The Hindu Business Line : Why the taxman didn't join the party at club <i>mandap</i>

The assessee is a club, registered as a society. It extends its amenities and facilities to its members and their guests, and its byelaws have no provision to allow outsiders to participate in the club affairs except as guests of a member, "who is solely responsible for making payment on behalf of the guests."

There was thus "the element of mutuality in the affairs and dealing of the club." Members used the club space as venue "for holding social, commercial and business functions, meetings and gatherings."

When in 1997, `mandap keepers' providing mandap to clients came within the service tax net, Dalhousie got itself registered and filed returns.

That was a `mistake', the club told the Calcutta High Court when the taxman hauled it up for service tax.

For starters, mandap means any immovable property and includes any furniture, fixtures, light fittings and floor coverings therein let out for consideration for organising any social or business function. And the `mandap keeper' head among taxable services speaks of providing the use of mandap in any manner including the facilities provided to the client.

Mr J. P. Khaitan, arguing for Dalhousie, said that the club didn't come under the definition of `taxable service' because there is `mutuality'.

To help him, there were earlier decisions such as of Chelmsford Club and Darjeeling Club.

Oddly, at the court, none appeared on the Department's side, so Justice Mr Kalyan Jyoti Sengupta looked at the `affidavit-in-opposition'. In that, the counter argument spoke of estoppel since Dalhousie had obtained `registration certificate' as service provider and also filed returns.

Also, that the club was offering its immovable property, other assets and facilities for use and enjoyment of outsiders "in the name of guests" for consideration. Invitees of functions held by members cannot be called guests as defined in the club's byelaws, asserted the Department.

In such instances, "no individual guest charges are paid," said the taxman.

To prove its point, the Department cited the definition of `client' in dictionaries to say that members and guests using the club premises for social functions could be treated to be clients, and the club, a mandap keeper.

On the estoppel angle, the judge stated that it is an elementary principle of law that the question of estoppel cannot arise as against the provision of law.

"If it is found that the particular statute is not applicable to any person(s), the action taken by mistake cannot operate as an estoppel or acquiescence."

Interpreting the lingo of the Act, the court reasoned that the phrase `provided to a client' presupposed letting out to any person on consideration, as a commercial transaction. Does the club come within the purview of service tax on mandap keeper, therefore? On this, Justice Mr Jyoti said, "All the members jointly own all the immovable properties."

Thus, the `mandap keeper' would be members collectively and the mandap belonged to them; and the members served themselves mutually, though paying for such use.

He said that the Department took a `fallacious' view by relying on the dictionary definition of `client' rather than interpreting the definitions in the legislation.

"Service tax is recoverable from the mandap keeper who has different and separate legal and physical entity and, lets out mandap with commercial and trading object," said the judge. In Dalhousie's case, the principle of mutuality is "squarely applicable".

He added, "Services rendered by any person to his client presupposes the element of commerciality and obviously this transaction must be involved with the third parties, as opposed to the members of the club," quashing the notices sent by the Department and also the registration certificate.

Wonder if the smarted Department is lobbying for the addition of a new service in the coming Budget, that of clubs, lest mandap keepers start forming clubs as a measure of tax planning.

One end of pipeline

JAYPEE Bela Plant brought in a pipeline case to the New Delhi CESTAT with a complaint that the Bhopal Excise officials were denying the company Cenvat credit.

The pipeline brought in water from pits created in the mines due to excavation of raw material and also from spring and rains, and the pipes stretched 5-6 km from the factory.

The Department said that the major portion of the pipeline was outside the factory, and so it was not for use in the manufacture of finished products; accordingly, no credit could be given.

Jaypee argued that "one end of the pipeline" was within the factory where water was being utilised, and so credit was due.

The tribunal considered the submissions of both the parties and said:

"It is immaterial whether the distance is 200 m or 500 km when one end of the pipeline is within the factory and the same is being utilised for bringing water from reservoir to the factory for the manufacture of finished goods within the factory."

So, the ruling went in favour of Jaypee, even as the taxman lay disappointed at the other end of the pipeline.

Plastic doors aren't immovable

BUILDO Mat came to the Bangalore CESTAT (Customs, Excise and Service Tax Appellate Tribunal) with its `Sintex' plastic/ PVC doors and contended that these were immovable property. Buildo fabricated the doors in the premises of clients; the company argued, therefore, that no excise duty arose.

Earlier, the Excise Commissioner had opined that the doors became immovable only after fixing, not when they were cleared from Buildo's office.

The tribunal had little hesitation before ruling in favour of the Department. And there was another problem with Buildo; it was using `Sintex' name on its products and also claiming SSI exemption. CESTAT noted that Buildo was using a popular brand even where raw materials did not contain `Sintex' logo; also, Buildo was selling the doors as Sintex doors.

Therefore, Buildo was not eligible for SSI exemption, ruled the tribunal.

A case of doors that shut one after another on Buildo.

Tailpiece

"Do you know that story about old man, his son, and... "

"And the taxman?"

Detaxification@TheHindu.co.in

D. Murali

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