Land Component In Country Club Membership Fee Cannot Be Included For Service Tax: CESTAT Hyderabad

The Hyderabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the value of land included in composite membership packages offered by Country Club (India) Ltd (now known as Country Club Hospitality & Holidays Ltd) (appellant) cannot be included in the taxable value for the purpose of levying service tax under the category of “club or association service".

The bench consists of Judicial Member Angad Prasad and Technical Member A.K. Jyotishi stated that "The value of land sold/ transferred to members of the appellant's club through their sister concern, as verified by CA based on financial records, bank statements, other relevant documents and certified accordingly, would be accepted as value of land and the same will be excluded from the gross value for re-computation of tax liability, if any, keeping in view the payments of service tax already made. While computing the service tax liability net of land value, the cumtax benefit will also be extended along with eligible credit lying in the balance and used for payment of service tax."

The dispute arose from ten show cause notices issued for the period 2005-06 to 2013-14 proposing service tax on amounts collected from members under categories such as “club or association services” and “health club and fitness centre services.”

The Department alleged that the entire amount collected from members, including charges relating to allotment of land under certain membership schemes, formed part of the taxable value. The adjudicating authority confirmed the demands and imposed penalties.

Before the Tribunal, the appellant contended that members opting for “membership with land” paid a composite amount which included the cost of land, but the land was actually allotted by its sister concern, Amrutha Estates, to whom the appellant transferred the land value.

The appellant argued that the transfer of land amounts to the transfer of immovable property and cannot be treated as consideration for service. It further submitted that documentary evidence, including bank records and a chartered accountant's certificate, established that the land value had been transferred to the sister concern.

The Tribunal noted that in earlier rounds of litigation, it had already held that the cost of land cannot form part of the taxable value of “club or association service” and had remanded the matter only for verification of the land value component.

It was observed that the adjudicating authority erred in disregarding the documentary evidence and the chartered accountant's certificate merely because the land transfers were effected through gift deeds instead of sale deeds or because complete member-wise documentation was not produced.

The bench noted that the essential requirement was to identify and exclude the value attributable to land from the composite membership fee, since the transfer of title in immovable property is outside the scope of service tax.

The bench stated that "It has also been pointed out that in respect of earlier documents, they had already paid service tax, taking cum-tax value into consideration. Since they had computed their liability on cum-tax value, as mandated under section 67, they had already discharged the applicable service tax as well as interest thereon, wherever applicable. Therefore, once the tax liability is recomputed on cum-tax basis and eligible Cenvat credit is also allowed, no further service tax would be left for payment by the appellant in respect of SCNs and therefore, there is no outstanding service tax to be paid by the appellant once the value of land is excluded."

It directed that the value of land transferred to members through the appellant's sister concern be verified on the basis of financial records, bank statements and a chartered accountant's certification, and that such value be excluded from the gross taxable value before recomputing service tax liability.

The bench stated that "Value of land would be based on certificate of CA, who would certify the amount transferred by the appellant to sister concern towards value of land sold/gifted to said category of members for entire period under dispute."

Accordingly, the Tribunal set aside the impugned order to the extent of the demand and remanded the matter to the adjudicating authority for redetermination of the tax liability after excluding the land value and extending cum-tax benefit and the eligible CENVAT credit. The appeal was partly allowed by way of remand.

For Appellant: Nagarajan. N, Advocate

For Respondent: B. Sangameshwar Rao, AR