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The CESTAT, Ahmedabad held in Karnavati Club Ltd Vs CST Ahmedabad on 29th January 2013 that members of the Club were not separate as a client or customer from the mandap or the club and hence service tax could not be imposed for the facility of “mandap” provided to its own members.  And services rendered to self could not be equated with the services rendered to a client or customer.  Further, the provisions of section 12B of Central Excise Act would not be applicable and therefore the appellant had passed the hurdle of unjust enrichment.  It could not be said that by claiming the refund from self, the club would be unjustly enriched.

Background of the case:

The Service tax was imposed upon the service rendered by the “mandap keeper” to its clients and as insisted by the department the petitioner Club got themselves registered and started payment of service tax as per the provisions of the Finance Act, 1994.  The petitioner challenged the action of the Department before the Hon’ble High Court of Gujarat, as there was no element of transfer of property between the members and the club when the facility provided to its own members and not to be classified as mandap keeper.  Hence, no ingredients of clauses (66) or (67) of section 65 of the Finance Act, 1994 get attracted.

The Division Bench of Gujarat High Court allowed the petition and the entire proceedings initiated against the petitioner about the applicability of service tax were quashed and set aside by quoting references to the amended provisions of section 65 of the Finance Act, 1994.  The relevant provision (41) (p) in section 65 reads as under:

“Taxable Service” means any service provided to a client, by a mandap keeper in relation to the use of a mandap in any manner including the facilities provided to the client in relation to such use and also the services, if any, rendered as a caterer”. For a service to fall under the category of ‘taxable service’ within the provisions of the Finance Act, 1994 the requirement is that it must be provided by a person, who allows temporary occupation of any immovable property, as defined under the provisions of Transfer of Property Act, 1882 and includes such facilities attached thereto, let out for consideration for the purpose of organizing any official, social or business function to a client. So, if such service is not provided to a client, then it would not attract the provisions of the Act. Now the moot point is as to whether the members of the club fall under the definition of ‘client’ or not so as to attract levy of tax under the Act. After analyzing all these aspects and following the view taken by the Calcutta High Court in the decisions referred to in Dalhousie Institute and Saturday Club, the bench allowed the petition in favour of the Karnavati Club and the petitioners were advised to make an application for recovery of service tax. The department’s SLP filed before the Apex Court was dismissed.

Based on the High Court judgment, the appellants filed a refund claim for the period December 2002 to June 2005.  It appeared that the Club has not produced any documentary evidences to prove that presumption that the incidence of tax has not been passed on to their customer as per section 12B of Central Excise Act, 1944 made applicable to service tax vide section 83 of the Finance Act. The adjudicating authority sanctioned the refund but ordered to deposit in the same consumer welfare fund in terms of 12C of the Central Excise Act. Against this order and subsequent first appellate authority’s order, the appellants now got the favourable order from the CESTAT, Ahmedabad and it was held that services rendered to self could not be equated to a client or customer and hence provisions of section 12B would not be applicable.

Before parting:

It is worth quoting here on the matter of unjust enrichment that “Giving of reason is one of the fundamentals of good administration.  Reasons are live links between the mind of the decision taken to the controversy in question and the decision or conclusion arrived at.  Reasons substitute subjectivity by objectivity.  The emphasis on recording reasons is that if the decision reveals the inscrutable face of the sphinx, it can, by its silence, render it virtually impossible for the appellate forums to perform its function or exercise their power of judicial review in adjudging the validity of the decision”.  

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