AIT-2014-86-CESTAT
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi, Court No. 1
Date of hearing: 14.02.2014
Date of decision: 28.04.2014
Service Tax Appeal Nos. 58191, 58306 and 58304 of 2013 with
Service Tax Stay Nos. 58830, 58956 and 58954 of 2013
(Arising out of order-in-Original No. 51/GB/2013 dated 26.03.2013 passed by the
Commissioner of Service Tax, New Delhi).
M/s Federation of Indian Chambers of Commerce and Industry- Appellant
Vs.
CST, Delhi- Respondent
AIT Head Note: (a) That the appellants FICCI and ECSEPC are engaged in activities
having objectives which amount to public service and are of a charitable nature; the
appellant ECSEPC is also a body falling within the exclusionary clause (i) of Section
65(25a) of the Act;
(b) Services provided by appellants to their respective members and consideration
received therefor is not exigible to tax in view of the principle of mutuality;
(c) The services provided by the appellants is not authorised for levy and collection of
service tax under
“Club or Association” service, in view of declaration of
unconstitutionality of the relevant and applicable provisions, by the judgment of the
Gujarat High Court in Sports Club of Gujarat Limited vs. Union of India (supra);
(d) Services provided by the appellants to non members and the consideration received
for rendition of such service, fall outside the scope of the definition of “Club or
Association” service and the taxable service defined in Section 65(25a) read with
Section 65(105)(zzze) of the Act, prior to 01.05.2011;
(e) Services provided by the appellant FICCI to non members subsequent to
01.05.2011, though presumably may fall within the expanded scope of the taxable
“Club or Association” service, (by virtue of the amendments by the Finance Act, 2011),
the proportionate service tax and interest for these services provided subsequent to
the amendments w.e.f. 01.05.2011 (not identified in the impugned order), cannot be
sustained since the show cause notice dated 28.12.2012, issued to FICCI covering part
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of the post amendatory period omits to allege FICCI’s liability to tax on the basis of
the amended provisions and thus there is denial of due process; and
(f) Invocation of the extended period of limitation for initiation of proceedings against
both the appellants, to the extent the extended period is invoked and the confirmation
of penalties, is unjustified and unsustainable.
AND
Service Tax Appeal No. 55424 of 2013 with Service tax Stay No. 55537 of 2013
(Arising out of order-in-Original No. 28 to 29/Commr/PKL/2012 dated 18.10.2012 passed by
the Commissioner of Central Excise, Panchkula).
M/s Electronic and Computer Software Export Promotion Council- Appellant
Vs.
CST, Delhi- Respondent
Sh. V. Lakshmi Kumaran, Sh. B. L. Narasimhan, Ms. Sharanya & Ms. Swati Gupta, Advocates
for the appellants
Shri Govind Dixit and Sh. Amresh Jain, DRs for the Respondent
Coram: Mr. Justice G. Raghuram, President and Mr. Rakesh Kumar, Technical Member
Final Order Nos. 51787 - 51790 / 2014
Per: Justice G. Raghuram:
Heard Shri V. Lakshmi Kumaran & Sh. B. L. Narasimhan, Advocates for the appellants and
Shri Govind Dixit and Sh. Amresh Jain, DRs for the Respondent/ Revenue.
2.
At the stage of considering the stay applications (seeking waiver of pre-deposit) we
have heard the respective parties on the substantive issues and dispose of the appeals. We
do so after waiving pre-deposit.
3.
Service Tax Appeal Nos. 58191, 58306 and 58304 of 2013 are preferred against
adjudication orders confirming levy of service tax, interest and penalties on the same
appellant i.e. the Federation of India Chambers of Commerce and Commerce and Industry
(in short FICCI). These appeals are directed against adjudication orders which are passed
in respect of periods covering 01.07.2006 to 30.06.2010; 01.07.2010 to 30.06.2011 and
01.07.2011 to 30.06.2012, pursuant to show cause notices dated 19.10.2010; 21.10.2011 and
28.12.2012, respectively.
4.
Service Tax Appeal No. 55424 of 2013 is preferred by M/s Electronic and
Computer Software Export Promotion Council (in short ECSEPC), against an adjudication
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order dated 18.10.2012 confirming distinct and specified service tax demands for 20052009 and 2010 - 2011 apart from interest and penalties as specified therein. The order
dated 18.10.2012 is passed pursuant to two show cause notices dated 07.10.2010 and
18.10.2011, covering the two periods in issue.
5.
The assessment levy and demand of service tax, interest and penalties as specified
in the several adjudication orders is predicated on the conclusion that the assessees/
appellants had provided the taxable ‘club or association’ service enumerated in Section
65(105)(zzze), defined in Section 65(25a) of the Finance Act, 1994 (the Act). To the
extent relevant and material for the purposes of this lis, the relevant statutory provisions
are extracted:
Section 65 (105) (zzze)
Taxable service means any service provided or to be provided to its members, by
any club or association in relation to provision of services, facilities or advantages
for a subscription or any other amount;
Section 65 (25a)
“club or association” means any person or body of persons providing services,
facilities or advantages, for a subscription or any other amount, to its members, but
does not include:
(i) Any body established or constituted by or under any law for the time being in
force; or
(ii) Any person or body of persons engaged in the activities of trade unions,
promotion of agriculture, horticulture or animal husbandry; or
(iii) Any person or body of persons engaged in any activity having objectives which
are in the nature of public service and are of a charitable, religious or political
nature; or
(iv) Any person or body of persons associated with press or media;
6.
Section 65(25a) was amended and renumbered as Section 65(25aa) by the Finance
Act, 2011 dated 8.4.2011. Post the amendment, the provision reads:
“club or association” means any person or body of persons providing services,
facilities or advantages, primarily to its members, for a subscription or any other
amount, but does not include”
(i)
any body established or constituted by or under any law for the time being
in force; or
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(ii)
any person or body of persons engaged in the activities of trade unions,
promotion of agriculture, horticulture or animal husbandry; or
(iii)
any person or body of persons engaged in any activity having objectives
which are in the nature of public service and are of a charitable, religious or political
nature; or
(iv)
7.
any person or body of persons associated with press or media;”]”
By the same amendatory process Section 65(105) (zzze) was also amended to read:
“to its members or any other person by any club or association in relation to
provision of services, facilities or advantages for a subscription or any other
amount”.
8.
Certain broad issues are common to appeals preferred by FICCI and the appeal
preferred by ECSEPC. An additional issue is presented for consideration in the appeal
preferred by ECSEPC. For consideration of the common issues we take up service tax
Appeal No. 58304 of 2013 (preferred by FICCI), as illustrative of the issues arising in all
the appeals preferred by this appellant and the related issues arising in the appeal
preferred by ECSEPC.
9.
Service Tax Appeal No. 58304 of 2013:
(1)
The Commissioner, Service Tax, New Delhi passed a common adjudication
order No. 49-50/GB/2013 dated 26.03.2013 in respect of three show cause notices
dated 19.10.2010; 21.10.2011 and 28.12.2012, covering the periods, adverted to supra
(in para 3). The order confirmed service tax demand of Rs. 49,61,32,867/-;
21,73,55,168/- and Rs. 5,67,38,578/- apart from interest and penalties as specified
therein, in respect of the three show cause notices, respectively.
(2)
FICCI is a company registered under Section 26 of the Indian Companies
Act, 1913, for providing the taxable “Mandap Keeper”; “Event Management”;
“Management Consultant” and “Business Exhibition” services. Founded on 16.03.1956
and incorporated under the 1913 Act, FICCI was established inter alia:
(a)
to serve India’s national, social and economic goals through the promotion of
appropriate policies covering - increase in gainful employment through expansion of
production of goods and services for domestic/ export markets; raising living
standard of rural/ urban population by promoting balanced economic development
through industry, commerce, and services; and for achievement of the foregoing, to
promote growth of Indian business, to build international relations for making India
a “Global Player”, to promote Indian business in matters of inland and foreign trade,
transport, industry, manufacture, finance and all other economic subjects and to
encourage Indian banking, shipping and insurance.
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(b)
To encourage friendly feelings and unanimity among business community and
associations on all subjects connected with the common good of Indian business.
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(e)
To take all steps by lawful means which may be necessary for promoting,
supporting or opposing legislation or other action affecting the aforesaid economic
interests and in general to take the initiative to assist and promote trade, commerce
and industry.
(f)
To provide for arbitration in respect of disputes arising in the course of
trade and industry or transport or other business matters, and to secure the
services of experts, technical and other men to that end, if necessary or desirable.
(g)
To conduct, undertake the conduct of and participate in national and
international exhibitions.
(h)
To set up museums or showrooms, to exhibit the products of India and other
countries and to participate in such activities.
(i)
To secure the interests and well-being of the Indian business communities
abroad.
(j)
And generally to do all that may be necessary in the interest of the
realisation of the above objects of the Federation, directly or indirectly.
(k)
To attain those advantages by united action which each member may not be
able to accomplish in his individual capacity.
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(m)
To help in the organisation of Chambers of Commerce or Commercial
Associations in different commercial centers of the country.
Clause 4 of the Memorandum of Association of FICCI stipulates that its income and
property, whensoever derived, shall be towards the promotion of the objects of the
Federation as set forth in the Memorandum of Association; and that no portion thereof
shall be paid or transferred directly or indirectly, by way of dividend, bonus, or otherwise
by way of profit to the members of the Federation.
Clause 2 of the Articles of Association of FICCI sets out the criteria and eligibility for
membership. There are three classes of Members - Ordinary Members, Associate Members
and Corporate Members. Each of these categories are defined in this clause.
Clause 3 of the Articles of Association set out criteria and procedure for admission to
membership; Clauses 4 to 12 stipulate the annual subscription, admission and other fees
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payable by the members and the other substantive and procedural provisions for the
operations and activities of FICCI.
10.
Proceedings were initiated, on assumption by Revenue that all receipts by FICCI
including amounts received towards Admission Fee/ Subscription from Ordinary, Associate
and Corporate Members; receipts in respect of meetings; for organising seminars
exhibitions, annual meetings; contributions received from allied organisations such as the All
India Organisation of Employers; Indian Council of Arbitration; ICC India; Joint Business
Councils; FICCI Ladies Organisation; Confederation of Indian Food & Trade Industry; Misc.
Receipts; Receipts from its publications; Facilitation Fees; Hire Charges; Commission Room
and receipts on museum rentals; Sale of Periodicals; sponsorship amounts and even
Government grants, comprise as the gross consideration received (by FICCI) for having
provided Club or Association service, during the periods in issue.
11.
Extended period of limitation was invoked under the proviso to Section 73(1) of the
Act, for initiation of proceedings for levy and collection of service tax, interest and
penalties.
12.
During 27.7.2006 to 13.8.2010 (prior to issue of the first show cause notice dated
19.10.2010, covering the period 1.7.06 to 30.6.12), over twenty (20) letters were exchanged
between Revenue and the appellant concerning the appellant’s liability to service tax on
services provided to its members and others, on amounts received by the appellant under
various heads including subscription fees from its members. Eventually the show cause
notice dated 19.10.2010 was issued, followed by the two subsequent show cause notices,
covering later periods. Para 4 of the impugned order admits that the appellant vide a letter
received on 14.5.2007 from Revenue had submitted its balance sheet, Memorandum &
Articles of Association and ST-3 returns filed for the periods 2005-06 to 2006-07. The
correspondence between the parties is briefly adverted to in paragraphs 3 to 9 of the
impugned order.
13.
In response to the letter dated 27.7.06 addressed by Revenue, the appellant vide
its letter (received on 3.9.06) intimated that it had obtained legal opinion to the effect
that it falls within the 3rd category of the exclusionary clause in Section 65(25a) of the
Act and the transactions in issue therefore fall outside the purview of taxation thereunder.
Similar response is also set out in the appellant’s letter dated 11.1.2007 whereto copies of
two legal opinions obtained by the appellant were enclosed.
14.
In response to the show cause notice, the appellant pleaded :
(a)
that it was incorporated under Section 26 of the Indian Companies Act, 1913
(corresponding to Section 25 of the Companies Act, 1956), since its purposes and
activities promote objectives enumerated in the said provision; and under its
Memorandum and Articles of Association there is a prohibition of payment of
dividends /profits to its members;
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(b)
that the appellant is established to serve India’s national, social and
economic goals through promotion of appropriate policies covering - increase in
gainful employment through expansion of production of goods and services for
domestic / export markets; raising living standards of rural/ urban population by
promoting balanced economic development through industry, commerce, and services
and for achievement of the foregoing to promote growth of Indian business; to build
international relations for making India a ‘Global Player’; to promote Indian business
in matters of inland and foreign trade, transport, industry, manufacture, finance and
all other economic subjects; and to encourage Indian banking, shipping and
insurance;
(c)
that the appellant was established and delivers on critical and substantive
functions which clearly fall within the ambit of public services;
(d)
that its several activities, including in the areas of health and education, its
association with Government departments to augment existing practices including in
the area of consumer care, management; the funding and support received from
Governments for organising and conducting various events, exhibitions and seminars
clearly indicate engagement with issues of a public and charitable nature, issues of
national public interest and for purposes which clearly fall within the contours of
public services and of charitable nature (these activities of the appellant are
adverted to in brief, in paragraph 24A.10 and 24B.5 of the adjudication order);
(e)
that since the appellant is engaged in activities having objectives which are
in the nature of public services and of a charitable nature, it is covered by the
exclusionary, clause (iii) of Section 65(25a) of the Act and therefore not liable to
levy of service tax, for having provided “Club or Association” service;
(f)
In view of the principles flowing from the several judgments of the Supreme
Court (referred to in paragraph 24B.15 of the adjudication order), in particular the
judgment in CIT, New Delhi vs. Federation of Indian Chambers and Commerce and
Industries1, the activities of the appellant having been declared (by the Supreme
Court), to be clearly charitable in nature, the appellant is excluded from the ambit
of the specified taxable service. Board’s Circular Nos.84/2/06-ST and 96/7/07-ST
dated 19.09.2006 and 23.08.2007, which appear to suggest a limited scope for the
expression “charity”, by reference to the definition in Black s Law Dictionary, are
clearly misconceived, unsustainable and in any event would not prevail over the
determination by the Supreme Court that the appellant is a body pursuing charitable
activities. This is particularly so since the scope of exemption for activities of a
charitable nature/ a charitable organisation are substantially similar under the
relevant provisions of the Act and of the Income Tax Act, 1961, as well;
(g)
that the proceedings are fundamentally misconceived since all receipts by
the appellant are proposed to be included within the ambit of “Club or Association”
service. (the elaborate contentions in this behalf including references to case law in
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support of the contentions, are summarised in paragraph
order);
24E of the impugned
Thus levy of service tax under “Club or Association” service; on amounts received
towards museum rent; by way of contributions from allied organizations; towards
facilitation fees; sale of periodicals; miscellaneous receipts and other income; and
Government grants could in any event not be attributable to consideration received
for providing “Club or Association” service (contentions are summarized in paragraph
24G of the adjudication order);
(h) Invocation of the best judgment assessment process under Section 72 of the
Act is unsustainable;
(i) The appellant filed ST-3 returns under the taxable category of “Mandap Keeper”;
“Event Management”, “Consultancy and Business Exhibition” services and remitted
service tax for these taxable services provided; yet the total consideration
received by it is now proposed to be brought to tax under “Club or Association”
service. Without prejudice to the earlier contentions, the service tax remittances
already made should therefore be given credit and appropriated against the
proposed demand;
(j) that without prejudice, the appellant is entitled to avail cenvat credit accruing
to it for procurement of tax paid input services, inputs and capital goods;
(k) that computation of the tax liability is erroneous (paragraph 24J);
(l) that without prejudice, since the appellant did not collect service tax from
recipients, it would be entitled to cum tax benefits;
(m) that invocation of the extended period of limitation is unsustainable since the
complete and relevant facts with regard to the transactions in issue were available
with Revenue and were within its knowledge and there is no question of willful
suppression, fraud or intent to evade tax; (contentions and supporting facts pleaded
by the appellant are summarized in paragraph 24M of the adjudication order); and
(n) that for substantially similar reasons as pleaded for challenging invocation of the
extended period of limitation, the proposal to impose penalties, is unsustainable.
15.
As noticed in paragraph 3 (supra) the last show cause notice is dated 28.12.2012
covering the period 01.07.2011 to 30.06.2012. We noticed in paras 6 and 7 (supra) that that
by the Finance Act, 2011 the relevant provisions were amended; Section 65(25a) was also
renumbered, as Section 65(25aa). Consequent on the amendment, “Club or Association” is
define to mean any person or body of persons providing facilities or advantages, primarily to
its members. Prior to this amendment the services, facilities or advantages, provided by
any person or a body of persons, for a subscription or any other amount, to its members,
was the activity covered by the taxable service. By the same amendment Section 65(zzze)
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was also amended to enjoin that the defined taxable service provided to its members or any
other person would be covered. Ld. DR contends that atleast since 08.04.2011 (the date of
the amendment), other services provided by the appellant FICCI and the consideration
received from arranging exhibitions; contributions from allied organisations; facilitation
fees etc. would be taxable, since services, facilities or advantages provided to any other
person is also brought within the ambit of the taxable service.
We notice however that there is no such allegation, expressed or implied in the show cause
notice dated 28.12.2012 indicating recognition by Revenue, of the operational dynamics
ushered in by the amendment.
Paragraph 4 of the show cause notice (dated 28.12.2012) reveals that Revenue was not
conscious of the change brought about by the amendment and had not asserted that after
the amendment, services provided by a ‘Club or Association’ to any other person would also
be taxable. Para 4 of this show cause notice reads:
“4. Whereas, the assessee has failed to pay service tax on the gross taxable receipt
during the period 2011-2-12, they were required to pay Service Tax of
Rs.18,64,18,229/-, but they have only paid Service Tax Rs. 12,96,79,651/(Rs.6,27,82,220/- through GAR-7 and Rs. 6,68,97,431/- through Cenvat Credit).
As a result, the assessee has short paid/ not paid Service Tax amounting to
Rs.5,67,38,578/- inclu. Edu. Cess & Higher Secondary Edu. Cess in the period
01.07.2011 to 30.06.2012. This notice is being issued for the period Jul-2-1- to Jun2011 and the charges and allegations being in Original Demand cum Show Cause
Notice issued vide C. No. DL/ST/AE/Inq./Gr-3(1)/FICCI/27/06/30450 for
Rs.51,11,24,233/- dated 19.10.2010 (RUD-I supra) are applicable to this notice
mutatis mutandis. The present notice is being issued to the assessee in terms of
the newly inserted Sub section 73(1A) of the Finance Act, 1994 which prescribes
that the follow up notices issued on the same ground need not repeat the ground but
only state the amount of service tax chargeable for the subsequent period, served
on the assessee with reference to the earlier demand notice will be demanded as a
notice under Section 73(1) of the Finance Act, 1997”.
Even otherwise, had this amendment been noticed, no proceedings could have been initiated
for the period prior to the amendment, for recovery of service tax on services, facilities or
advantages provided by the appellant - FICCI to persons/ institutions who are not its
members.
16.
Discussions, findings and conclusions in the impugned order:
Paras 26 to 35.3 of the FICCI adjudication order dated 26.03.2010 set out the
discussions and findings, of the Authority.
(i) The order rejects the appellant’s claim (for exclusion on the ground that it is
engaged in activities having objectives in the nature of public services and a
charitable nature). In para 27.5, the reason for rejection of the claim is set out as
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predicated on the Board circular, dated 28.04.2008.
This circular, issued
purportedly in response to representations by trade associations merely states that
such bodies fall within the scope of club or association; services provided by such
associations are not of a charitable, religious or political disposition; that these
bodies collect membership fees and other charges from their members and work for
the interest of trade and industries and therefore do not have “public service”
objectives. The Authority neither analyzed nor dealt with elaborate submissions by
the appellant and copious references to relevant precedents including the judgment
of the Supreme Court (AIR 1981 SC 1408, supra) whereby, in the appellant’s own
case (though under provisions of the 1961 Act), it was treated as a charitable
organization, after an elaborate analysis of its aims, objectives and activities. The
pre-occupation of the adjudicating Authority with prioritizing a Board circular which
is vague and general in nature without adverting to and discussing judgments of the
Supreme Court which elaborate the relevant indicia of a charitable organization and
charitable purposes, requires to be deprecated.
At para 27.7 of the order however, in view of the provisions of Section 96J
exemption from levy and collection of service tax on partnership fee collected by
FICCI for the period 16.06.2005 to 31.03.2008 was allowed; while confirming
liability to service tax on other amounts received by FICCI, excluding partnership
fee. The Authority also recorded that since FICCI did not provide monthwise
details of subscription / partnership fee received for the period 01.07.2005 to
31.03.2008 to enabling exemption benefits, figures derivable from the show cause
notice are taken into account accordingly service tax demand to the extent of Rs.
1,49,91,366/-, for the period 01.07.2005 to 31.03.2008 was dropped.
(ii) The second issue considered in the order is whether the several receipts by
FICCI for the several and distinct transactions are all taxable under club or
association service. Para 28 of the order deals with this aspect. It is noticed by
the Authority that receipts towards museum rent; contribution from allied
organisations; by way of facilitation fees; on sale of periodicals; sponsorship
amounts; miscellaneous receipts; other income and Government grants, were claimed
by the appellant as falling outside the scope of “Club or Association” service as
defined. For rejecting this contention the Authority relies on the provisions of
Section 65A of the Act. This provision provides guidance for classification of a
taxable service which is facially classifiable under two or more taxable categories.
Curiously, the adjudicating authority relies on this provision, which is intended to
provide a guidance for classification of services, to bring all the transactions in
issue within the ambit of “Club or Association” service, including services and
facilities provided to non members as well. In para 28.4 of the order it is noted
that (all) services provided (by FICCI) squarely merit classification as “Club or
Association” service as this service covers the nature of activities undertaken by
the assessee more specifically and could not be made to fall under any other general
definition or any other service. (emphasis supplied)
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Section 65A provides guidance on classification of services. It is not a provision for
classification of the service provider. In para 28.7 the order concludes that all
services provided by the appellant would fall under the category of “Club or
Association” service and altering the classification is contrary to Section 65A of the
Act.
(iii) The order concludes that provisions of Section 72 of the Act, were rightly
invoked, since FICCI failed to furnish information and copies of balance sheets for
2005-06 and 2009-10, covering 16.06.2005 to 31.03.2010, despite letters seeking
such information (para 29).
(iv) Para 30 of the order records that the extended period of limitation was rightly
invoked since there is neither bonafide justification established for failure to remit
the requisite quantum of service tax and there was wilful evasion of tax. The
several precedents cited by FICCI to challenge invocation of the extended period
were distinguished on the ground that facts are dissimilar. The Authority concluded
that FICCI acted casually and in total disregard of legal provisions.
(v) FICCI’s claim for cum-tax benefit was also negatived. The order concludes that
neither during investigation nor during adjudication proceedings, FICCI submitted
copies of relevant bills / invoices nor any other documents to establish that it did
not pass on the burden of service tax the recipients of the services (para 31).
(vi) FICCI’s claim for availment of credit of service tax remitted on input services
was rejected on the ground that neither at the investigation stage nor during
adjudication proceedings FICCI submitted details of input services used for
providing the output service and no documents are on record to examine
admissibility of credit (para 33).
(vii) The order confirmed imposition of penalties under Sections 76, 77 and 78 of
the Act for similar reasons as were recorded for justifying invocation of the
extended period of limitation (para 35).
17.
Service Tax Appeal No. 55424 of 2013 (ECSEPC Appeal):
(i) As adverted to earlier, this appeal is preferred by the assessee - ECSEPC against
the adjudication order dated 18.10.2012. Service tax demand of Rs. 1,39,32,621/and Rs.32,95,542/- stands confirmed for the period 2005-09 and 2010-11, covered
by show cause notices dated 07.10.2010 and 18.10.2011, respectively, apart from
interest and penalties.
(ii) ECSEPC is an Export Promotion Council registered under the Societies
Registration Act, 1860. It is a registrant under the provisions of the Act and
remits service tax after filing returns periodically. This assessee was constituted
as per provisions of the Export-Import Policy. The principal objectives of the
assessee as per its Memorandum of Association (MOA) are:
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(i) To support, protect, maintain, increase and promote the exports of electronic
goods, computer software and related services and develop use of electronics in
other products by such methods as may be deemed necessary including:
(a) Undertaking, sponsoring market studies in individual foreign countries;
(b) Sending out study teams to foreign countries;
(c) Appointing representatives, agents or correspondents in foreign markets for the
purpose of continuously and regularly reporting the prices, market performance,
reception accorded to actual deliveries of electronic goods and software and other
connected methods;
(d) Conducting publicity campaigns to bring to the notice of buyers/ users and the
public in foreign countries the advantages of trade and commerce with India in
electronic goods and computer software;
(e) Collecting statistics and other information regarding the manufacture, trade or
ultimate use of electronic goods and computer software in various countries;
(f) Propagating information useful to manufacturers, traders and shippers of
electronic goods and computer software by seminars, lectures, workshops,
discussions, books, correspondence or otherwise;
(g) Maintaining liaison with any agency which has been set up for laying down
standards of quality and packing in respect of electronic goods and computer
software;
(h) Deputing officers of the Council to witness the inspection of electronic goods
and computer software exported, in foreign countries, where such inspection is
being conducted by the authorities in the importing countries;
(i) Deputing officers of the council to witness the survey of electronic goods and
software exported or intended for export in foreign countries or in India, as a
result of any dispute or difference between the parties to a contract for sale and
purchase of electronic goods and computer software;
(j) Enquiring and investigating into complaints received from foreign importers of
Indian exporters in respect of the quality, description or other particulars of
electronic goods and computer software exported from India or the nonperformance or non-observance of the terms and conditions of contract relating to
such exports and other connected matters and advising the manufacturers or
exporters of electronic goods and computer software regarding the methods to be
adopted to obviate such complaints of a similar nature in future;
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(k) Making such recommendations as may be necessary or expedient to Govt. and
Public Bodies like Chambers of Commerce where the Council on investigation of a
complaint received by it is satisfied about its genuineness and that the same has
been caused by the willful or negligent act or acts of the manufacturers of
exporters of electronic goods and computer software, as the case may be;
(l) Communicating with Chambers of Commerce and other mercantile and public
bodies throughout India and concert and promote measures for the promotion and
advancement of export of electronic goods and computer software;
(m) Assist in development of new exportable products and services which involve use
of electronics and software;
(n) Assess the manpower and training requirement for export development, advise
concerned agencies in this regard and evolve training programmes.
(ii) To keep in constant communication with Chambers of Commerce or other
mercantile and public bodies throughout with a view of taking appropriate and
necessary measures for maintaining or increase the export of electronic goods and
computer software.
(iii) To enunciate just and equitable principles to govern the trade in electronic
goods and computer software and to set up a code or code of practices for the
general guidance of manufacturers, traders and exporters of electronic goods and
computer software and further to simply transactions relating to exports of
electronic goods and computer software.
(iv) To advise or represent to Government, Local Authorities and Public Bodies on:
(a) The policies and other measures, including direct and indirect taxation, financing
requirements, especially those relating to exports;
(b) The steps to be taken by them to prevent any contravention of the codes or
practices laid down by the Council by any of the persons concerned, where such
contravention would affect the exports of electronic goods and computer software;
Provided that such advice or representation shall be only so far as such policies or
measures have been directly or otherwise on the export of electronic goods and
computer software”.
(iii) Clause 4 of the MOA covenants:
“4. All the incomes, earnings, movable or immovable properties of the Council shall
be solely utilized and applied towards the promotion of its aims and objects only, as
set forth in this Memorandum and no portion thereof shall be paid or transferred
directly or indirectly by way of dividends, bonus, profits or in any manner
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whatsoever, to the present or past members of the Council or to any person claiming
through any one or more of the present or past members, provided that nothing
herein contained shall prevail the payment in good faith of reasonable and proper
rumination to any officers, other than members, or employees or other persons in
return for any actually rendered to the Council and provided further that no
member shall be appointed to any salaried office of the Council or to any office of
the Council paid by fees and that no remuneration or other benefit in money or
moneys worth shall be given by the Council to any of its members except repayment
of out of pocket expenses. Interest on money lent or reasonable and proper rent
for premises demised or let to the Council. No member of the councils shall have
any personal claim on any movable or immovable properties of the Council or make
any projects, whatsoever, by virtue of his membership”.
(iv) Clause 46 of the Articles of Association (AOA) set out ECSEPC s functional
responsibilities which include obtaining from its members periodical proposals for
export and preparation of integrated action plans for promotion of exports;
generation of production for exports; setting export targets generally and in
relation to specific countries and commodities; preparation of plans for above
purposes for each financial year or such longer or shorter periods as considered
desirable; and pursuing all possible efforts to secure prompt execution of plans;
(v) Clause 2 of the AOA stipulates that provisions of the AOA shall be subject to
provisions of the Foreign Trade Policy (FTP), as notified by the Central Government
from time to time;
(vi) From the MOA and AOA of ECSEPC, it is legitimate to infer that its activities
are for supporting, protecting, maintaining, promoting and augmenting export of
electronic goods. Income generated by the organization must be spent only towards
fulfillment of its aims and objectives and it is constituted in furtherance of
Governmental policy choices set out in the Export - Import Policy, under FTP.
(vii) Para 2.43 of FTP for 2004-09 states:
“The basic objective of Export Promotion Councils is to promote and develop the
exports of the country. Each Council is responsible for the promotion of a
particular group of products and services. The list of the councils, and their main
functions are given in the Handbook (Vol.1)”.
The FTP for the subsequent period - 2009 -2014 vide para 2.43 reiterates this
position, mutatis mutandis. Part 2 of the FTP is the Handbook of FT procedure.
This states that EPC’s are non-profit organizations registered under the Companies
Act or Societies Registration Act; shall be autonomous and regulate their own
affairs but the Central Government may frame uniform bye-laws for the
constitution and/ or for transaction of business for EPC’s, which shall be adopted
with such modifications as the Central Government may approve having regard to
the special nature or functioning of such EPC; that a list and product category of
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EPC’s, including C.B. is provided in an Appendix; that Commodity Boards (CB)
function as EPC’s for products allotted to them; and EPC is the authority for issuing
RCMC.
The Appendix, which is part of the FTC lists and recognizes the
assessee/ECSEPC as an EPC.
(viii) ECSEPC’s income includes subscription fee from its members and through
other sources such as - (a) in discharge of administrative responsibilities by way of
organizing promotional events such as marketing development schemes (introduced
by the Commerce Department of Central Government and aided by the Government);
(b) Fairs and Trade fairs including “India Soft”, within and outside India, where
participation fee is charged from member companies for putting up stalls; on the
participation fee received for fairs organized within India, the assessee is remitting
service tax, under the taxable “business exhibition service”; (c ) setting up of
business incubation centres since outside India. The assessee sets up facilitation
centres overseas under the market access initiative scheme promoted by the
Department of Commerce, to enable participating member companies to enter
overseas markets. This initiative is approved by the Department of Commerce and
is funded by 50% contribution from the Department of Commerce and matching
contribution borne by participating Indian companies; (d) subscriptions received
towards periodicals and mailings. Assessee publishes a monthly journal, providing
information regarding export of electronics and IT industry and receives
subscriptions constituting sale consideration from member companies; (e) Assessee
also provides information and news about tenders and procurement opportunities to
its members by way of business opportunities news, on a daily basis through e-mail
and receives consideration for providing the service. Service tax is remitted on this
consideration under the taxable - business auxiliary service; (f) other incomes of
miscellaneous nature such as income from TDS service, sale of miscellaneous items,
tender fee etc. is also received.
(ix) During 2005-09 this assessee earned income from conducting award ceremonies
i.e. giving awards to deserving companies for outstanding export performances.
Assessee incurred expenditure for organizing these ceremonies and received
contributions/ sponsorship amounts from award winning companies, to meet only the
expenditure incurred for conducting the ceremonies. In addition income was
received from its publications and as contribution from the National Book Trust of
India, for setting up a stall at the Frankfurt Book Fair.
(x) In response to the two show cause notices (covering the different periods), the
assessee claimed:
(a) That as an organization formed under the Foreign Trade (Development and
Regulation) Act, 1992 and being an EPC falling within the ambit of the FTP, it falls
outside the ambit of ‘Club or Association’ (as defined under the Act);
(b) It is engaged in activities having objectives of a charitable nature and in the
public service sphere and is thus outside the ambit of ‘Club or Association’;
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(c) On the principle of mutuality, declared in several precedents, on services
provided to its members, levy of service tax is unsustainable;
(d) That invocation of the extended period, levy of interest and penalties, is
unjustified;
(e) That computation of the demand is incorrect; and
(f) The assessee is entitled to avail credit on inputs and input services.
(xi) The several contentions of the assessee were negated in the adjudication order.
The claim of being a charitable organization, providing public service was rejected
on grounds similar to those recorded in the adjudication order of FICCI. For levy of
service tax on consideration received for the several activities and from non
members as well, the order records reasons similar to those recorded in the
FICCI s adjudication order. ECSEPC was however granted benefit of exemption
from service tax for the period 16.06.2005 to 31.03.2008 in view of Section 96J of
the Act and cum-tax benefit for 2005-09 and 2010-11.
18.
In view of the competing claims, contentions and assertions, the following Issues
require to be considered:
ISSUES:
(a) Whether the assessee/ appellants (FICCI and ECSEPC) are engaged in activities
having objectives which amount to public service and of a charitable nature and
consequently fall outside the ambit of ‘Club or Association’;
(b) Whether services provided by the appellants to their respective members and
the consideration received therefor is exigible to tax, in view of the principle of
mutuality declared in several judgments including in Ranchi Club Limited vs. Chief
Commissioner of Central Excise & Service Tax 2;
(c) Whether service tax is leviable under the taxable category ‘Club or Association’
service, in the light of the judgment of the Gujarat High Court in Sports Club of
Gujarat Ltd. Vs. Union of India 3;
(d) Whether services provided by FICCI and ECSEPC to non members and
consideration received for rendition of such services, is liable to be classified /
computed as ‘Club or Association’ service;
(e) Whether levy and demand of service tax on FICCI for the period subsequent to
01.05.2011 is sustainable;
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(f) Whether ECSEPC is a body constituted by or under any law and therefore falls
outside the purview of the definition of ‘Club or Association’, in view of clause (i) of
Section 65(25a) of the Act; and
(g) Whether invocation of the extended period of limitation and imposition of
penalties is justified in the facts and circumstances;
19.
ANALYSES:
Issue (a): Whether the appellants (FICCI/ ECSEPC) fall outside the ambit of Club
or Association, as defined in Section 65(25a) or 65(25aa), as the case may be?
(a) Clause (iii) of the definition excludes any person or body of persons engaged in
any activity having objectives which are in the nature of public service and are of a
charitable, religious or political nature from the scope of Club or Association’. The
meaning of ‘Charitable Purpose’ as per dictionaries’ Law Lexicons and in several
statutory provisions such as the Charitable Endowments Act (6 of 1980), the
Income Tax Act, 1961 or in Foreign Trade (Regulation) Rules, 1993, includes, gifts
for general public use; for benefit of an indefinite number of persons; designed to
benefit them from educational, religious, moral, physical or social standpoint; a
charitable purpose containing elements of benefiting the public; a trust, the object
and scope of which is public utility; and for advancement of any other object of
general public utility. ‘Public service’ normatively connotes a service performed for
the benefit of the public specially by a non-profit organization - see The American
Heritage Dictionary of the English Language;
(b) All the purposes of an Institution/ body need not necessarily be charitable nor is
it required that there should not be other objectives. If the primary or dominant
purpose of a trust/ institution is charitable, other objects which may not be
charitable but which are merely ancillary or incidental to the primary or dominant
purpose would not detract from the character of the activity being a valid charity,
as pointed out by the Supreme Court in Commissioner of Income Tax, Madras v.
Andhra Chamber of Commerce4. This principle is reiterated in Additional
Commissioner of Income Tax vs. Surat Art Silk Cloth Manufacturers Association,
Surat5. These binding precedents have referred to and quoted with approval
English curial authorities, in Commissioner of Inland Revenue vs. Yorkshire
Agricultural Society6 and Institution of Civil Engineers vs. Commr. of Inland
Revenue7.
(c) In FICCI’s own case, the Supreme Court in CIT, New Delhi vs. Federation of
Indian Chambers of Commerce and Industries, New Delhi8 ruled that it is a
charitable trust. The Court analysed FICCI s charter and objectives and concluded
that its dominant object is charitable in nature and other functions like framing
pension scheme and establishing and support of associations, institutions and funds
are ancillary functions. The Court pointed out the distinction between the purpose
of a trust and powers conferred upon the Trustees as incidental to the carrying out
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of the purposes. The Court clarified further that though Clause 3(v) enables FICCI
to establish and support institutions, funds, trusts and conveniences calculated to
benefit employees and their dependents; for making provisions for grant of pension
and allowances etc, the framing of such employee benefit schemes is essential and
necessary for the proper functioning of the organization but incidental
to the
carrying out of the purpose for which it is constituted. Supreme Court explained
that if the primary and dominant purpose of a trust or association is charitable, any
other object which is merely ancillary or incidental to the primary or dominant
purpose, would not derogate from the inference that the trust or institution is a s
valid charity.
(d) The Supreme Court decision in Andhra Chamber of Commerce (supra) explained
that promotion of trade, commerce or industry involves an object of general public
utility and such activity leads to economic prosperity ensuring benefits for the
entire society; although prosperity would be shared by those who are engaged in
trade, commerce or industry as well. On that count it cannot be held otherwise,
ruled the Court. These principles were followed by the Madras High Court in
Southern India Mill Owner s Association vs. CIT 9 for the conclusion that the
primary and dominant purpose of the Petitioner (therein) Association was to
promote and protect the textile industry only; that it was therefore established for
the benefit of the general public and not for the personal benefit of the members;
and incidental benefit to its members would not militate against its charitable
nature.
(e) The contours of what attributes amount to charitable purpose/ charitable
organization; what objects qualify as of general public utility; and what constitute
public purpose are aspects considered and explained in several decisions, including
by High Courts. See - CIT vs. Textile Manufacturers Association10; CIT vs. South
Indian Film Chamber of Commerce11; Addl. CIT vs. Madras Jewellers and Diamond
Merchants Association;12 Addl. CIT vs. Automobile Association of Southern
India13; Hyderabad Stock Exchange Ltd vs. CIT;14 Addl. CIT vs. South India Hire
Purchase Association;15 Addl. CIT vs. Delhi Brick Kiln Owners’ Association16; and
CIT vs. Western India Chambers of Commerce and Industry Ltd. 17. The analyses
of the respective facts and characteristics of several organizations, considered in
the several judgments guide us to the singular conclusion that FICCI and ECSEPC
are institutions having public service objectives and of a charitable nature.
(f) The analysis in the impugned adjudication order(s) leading to the conclusion that
FICCI (and ECSEPC) is not engaged in activities having objectives which are in the
nature of public service and of a charitable nature (para 27), is fundamentally
misconceived.
Despite noticing the several precedents cited on behalf of the
assessee (earlier in the order), the Authority records an ipse-dixit at para 27.4,
that there remains ‘no iota of doubt’ that the services FICCI provided and various
activities performed by it are squarely covered within the ambit of ‘Club or
Association’ service.
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(g) Curiously, the Authority omitted to set out reasons for distinguishing the
Supreme Court judgment in FICCI’s own case wherein it was treated as a charitable
organization under the provisions of the Income Tax Act, 1961, which are in pari
materia the relevant exclusionary provision in Section 65(25a) or Section 65 (25aa),
as the case may be. Instead, the Authority relied on a Board Circular dated
28.04.2008 which was issued in response to a dispute presented by trade
associations, to the levy of service tax. The Board had clarified that these bodies
fall within the scope of the taxable entity and services provided by them are not of
charitable, religious or political nature, since they collect subscription fee and other
charges from members and work for the interest of trade and industry.
(h) The adjudication order is stricken with the vice of gross judicial indiscipline.
The learned Commissioner must be considered as having misconducted himself in
refusing to follow the clear and direct judgment of the Supreme Court, which is
conclusive on the principle and in the light of the analysis therein, that FICCI is a
charitable organization having objectives and pursuing activities of general public
utility, this being its dominant purpose.
(i) From the aims, objectives and purposes as set out in its MOA and AOA the
appellant - ECSEPC and for reasons alike as in the case of FICCI, is a body of
persons engaged in activities having objectives which are in the nature of public
service and of a charitable nature; and thus falls within the exclusionary clause of
the definition of “Club or Association”.
On the aforesaid analysis, FICCI and ECSEPC fall outside the ambit of “Club or Association”
as defined under the Act. This issue is answered accordingly.
20.
Issues (b) & (c): Whether services provided by appellants to their respective
members; and the fees/ subscriptions received therefor amounts to rendition of (the
alleged) taxable service, exigible to tax, in view of the principle of mutuality; and whether
service tax is leviable under ‘Club or Association’ service category, despite invalidation of
the relevant provisions - vide the judgments in Ranchi Club Ltd. and Sports Club of Gujarat
Ltd. (supra)?
(a)
A full Bench of the Patna High Court in Commissioner of Income Tax vs.
Ranchi Club Limited18, followed the decision of the Supreme Court in Joint
Commercial Tax Officer vs. The Young Men’s Indian Association19, to hold that
income tax could be imposed on transactions of a club with its members. The
Supreme Court in Young Men s Indian Association considered the issue whether
supply of various preparations by each club to its members involved a transaction of
sale within the meaning of the Sales of Goods Act, 1930 and provisions of the
Madras General Sales Tax Act, 1959. The Court held that despite the definition of
sale set out in Section 2(n) of the Madras Act read with Explanation 1 thereof,
there was no occurence of transfer of property from one to another, as a club even
though a distinct legal entity is only acting as an agent for its members in the
matter of supply of various preparations and no sale would be involved, as the
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element of transfer would be completely absent. Relying on these decisions, the
Jharkhand High Court in Ranchi Club Ltd. (supra) ruled that on application of the
principle of mutuality, where a club provides any service to its members in any form
including as a mandap keeper, there occurs no rendition of a service by one entity to
another. Dealing with the contention that sale and service are different concepts,
the High Court ruled that while sale and service may be two different and distinct
transactions, a sale would entail transfer of property whereas in a service there
would be no transfer of property; the basic feature common to both transactions is
that they require existence of two parties; in the matter of sale, a seller and a
buyer and in service, a service provider and service recipient.
(b)
In Sports Club of Gujarat Ltd. (supra), the Gujarat High Court allowed writ
petitions filed by different Clubs operating in the city of Ahmedabad. The
Petitioners questioned the constitutionality of Section 65(25a); Section
65(105)(zze); and Section 66 of the Act as amended by the Finance Act, 2005, to
the extent these provisions purport to levy service tax in respect of services
purportedly provided by a club to its members. The High Court declared that the
provisions, to the extent these purport to levy service tax in respect of services
provided by a club to its members, as ultra vires.
(c)
Following the Ranchi Club Ltd. decision, this Tribunal granted waiver of predeposit in full in an appeal preferred by The Federation of Hotel & Restaurant
Association of India in S.T. Appeal No. 57179 of 2013; and in another appeal
preferred by M/s Delhi Gymkhana Club Limited (S.T. Appeal No. 55225 of 2013). In
the later order, reference was made also to the decision of the Gujarat High Court
in Sports Club of Gujarat Limited.
(d)
Learned Counsel for the appellants referred to the decision of the Delhi
High Court in All India Lakshmi Commercial Bank Officers’ Association vs. Union of
India 20 and of the Bombay High Court in Commissioner of Income Tax Vidarbha vs.
Godavaridevi Saraf 21 for the proposition that as the relevant provision was
declared ultra vires by the Gujarat High Court and there is no contrary decision of
any other High Court on that question, it must follow and there was no operative
statutory provision of the Act to justify the levy of service tax for having provided
‘Club or Association’ service.
(e)
In Godavaridevi Saraf
after referring to the decision of the Supreme
Court in East India Commercial Company Limited vs. Collector of Customs,
Calcutta22, the Court held that since the Madras High Court in A. M. Sali
Maricar23 had held that Section 140A (3) of the Income Tax Act, 1961 was held to
be unconstitutional, being violative of the provisions of Article 19(1)(f) of the
Constitution, the Income Tax Tribunal acting anywhere in the country must respect
the law declared down by a High Court though of a different State, so long as there
is no contrary decision of any other High Court on that question; and that being the
position the Income Tax Tribunal at Mumbai was required to decide on the basis of
the law pronounced by Madras High Court, namely on the footing that Section
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140A(3) was non-existent. In All India Lakshmi Commercial Bank Officers
Association vs. Union of India, the Delhi High Court reiterated this position by
observing that income tax Authorities acting anywhere in the country, must respect
the law laid down by the High Court, whether of the State in which they are
functioning or of a different State, in the absence of any contrary decision of any
other High Court. A full Bench of this Tribunal in Madura Coats vs. CCE, Bangalore
24 spelt out the same principle by observing that since adjudication of vires of a
provision of a Statute or of a Notification is outside the province of the Tribunal,
the decision of a particular High Court; and the absence of a contrary decision by
another High Court, the Tribunal must follow the decision of the High Court. The
full Bench further observed that where on any disputed interpretation or
proposition of law there is a decision of only one High Court, the Tribunal is bound to
follow that view, since it is not at liberty to disregard the view expressed by the
High Court.
(f)
On the analyses above and on the basis of the precedential guidance
adverted to, we conclude that in view of the decision in Ranchi Club Limited (supra),
on application of the principle of mutuality, services provided by the appellants to
their respective members would not fall within the ambit of the taxable ‘Club or
Association’ service nor the consideration whether by way of subscription/ fee or
otherwise received therefor be exigible to service tax. In view of the decision of
the Gujarat High Court in Sports Club of Gujarat Limited, as the relevant provisions
(namely Section 65(25a), Section 65(105)(zzze) and Section 66 of the Act), to the
extent these provisions purport to levy service tax in respect of services provided
by a Club or Association to its members is declared ultra vires, we hold that there
are no operative legislative provisions of the Act legitimizing the levy and collection
of service tax from the appellants, for providing ‘Club or Association’ service, in so
far as these relate to any services provided to members of these appellants.
21.
Issues (d) and (e): These issues can be considered together.
The issue is whether services provided by FICCI / ECSEPC to non members and
consideration received for rendition of such services, are liable to be classified/
computed under ‘Club or Association’ service; and whether levy and demand of
service tax on FICCI for the period subsequent to 01.05.2011, is sustainable?
We earlier noticed that the three show cause notices (dated 19.10.2010, 21.10.2011
and 28.12.2012, covering the periods 01.07.2006 to 30.06.2010; 01.07.2010 to
30.06.2011; and 01.07.2011 to 30.06.2012) pertaining to FICCI and two show cause
notices (dated 07.10.2010 and 18.10.2011, covering the periods 2005 to 2009 and
2010 2011) pertaining to the other appellant - ECSEPC were issued on the premise
that the entire consideration received by these appellants for a variety of services
provided, whether to their members or others; and covering different facets, all
fall within ‘Club or Association’ service. In the FICCI adjudication order (as noticed
in our analyses at para 16(ii) supra), the adjudication order had concluded that the
consideration received towards museum rent, contribution from allied organisation,
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by way of facilitation fees, on sale of its periodicals, sponsorship amount,
miscellaneous receipts, other income and Government grants, all form part of the
gross consideration received for rendition of ‘Club or Association’ service. The
Authority predicated this conclusion on provisions of Section 65A, a provision which
provides guidance for classification of services and not for classification of the
services provider. We noticed earlier that the show cause notice dated 28.12.2012
(issued to FICCI), clearly asserted in para 4 thereof that FICCI’s liability to service
tax arises on the basis of charges and allegations set out in an earlier show cause
notice dated 19.10.2010 (the first show cause notice); and that the attributions/
allegations in that show cause notice are applicable mutatis mutandis for the period/
transactions covered by the later show cause notice as well.
(b)
Show cause notices (dated 07.10.2010 and 18.10.2011), issued to other
appellant - ECSEPC also predicate the demand on provisions of Sections 65(25a) and
65(105)(zzze), as these provisions stood prior to their amendment by the Finance
Act, 2011.
(c)
By the 2011 amendatory process, the scope of ‘Club or Association’ service
was expanded to cover facilities or advantages provided by a ‘Club or Association’ to
other than its members as well, provided such facilities or advantages are primarily
intended for members - vide amendment of the definition in Section 65(25a) prenumbered as Section 65(25aa). Similarly Section 65(105)(zzze) was amended in
2011 to recast the taxable service to cover services provided by a ‘Club or
Association’ to ‘any other person’ as well. The show cause notices however cover
periods prior and subsequent to the amendments, but asserting that the liability
attributed arises under Section 65(25a) and Section 65(105)(zzze), without
indicating the effect of the amendments by the Finance Act, 2011.
(d)
As there is no attribution in the show cause notices issued to either FICCI
alleging liability to service tax on services provided to non members, as arising
consequent on amendments introduced by the Finance Act, 2011, it requires to be
held that there was no specific charge alleged nor was conformation of the levy and
demand of service tax recorded after following the due process of law. Show cause
notices dated 21.10.2011 and 28.12.2012 covered the periods 01.07.2010 to
30.06.2011 and 01.07.2011 to 30.06.2012. Amendments to the relevant provisions
(noticed above) were introduced by the Finance Act, 2011 w.e.f. 01.05.2011. These
show cause notices however neither referred nor adverted to the effect of the
amendments nor even asserted that services provided by FICCI to non members
would fall within the ambit of the taxable service, in view of the amendments. FICCI
was therefore denied the opportunity to respond to any such attribution of liability,
on account of the amendments. As pointed out in several decisions including
Institute of Chartered Accountants of India vs. K. L. Ratna25, reiterated in Oryx
Fisheries Pvt. Ltd. vs. Union of India26, a notice to show cause is intended to
provide the person proceeded against a reasonable opportunity of asserting his
objections against the proposed charges, indicated in the notice. Though a show
cause notice should not be read hyper-technically, the notice must clearly indicate
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and provide an impression to the noticee of the basis on which liability is alleged, so
as to provide him an opportunity of contesting the assertion and submitting his
defence, if any. A show cause notice is not an empty formality or a ritual without a
purpose. Learned DR has contended that mere mention of a wrong provision of a law
(in the show cause notice) would not be fatal when the power exercised is available
though under a different provision and such omission by itself would not vitiate the
proceedings. Reliance is placed on the decision in Collector of Central Excise,
Calcutta vs. Pradyumna Steel Ltd. 27. This decision, in our considered view, offers
no assistance to Revenue in the present lis. In the present case the infirmity is not
on account of mere mention of a wrong provision of the Act. The 2011 amendments
expanded the scope of taxable service to cover services provided to non members
of a ‘Club or Association’, as well. The expanded scope of the taxable service is thus
clearly prospective. It is therefore incumbent that the show cause notice should
assert that FICCI’s liability to tax (after 01.05.2011) arises under and in the
context of the amended provisions. This is so since FICCI should be provided the
opportunity to offer several available defences to such allegation, including that
rendition of services to non members (which is allegedly taxable after the
amendments), had in fact occurred prior to 01.05.2011; or that services provided to
non members fall outside the ambit of the taxable service as defined, for other
reasons. This is not a case of a mere mention of a wrong provision of law but one of
substantial failure of natural justice resulting in transgression of due process. In
any event, prior to the 2011 amendatory dynamics, services provided by FICCI to
non members would clearly be outside the scope of ‘Club or Association’ service, qua
the unamended definition of ‘Club or Association’ service under Section 65(25a)
read with Section 65 (105) (zzze), of the Act.
We hold that services provided to non members fall outside the ambit of ‘Club or
Association’ service prior to 01.05.2011 and subsequent to this date there is no specific
allegation that the services provided to non-members fall within the expanded scope of this
taxable service qua provisions of the Finance Act, 2011. The period in issue, of the other
appellant
ECSEPC is prior to the amendments and hence services provided by this
appellant to non-members is beyond the scope of the taxable service. Issues (d) and (e) are
answered accordingly.
22.
Issue (f):
Whether ECSEPC is a body constituted by or under any other law and therefore falls
outside the purview of the definition of ‘Club or Association’, in view of provisions of
Section 65(25a)(i) of the Act.
Clause (i) of Section 65(25a) excludes from the purview of the definition (of ‘Club or
Association’), any body established or constituted by or under any other law for the time
being in force.
ECSEPC claims that being an organization formed to effectuate the policy under the
Foreign Trade (Development and Regulation) Act, 1992, and being an Export Promotion
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Council falling within the ambit of the Foreign Trade Policy, it is outside the purview of ‘Club
or Association’, as defined.
As noticed earlier (para 17 supra), this appellant is an Export Promotion Council constituted
qua provisions of the Export - Import Policy. Its MOA and AOA enumerate its aims,
objectives and functional responsibilities and clearly stipulate that provisions of its AOA
shall be subject to provisions of the Foreign Trade Policy, as notified by the Central
Government from time to time. We also noticed the basic objectives of Export Promotion
Council as set out in the FTP; that the Handbook of FT procedure states that EPC’s are nonprofit organizations who are to be autonomous, competent to regulate their own affairs but
subject to provisions of uniform bye-laws to be framed by the Central Government
periodically for constitution and/or transaction or business by EPC’s; and that EPC’s are
required to adopt such bye-laws with such modifications as the Central Government may
approve, having regard to the special nature or functioning of such EPC. We also noticed
that a list and product category of EPC’s including Commodity Boards is set out in the
Appendix to the FTP, stipulating EPC to be an Authority for issuing RCMC; and that ECSEPC
is listed and recognized as an EPC, in the Appendix.
In Dr. Indramani Pyarelal Gupta vs. W. R. Nathu and Ors.28, inter alia the validity of byelaw 52AA of the bye-laws of the East India Cotton Association as amended / substituted by
the Central Government, exercising powers conferred by Section 12 of the Forward
Markets Regulation Act, 1952 was in issue. On behalf of the appellant therein it was
contended that the function or the duty cast upon it by the amended bye-law 52AA was not
such as could be assigned by the Forward Markets Commission, by or under the Act. The
Constitution Bench was therefore required to consider the scope of ‘by or under’ and the
extent and nature of the duties assigned to the FMC by the Act.
The Constitution Bench (per majority speaking through N. Rajagopala Ayyangar, J; K, Subba
Rao J. dissenting) explained that the expression ‘under the Act’ signifies what is not
directly to be found in the statute itself but is conferred by virtue of powers enabling this
to be done; in other words by laws made by law making authority which is empowered to do
so by the parent Act; and that the distinction between ‘by an Act’ and ‘under the Act’ is
between what is directly done by an enactment and what is done indirectly by authorities
vested with powers in that behalf; and further that in such sense, bye-laws would be
subordinate legislation ‘under the Act’. The relevant observations in the majority opinion
read:
“A more serious argument was advanced by learned Counsel based upon the
submission that a power conferred by a bye-law framed under section 11 or 12 was
not one that was conferred ‘by or under the Act or as may be prescribed’. Learned
Counsel in undoubtedly right in his submission that a power conferred by a bye-law is
not one conferred ‘by the Act’, for in the context the expression ‘conferred by the
Act’ would mean ‘conferred expressly or by necessary implication by the Act itself’.
It is also common ground that a bye-law framed under section 11 or 12 would not fall
within the phraseology ‘as may be prescribed’, for the ‘expression’ ‘Prescribed’ has
been defined to mean by rules under the Act , i.e., those framed under section 28
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and a bye-law is certainly not within that description. The question therefore is
whether a power conferred by a bye-law could be help to be a power conferred
under the Act. The meaning of the word under the Act is well-knows.
By an
Act would mean by a provision directly enacted in the statute in question and which
is gatherable from its express language or by necessary implication therefrom. The
words under the Act would, in that context, signify what is not directly to be
found in the statute itself but is conferred or imposed by virtue of powers enabling
this to be done; in other words, by laws made by a subordinate law-making authority
which is empowered to do so by the parent Act. This distinction is thus between
what is directly done by the enactment and what is done indirectly by rule-making
authorities which are vested with powers in that behalf by the Act. (vide Hubli
Electricity Company Ltd. vs. Province of Bombay, and Narayanaswami Naidu vs.
Krishna-Murthi.) That in such a sense bye-laws would be subordinate-legislation
under the Act is clear from terms of sections 11 and 12 themselves. Section 11 (1)
enacts:
“11. (1) Any recognized association may, subject to the previous approval of
the Central Government make bye-laws for the regulation and control of
forward contracts”,
and sub-section (2) enumerates the matters in respect of which bye-laws might
make provision. Sub-section (3) refers to the bye-laws as these made under this
section and the provisions of sub-section (4) puts this matter beyond doubt by
enacting:
“11(4) Any bye-laws made under this section shall be subject to such
conditions in regard to previous publication as may be prescribed, and when
approved by the Central Government, shall be published in the Gazette of
India and also in the Official Gazette of State in which the principle office
of the recognized association is situate;
Section 12 under which the impugned bye-law was made states in sub-section (2):
“12(2) where, in pursuance of this section, any bye-laws have been made or amended,
the bye-laws so made or amended shall be published in the Gazette of India and also
in the Official Gazette of the State in which the principal office of the recognized
association is situate, and on the publication thereof in the Gazette of India the
bye-laws so made or amended shall have effect as if they had been made or
amended by the recognized association”,
and in sub-section (4)
“12.(4). The making or the amendment or revision of any bye-laws under this section
shall in all cases be subject to the condition of previous publication”,
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.”
21.
Having regard to these provisions it would not be possible to contend that
notwithstanding that the bye-laws are rules made by an Association under section 11 or
compulsorily made by the Central Government for the Association as its bye-laws under
section 18, they are not in either case, subordinate legislation under Section 11 or 12 as the
case may be, of the Act and they would therefore squarely fall within the words under the
Act in section 4(f). Indeed, we did not understand Mr. Pathak to dispute this proposition.
22.
His contention however was that when clause (f) specifically made provision for
powers conferred by rules by the employment of the phrase or as may be prescribed
and, so to speak, took the rules out of the reach of the words under the Act it must
necessarily follow that every power conferred by Subordinate law making body must be
deemed to have been excepted from the content of that expression and that consequently
in the Content the word by the Act should be held to mean directly by the Act i.e., by
virtue of positive enactment, of the words under the Act should be held to be a reference
to powers gatherable by necessary implication from the provisions of the Act. As an
instance learned Counsel referred us to the power of the Central Government to direct the
Commission to inspect the accounts and other documents of any recognized association or of
any of its members and submit its report thereon to the Central Government under section
8(2)(c) and suggested that this would be a case of power of duty which would be covered by
the words under the Act . We find ourselves wholly unable to accept this. If without the
reference to the phrase as may be prescribed the words under the Act would
comprehend powers which might be conferred under bye-law as well as those under
rules we are unable to appreciate the line of reasoning by which powers conferred by byelaws have to be excluded, because of the specific reference to powers conferred by
rules . Undoubtedly, there is some little tautology in other use of the expression as may
be prescribed after the comprehensive reference to the powers conferred under the
Act , but in order merely to avoid redundancy you cannot adopt a rule of construction which
cuts down the amplitude of the words used except, of course to avoid the redundancy. Thus
the utmost that could be that though normally and in their ordinary signification the words
under the Act would include both rules framed under section 28 as well as bye-law
under section 11 or 12, the reference to rules might be eliminated as Tautologous since
they have been specifically provided by the words that follow. But beyond that to claim
that for the reason that it is redundant as to a part, the whole content of the words under
the Act should be discarded, and the words by the Act should be discarded, and the
words by the Act should be read in a very restricted and, if one may add, in an unnatural
sense as excluding a power conferred by necessary implication, when such a power would
squarely fall within the reach of these words would not, in our opinion, by any reasonable
construction of the provision. We need only add that the construction we have reached of
section 4(f) is reinforced by the language of section 3 (1) which is free from the ambiguity
created by the occurrence of the expression as may be prescribed in the former. We
have therefore no hesitation in holding that there was no incompetency in the Forward
Markets Commission being the recipient of the power which was conferred upon them by
bye-law 52AA as amended.
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The issue whether the Industrial Finance Corporation of India (IFCI) is a public financial
institution within the meaning of Section 2(1)(m) of the Securitization and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 read with Section 4A
of the Companies Act, 1956, fell for consideration by the Delhi High Court in Finite
Infratech Limited vs. IFCI and Ors. 29. Section 4A(2) of the Companies Act authorized
the Central Government, by notification in the Official Gazette, to specify such other
institution as it may think fit, to be a public financial institution; provided that no institution
shall be so specified unless (i) it has been established or constituted by or under any
Central Act. Initially IFCI was established under the Industrial Financial Corporation Act,
1948 but stood abolished as an entity consequent on enactment of the Industrial Finance
Corporation (Transfer of Undertaking and Repeal) Act, 1993. IFCI was simultaneously
reborn as IFCI Limited on its registration under the Companies Act. Clause (ii) of Section
4A(2) of the Companies Act alternatively authorized the Central Government to specify an
institution as a public financial institution if not less than fifty-one percent of the paid-up
capital of such institution is held or controlled by the Central Government. It was not in
dispute that the requirements of Section 4A(ii) of the Companies Act were not satisfied by
IFCI Limited, namely majority holding of the share capital or control by the Central
Government. The issue therefore was whether the requirements of clause (i) of Section
4A(2) of the Companies Act, namely of IFCI Limited being established or constituted by or
under any Central Act, were satisfied. The High Court explained that the expression
established or constituted under has a different connotation from the expression
established or constituted by ; that the word under is wider in its sweep than the
word by . Drawing guidance from the principles postulated by the Supreme Court in R.C.
Mitter & Sons vs. CIT30, the High Court ruled that the expression constituted under any
Central Act would have reference to institutions conceived or contemplated under a Central
Act though subsequently clothed in legal form by registration such as under the Companies
Act. The Court went on to explain that the word constituted would also refer to giving
legal or official form or shape to and thus an institution constituted by or under any Central
Act would have reference to a company which though formed and registered subsequently
under the Companies Act, was conceived and contemplated under a Central Act such as the
Repeal Act, 1993. Quoting with approval and following the principles derived from the
decision in S. Azeez Basha vs. Union of India31, the Delhi High Court held that the word
established would have either a narrow meaning implying created by or under a specific
provision of a statute; or have a wider meaning similar to the meaning ascribed to the
expression constituted under , earlier in the judgment. The use of the expression by or
under and the supplemental word constituted makes the legislative intent of implying the
wider meaning very clear, clarified the Court.
Again, in National Stock Exchange of India Limited vs. Central Information Commission 32,
the Delhi High Court ruled that the National Stock Exchange of India was a Public
Authority as defined in Section 2(h) of the Right to Information Act, 2005. On behalf of
the Petitioner
Stock Exchange it was contended that as there was no Order or
Notification by the appropriate Government but only an order by SEBI granting
recognition/ registration to it as a delegate and an authorisee of the Central Government,
it was not a Public Authority within the meaning of the 2005 Act. Rejecting this contention,
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the High Court observed that Section 2(h) defines a Public Authority as any Authority or
body or institution of self-government established or constituted (a) by or under the
Constitution; (b) by any other law made by Parliament; (c) by any other law made by a State
Legislature; (d) by Notification issued or order made by the appropriate Government, and
including any; (i) body owned, controlled or substantially financed; and (ii) non government
organization substantially financed, directly or indirectly by funds provided by appropriate
Government. Analysing the scope of these provisions the Court ruled that a private
institution or a body may be incorporated or formed by acts of private persons but
subsequent statutory enactment or an order or Notification issued by the appropriate
Government can result in its constitution as an authority or institution of selfGovernment and conferring upon the said body, the status of an authority or an
institution of self-Government . The word constituted must be liberally interpreted to
include cases where an organisation or a body is already set up by virtue of a Notification or
order passed by an appropriate Government or a statutory body is conferred and given
status of authority or an institution of self-government ; the words established or
constituted have to be so read as to effectuate the legislative intent in Section 2(h) of
the Act, observed the Court. The Court went on to explain that the word under would
include establishment or constitution under power or authority conferred on an authority /
body by an enactment, Notification/ order; that a Notification or order could also be issued
in exercise of Executive power and be a result of power conferred by legislation or even by
subordinate legislation on an authority/ body.
As earlier noticed, the definition of Club or Association excludes from its ambit any body
established or constituted by or under a law for the time being in force. The appellant
ECSEPC though a body registered under the Societies Registration Act, 1860, is notified to
be an EPC and is enumerated to be so qua the Appendix to the FTP; the appellant is obliged
to confirm to uniform bye-laws as may be periodically framed by the Central Government
regulating the constitution and / or transaction of its business. ECSEPC is also chartered to
function as an EPC and authorised to issue RCMC (Registration cum Membership
Certificate).
We therefore conclude that the appellant - ECSEPC is a body established
or
constituted
under a law for the time being in force, namely the Foreign Trade
(Development and Regulation) Act, 1992 read with the Foreign Trade Policy and is excluded
from the scope of the definition of Club or Association qua Clause (i) of Section 65
(25a) of the Act. For this conclusion we rely on the decisions referred to above.
23.
Issue (g):
Whether invocation of the extended period of limitation and imposition of penalties is
justified in the facts and circumstances of the case?
As noticed earlier (paras 12 and 13 supra), during 27.07.2006 to 13.08.2010 (prior to issue
of the first show cause notice dated 19.10.2010) over twenty letters were exchanged
between Revenue and FICCI, concerning FICCI s liability to service tax on services
provided to its members and others; and on amounts received under various heads including
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as subscription fee from its members. Para 4 of the adjudication order admits that FICCI
had furnished its balance sheet, Memorandum and Articles of Association and ST-3 returns
filed for the periods 2005-06 to 2006-07, in response to Revenue s letter received by
FICCI on 14.05.2007. Para 3 to 9 of the FICCI adjudication order also adverts to the
correspondence between the parties during the relevant period. FICCI is also seen to have
obtained legal opinion to the effect that it falls outside the ambit of the taxable Club or
Association service and has infact intimated the fact of such legal opinion obtained to
Revenue. From our analyses and conclusions recorded supra, we have no hesitation to
conclude that there was a serious and bonafide dispute as to the liability of FICCI to the
levy and collection of service tax for having allegedly provided the taxable Club or
Association service. FICCI obtaining a legal opinion certifying its non liability to tax is
proof of its bonafide belief that such is the case. Further the essential information and
material which would have enabled initiation of proceedings by Revenue was available at any
rate by the middle of 2007, when FICCI submitted its financial records, MOA and AOA.
On a holistic consideration and analyses of these facts and circumstances we find no
justification for invocation of the extended period of limitation under the proviso to
Section 73(1) of the Act, for initiation of proceedings against FICCI.
For reasons alike as in the case of invocation of the extended period, levy of penalties
under Sections 76, 77 and / or 78, as the case may be, on FICCI is unjustified and
arbitrary. The facts and circumstances legitimize invocation of the discretion under
Section 80 of the Act to eschew penalties. This conclusion is recorded without prejudice
and alternative to our conclusions on the substantive aspects covered by issues (a) to (d), in
the case of FICCI.
Invocation of the extended period of limitation and imposition of penalties on the other
appellant ECSEPC is equally illegal and unsustainable, for similar reasons as recorded by us
in the case of FICCI, namely existence of a serious and bonafide dispute as to
interpretation of the relevant provisions; whether this appellant falls within the taxable
scope of the defined entity Club or Association service, which is liable to tax and in the
context of an additional disputed aspect as to whether this appellant falls outside the
scope of the defined entity, being a body constituted under any law for the time being in
force qua the exclusionary clause (i) in Section 65 (25a) of the Act. This conclusion is again
in the alternative and without prejudice to our conclusions recorded on issues (a) to (d) and
(f), above.
Issue (g) is accordingly answered, in favour of the appellants and against Revenue.
24.
On the analyses above, we hold:
(a)
That the appellants FICCI and ECSEPC are engaged in activities having
objectives which amount to public service and are of a charitable nature; the
appellant ECSEPC is also a body falling within the exclusionary clause (i) of Section
65(25a) of the Act;
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(b)
Services provided by appellants to their respective members and
consideration received therefor is not exigible to tax in view of the principle of
mutuality;
(c)
The services provided by the appellants is not authorised for levy and
collection of service tax under “Club or Association” service, in view of declaration
of unconstitutionality of the relevant and applicable provisions, by the judgment of
the Gujarat High Court in Sports Club of Gujarat Limited vs. Union of India (supra);
(d)
Services provided by the appellants to non members and the consideration
received for rendition of such service, fall outside the scope of the definition of
“Club or Association” service and the taxable service defined in Section 65(25a)
read with Section 65(105)(zzze) of the Act, prior to 01.05.2011;
(e)
Services provided by the appellant FICCI to non members subsequent to
01.05.2011, though presumably may fall within the expanded scope of the taxable
“Club or Association” service, (by virtue of the amendments by the Finance Act,
2011), the proportionate service tax and interest for these services provided
subsequent to the amendments w.e.f. 01.05.2011 (not identified in the impugned
order), cannot be sustained since the show cause notice dated 28.12.2012, issued to
FICCI covering part of the post amendatory period omits to allege FICCI’s liability
to tax on the basis of the amended provisions and thus there is denial of due
process; and
(f)
Invocation of the extended period of limitation for initiation of proceedings
against both the appellants, to the extent the extended period is invoked and the
confirmation of penalties, is unjustified and unsustainable.
25.
On the preceding analyses and in the light of conclusions recorded on issues (a) to
(g) summarised in the preceding paragraph, the appeals are allowed but in the circumstances
without costs.
(Pronounced on 28/04/2014).
1 AIR 1981 SC 1408
2 2012 (26) STR 401 (Jhar.)
3 2013-TIOL-528-HC-AHM-ST
4 [1965] 55 ITR 722 (SC).
5 AIR 1980 SC 387
6 (1928) 1 KB 611
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7 (1931) 16 Tax Cas 156
8 AIR 1981 SC 1408
9 (1977) 110 ITR 871 (Mad.)
10 [1972} 83 ITR 247 (P&H)
11 [1981] 129 ITR 22 (Mad)
12 [1981] 129 ITR 214 (mad)
13 [1981] 127 ITR 730 (Mad.)
14 [1967] 66 ITR 195 (AP)
15 [1979] 116 ITR 793 (Mad.)
16 [1981] 130 ITR 55 (Del.)
17 [1982] 136 ITR 67 (Bom.)
18 1992 (1) PLJR 252 (Pat) (FB)
19 1970 (1) SCC 462
20 [1984] 150 ITR 1 (Delhi)
21 (1978) 113 ITR 589 (Bom.)
22 1983 (13) ELT 1342 (SC)
23 [1973] 90 ITR 116 )Mad.)
24 1996 (82) ELT 512 (Tribunal)
25 (1986) 4 SCC 537
26 2011 (266) ELT 422 (SC)
27 1996 (82) ELT 441 (SC)
28 AIR 1963 SC 274
29 [2011] 161 Comp Cas 257 (Delhi)
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30 AIR 1959 SC 868
31 AIR 1968 SC 662
32 (2010) 100 SCL 464 (Del.)
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