Can service tax be levied on services provided by club to its members? CESTAT answers

Customs, Excise & Service Tax Appellate Tribunal, New Delhi (CESTAT): The Coram of Dilip Gupta (President) and P.V. Subba Rao (Technical Member), expressed that, service tax can be levied on services rendered by the club to its members.

Factual Matrix


Rajasthan Cooperative Dairy Federation Limited – Appellant was registered under the Rajasthan Co-operative Societies Act, 2001 for implementation of ‘Operation Milk Flood’ in the State and the District Milk Cooperative Societies and milk unions were all members of the appellant.

The Appellant charged an amount @ 1.25% of the annual turnover of milk unions to manage their finances and other services and the said amount was called by the appellant as Rajasthan Cooperative Dairy Federation Cess.

As per the audit report, it was noted that the appellant had started paying service tax on RCDF Cess but had not paid service tax before and that it was liable to pay service tax on RCDF cess before June 2012 under the category of ‘business support services’ under Section 65(104c) of the Finance Act, 1994.

The appellant had paid service tax from July 2012 but had not paid service tax on the RCDF cess for the period prior to this date. Hence, a show-cause notice was issued to the appellant demanding service tax with interest and proposing to impose penalties upon the appellant. The Commissioner passed the impugned order confirming service tax demand of Rs 6,55,25,588 along with interest and penalties were imposed.

In view of the above, the present appeal was filed.

Question for Consideration


Whether the services provided by the appellant to its own members (who are also separate legal entities) can be considered as services provided by one entity to another?

Analysis, Law and Decision

Tribunal found that the Constitution Bench of the Supreme Court in State of W.B. v. Calcutta Club Ltd., (2017) 5 SCC 356, discussed at length the doctrine of mutuality under Article 366 (29A) (e) of the Constitution and held that doctrine of mutuality continues to be applicable to incorporated and unincorporated members’ clubs after the 46th Amendment to the Constitution and, therefore, no sales tax is payable to the State by the Calcutta Club.

Further, it was held that the above-stated logic would apply to service tax levied on members’ clubs.

The law laid down in the above-stated case was that a club and its members are one and the same, therefore any amount paid by the members to the club and the services rendered by the club to its members were self-service and cannot be taxed.

Coram stated that, the fact that the club was incorporated as a separate legal entity made no difference, further it was added that the same principle won’t be applied.

Further, it was expressed that,

“…the nature of the relationship between the appellant and the milk unions continues to that of club to its members.”

Hence, no service tax was payable on the services rendered by the appellant to the milk unions.

Lastly, the Tribunal held that the demand and penalties imposed needed to be set aside. [Rajasthan Co-operative Dairy Federation Ltd. v. Commr., Central Excise, Service Tax Appeal No. 53009 of 2016, decided on 9-5-2022]


Advocates before the Tribunal:

Shri Narendra Singhvi, Advocate for the Appellant

Shri Ravi Kapoor, Authorised Representative for the Respondent

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