CESTAT Hyderabad Excludes Land Value from Club Membership Fees, Sets Aside Service Tax Demand

CESTAT Hyderabad Excludes Land Value from Club Membership Fees, Sets Aside Service Tax Demand

Introduction

The Customs Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, has held that the value of land included in composite membership packages of a club cannot be included in the taxable value for service tax under “club or association service.”

A Bench comprising Judicial Member Angad Prasad and Technical Member A.K. Jyotishi ruled that transfer of land constitutes transfer of immovable property and is outside the ambit of service tax.

Factual Background

The case involved Country Club (India) Ltd. (now Country Club Hospitality & Holidays Ltd.), which offered membership schemes that included allotment of land along with club facilities. Members opting for such schemes paid a composite fee, a portion of which related to land that was transferred through the appellant’s sister concern, Amrutha Estates.

Procedural Background

The Department issued multiple show cause notices covering the period 2005–06 to 2013–14, alleging that the entire amount collected from members including the land component was liable to service tax under categories such as “club or association service” and “health club and fitness centre service.” The adjudicating authority confirmed the demand and imposed penalties, leading to the appeal before the Tribunal.

Issues

1. Whether the land component in composite membership fees can be included in the taxable value for service tax.

2. Whether transfer of land through a sister concern forms part of consideration for taxable services.

3. Whether documentary evidence establishing segregation of land value can be relied upon.

Contentions of the Parties

The appellant contended that the land component formed part of a separate transaction involving transfer of immovable property, which is not taxable under service tax law. It relied on financial records, bank statements, and a chartered accountant’s certificate to demonstrate that the land value was transferred to its sister concern.

The Department contended that the entire amount collected from members constituted consideration for services provided by the club and should be subjected to service tax.

Reasoning and Analysis

The Tribunal noted that in earlier rounds of litigation, it had already held that land value cannot be included in the taxable value of club or association services and had remanded the matter only for verification of such value.

It observed that the adjudicating authority erred in rejecting documentary evidence and the chartered accountant’s certification on technical grounds such as the use of gift deeds or absence of complete member-wise records. The Bench emphasised that the essential requirement is to segregate and exclude the value attributable to land, as transfer of immovable property does not constitute a service.

It further held that once the land component is excluded and tax liability is recomputed on a cum-tax basis, along with allowance of eligible CENVAT credit, no further service tax liability would remain.

Decision

The CESTAT Hyderabad set aside the impugned demand to the extent it included the land component and remanded the matter to the adjudicating authority for recomputation of service tax liability after excluding the value of land.

In this case the appellant was represented by Nagarajan. N, Advocate. Meanwhile the respondent was represented by B. Sangameshwar Rao, AR.