Þ   What is the applicable service tax rate?

The service tax rate is 10% vide Notification No. 8/2009 – ST, dated 24.02.2009. In addition to the said service tax there is also a levy of education cess at the rate of 2% on the basic service tax. Over and above these two, there is also a Secondary & Higher Education Cess computed at the rate of 1% on the basic service tax. Therefore effectively the rate of service tax would be 10.30%. The said rate is universally applicable for all the taxable services.


Classification of services

Þ    What is a taxable service?

What is taxable service is defined in clause (105) of section 65 of Finance Act, 1994. The sub-clauses (a) to (zzzzw), defines various types of activity as taxable. Only when a particular activity/transaction/service is covered by section 65(105), the same would be regarded as a “taxable service” for the purpose of payment of service tax.


Þ   Is service tax applicable on associations?

Yes, the clubs and association services covers any service provided or to be provided to its members by any club or association in relation to provision of services, facilities or advantages for a subscription or any other amount.


Þ    Under which category could the maintenance services provided to the members of apartment owners association be covered?

The amounts collected towards services such as upkeep of the building and other common essential needs like water, electricity and security, could be liable to tax under the category of ‘Club or association membership service’. As the association is providing services, facilities or advantages to its members for a charge and hence could be liable to service tax. There is a bigger question of whether between the association and members there can be a service provider/ service receiver relations and whether under concept of mutuality it can be said that there is no service from one to the other as they are the same.


Exemptions under Service Tax

Þ     Is there any exemptions to the services provided by an residents association to its members?

Yes, there is an exemption. An exemption is provided for services provided by resident welfare associations, in cases where the total consideration received from an individual member by the said association for providing the said services does not exceed three thousand rupees per month. The resident welfare associations is given an indicative meaning that, the criterion for its membership is the residential status of a person in a residential complex or locality, to its members. (Notification No. 8/2007-ST, dated 1.3.2007). The full text is given in annexure.


Þ     Is this exemption available to a member as a whole or is applicable to each unit in residential complex owned by him?

In my opinion considering the intention of the exemption, the same should be available to cases where the consideration is less than fixed limit though the association may have to pay service tax on the considerations received from the members more than the fixed limit.


Exemption to Small Service Providers

Þ     Can the association claim the benefit of small service provider exemption?

Yes, this benefit can be claimed where association receipts towards taxable services charged does not exceed Rs 10 Lakhs in the financial year. Not being discussed further.


Valuation of Services

Þ    How is taxable service to be valued?

In terms of Section 67 the value of taxable service is the gross amount charged for such service. Such service here is nothing but taxable service.


Þ     Can service tax levy be applicable on mere reimbursement of expenses?

In cases of mere sharing of expenses, it is hard to imagine existence of value addition so as to attract service tax levy. Only with effect from 19.04.2006, the provision of Section 67 has been amended and the concept of “consideration” has been introduced and by virtue of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, the consideration is defined to include reimbursement of expenses also.

As per Rule 5(1) there is a deeming fiction created to consider all the expenditure or costs incurred by the service provider in the course of providing taxable services as consideration. All the expenditure or costs so incurred by the service provider and borne by the recipient will have to be included in arriving at the value for charging service tax on said service.


Þ    Is there any exclusion for expenses that are reimbursed from the residents of the apartments?

As per Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, where the expenditure or cost incurred by the service provider as a pure agent the same shall be excluded from the value of the taxable service if conditions are satisfied. The inclusions and exclusions from value are set out in annexure 2.


Þ    Where the maintenance or repair services are provided by an association to its members through an agency and gets amounts reimbursed whether it can be excluded from levy?

Where amounts paid to the security, maintenance vendors is paid and reimbursed by the association at actuals from the residents, it can be excluded from service tax levy. This is subject to maintaining proper documentary evidence by way of vendor invoices and agreements with the residents to incur such expenses on their behalf. The description of expenses that are authorised to be incurred on their behalf could also be set out in such agreement. To illustrate with example:-maintenance/repair, contractors can be appointed by the association who would bill the association for their services. If the association pays the contractor and gets the amounts reimbursed by the members, the same can be taxed in the hands of the association unless the association can be said to have incurred the expenditure as a pure agent of the service receiver (member) in which case the amounts reimbursed may be excluded.


Þ   Whether subscription amounts collected as a lump sum is leviable to service tax?

If the association collects amounts and the same is factored to include charges towards maintenance activities, the same would be taxed under the category club or association’s service in the absence of any clause in the agreement with members which makes a mention of the association acting as a pure agent of the member in carrying out maintenance work.


Þ    Can water and electricity charges collected be excluded from service tax levy?

As water and electricity are goods as held in several decisions. There can be no service tax liability on same. But there should be adequate invoices to support such claim. Further the amounts should be collected at actuals.




Þ     Whether the resident association can be out of the service tax levy by citing mutuality concept?

Here we would examine what is meant by mutuality. Two persons are required to constitute a taxable service, namely a service provider and a service receiver. A club is constituted of members and it has no identity apart from members. Further, it is a common understanding that an association and its members are one and the same, and the association cannot be considered a distinct legal entity, the service tax law regards the service rendered by a club or association to its members as a taxable service. This is against the fundamental understanding of law and several judgments in Income Tax law have upheld the same. The summary of such decisions is given in annexure 3.

Therefore, the sums received from members can possibly be kept out of levy by citing mutuality concept. This stance can be explained to department by a letter by association, where it decides to opt for same. It maybe noted that the revenue at present may dispute the same. 


Þ    Can an association and its members be still considered as one and the same if services such as gym are provided by it?

Yes, it is possible since such services are provided by the association to its members itself. However, there is a contrary decision on this issue in favour of revenue as the  Karnataka High Court in Century Club vs. Commissioner of Service Tax Bangalore (2010 (17) STR 337 (Kar)) held a registered society providing services to own members liable to service tax. But it should be noted this was in context of the employees of club providing health and fitness services to members through the establishment of health and fitness centre. It was not relating to the services provided by a club to its members.


Þ    Can the maintenance sums collected by the builder from residents be j kept out of tax net citing mutuality?

No, it is not possible to do so. This is because the builder is distinct from the members comprising the association. He cannot be said to be an agent of the residents by any stretch.


Cenvat Credits

Þ     Whether cenvat credits can be availed by the association to discharge service tax liability?

The credits on all capital goods, inputs, input services that are used for providing the taxable service can be availed.


Þ     What are the major credits that can be availed by the association?

The following credits could be availed:


üCentral Excise Duty/Additional Duty of Customs (CVD) on Office Equipment and computers

ü  Modernization or renovation or repairs of the premises of provider of output service or an office relating to such premises

ü Management, Maintenance and repair

ü  Cleaning Service

ü Security service

ü  Convention center service

ü  Telecommunications

ü  Other Services used by a provider of taxable service for providing association service


Payment of Service Tax

Þ     What is due date for discharging service tax liability by association?

The due date is 5th/(6)th (this is where the service tax payment is made online) of month succeeding the month in which the services are deemed to be provided. For month of March, the service tax payment has to be made within 31st of March itself.


Þ    Can service tax be collected from the residents?

Yes, as service tax is a destination based tax, the same can be collected from the recipients and remitted. Where it is not collected from the recipients, the same can be computed on cum-tax basis, out of sums received from the service recipients and remitted. In which case computation would be For instance: on Rs 10000 (receipts)*10.3/110.3=Rs 933/-


Where the association wishes to exclude the reimbursements and examine the liability for taxable services thereafter, it may seek legal confirmation as well as keep the revenue dept. informed of its reasoning.

It is hoped that the article provides some clarity on the issues to be considered under this category of services.


Acknowledgements to CA Roopa Nayak for assistance in preparation of this article.


For further queries you may mail at


Club or Association Membership Service — Exemption to services provided by Resident Welfare Association

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services, specified in sub-clause (zzze) of clause (105) of section 65 of the said Finance Act, provided or to be provided, by a resident welfare association where the sole criterion for its membership is the residential status of a person in a residential complex or locality, to its members, from the whole of the service tax leviable thereon under section 66 of the said Finance Act, subject to the condition that the total consideration received from an individual member by the said association for providing the said services does not exceed three thousand rupees per month.

[Notification No. 8/2007-S.T., dated 1-3-2007]


Annexure 2:

5. Inclusion in or exclusion from value of certain expenditure or costs.- (1)Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

Explanation.- For the removal of doubts, it is hereby clarified that for the services specified in subclause (zzzx) of clause (105) of section 65 of the Finance Act, 1994, the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority

(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;
(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

(iii) the recipient of service is liable to make payment to the third party;

(iv) the recipient of service authorises the service provider to make payment on his behalf;

(v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Explanation 1.-For the purposes of sub- rule (2), "pure agent" means a person who-

(a)   enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;
(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services.

Annexure 3:

1.    There are many judicial pronouncements to provide that the clubs and its members are one and the same:

·         Secretary, Madras Gymkhana club employees union Vs Management of Gymkhana (1968) 1 SCR 742 (SC), it was held that a club belongs to its members for the time being. A club is identified with its members at a given point of time, so that it cannot be said that a club has an existence apart from its members.

·         In Saturday Club Ltd Vs ACSTC (2005) 1 STT 64 (Kol HC), it was held that if a club provides some service to its members, it is like owner of house allowing family member or friends to carry out a marriage or other ceremony in his house. Members club and members are some entity. There are no two sides. Hence members club cannot be taxed as mandap keeper.

·         In Breach Candy Swimming Bath Club 2007 (5) STR 146 (Tri Mum), the trust formed by members being charitable not formed for any gainful purpose. Services of letting out premises to member not liable.

·         In Calcutta Club Ltd Vs CTO 2007 (10) VST 385, it was held that relationship between members and permanent members is governed by doctrine of mutuality.


2.    In addition to the above decisions there are a couple of decisions under service tax, in the following cases wherein the concept of mutuality is considered and said that there cannot be service between the members and the association. The decisions are :

a.    Dehradun Club Limited vs. Commissioner of C.Ex. Meerut-I (2007(7) STR 519(Tri-Del) where contended by appellant that recipient of services from the club not clients and Service tax is not attracted and the appeal was allowed.

b.    Sports Club of Gujarat Ltd. vs UOI 2010 (20) STR 17 (Guj) wherein it was held that both members and club are same entity.


CA Madhukar N. Hiregange

Published by

Madhukar N Hiregange
(Chartered Accountant)
Category Service Tax   Report

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