CESTAT Bangalore Sets Aside Service Tax On Mysore Race Club's Club-Member Services, Upholds Other Demands

Service tax demand on services provided by a club to its own members under “Club or Association Services” cannot be sustained, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Bangalore, has held, while ruling that Mysore Race Club Ltd. remains liable for service tax on restaurant services, event-related income, and sponsorship activities.

The bench of Judicial Member D.M. Misra and Technical Member R. Bhagya Devi relied on the Supreme Court's ruling in State of West Bengal v. Calcutta Club Ltd. to hold that the demand under “Club or Association Services” was not sustainable.

"we find the demand against 'Club or Association' services cannot be sustained as it is settled law that the appellant is not liable to service tax for the reason that the services rendered to themselves cannot be considered as a service for a consideration as is held by the Supreme Court in the case State of West Bengal vs. Calcutta Club Limited: 2019 ", the tribunal held.

The dispute concerned Race Club Ltd.'s liability to service tax for the period from April 1, 2008 to June 30, 2012 under multiple categories, including Commercial Use or Exploitation of Event, Renting of Immovable Property, Club or Association, Restaurant, and Sponsorship Services.

On the issue of sharing live telecasts of races with other clubs, the tribunal held that permitting other clubs to commercially use such events amounted to a taxable service under “Commercial Use or Exploitation of Event.”

It noted that Race Club Ltd. received downlinking charges for allowing such use and upheld the demand under this category for the period from July 1, 2010 onwards, when the service became taxable.

However, the tribunal rejected the classification of amounts received from bookmakers as “Renting of Immovable Property.” It found that the payments were not based on the area of the premises but were linked to race-related operations governed by the Mysore Betting Tax Act and rules, and therefore could not be treated as consideration for renting of immovable property.

With respect to restaurant services, the tribunal upheld the demand, holding that food and beverages served in the air-conditioned premises of Mysore Race Club Ltd. were taxable. It relied on the Karnataka High Court's decision in Ballal Auto Agency v. Union of India.

On sponsorship services, the tribunal noted that Mysore Race Club Ltd. had sponsored sporting events and upheld the tax liability on this count.

On limitation, the tribunal found that there had been prolonged correspondence between the Department and Mysore Race Club Ltd. regarding service tax liability. It held that suppression of facts could not be alleged and found no substantial grounds to invoke the extended period of limitation. Accordingly, all surviving demands were restricted to the normal limitation period.

The appeal was thus partly allowed, with the demand under “Club or Association Services” set aside and the remaining demands sustained only for the normal limitation period.

For Appellant: Gaurav Jashwant Shah, Chartered Accountant

For Respondent: Rajashekar B.N.N, Superintendent (AR) for the Respondent.