Professional Documents
Culture Documents
2.
To,
The Hon'ble Chief Justice Calcutta High Court and his companion Justices of the Calcutta
High Court
The humble petition of the Petitioner(s) abovenamed.
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Based on the brochure provided along with the general terms and conditions (GTC),
the public had booked flats in Pines. Greenwood Sonata, Rajarhat, Kolkata, with
Bengal Shrachi (BSHDL). As per the GTC, each allottee will be required to be a
member of the Oak; the club which is a part of the apartment complex, the
membership scheme shall be in the name of the resident individual only. The allottees
are required to pay one time charge and monthly subscription charge for
maintenance & management of the Club. The one time charge comprise Rs 10,000/towards deposit and Rs 15,000 for fit-out and to be paid in the following manner; 50%
at the time of allotment and 50% at the time of possession. Monthly subscription
will be decided at the time of formation of the club. The above mentioned amounts do
not include taxes, if any which shall be chargeable. M/s Bengal Shrachi, the builder,
had levied service tax @ 12.36% on one time charges purportedly under the head of
club membership (Rs 10,000/- towards deposit and Rs 15,000 for fit-out) paid by the
flat owners, (allottes and not the members of a club) referring Notification No.
15/2005-ST, even before the creation of the club(s), as the prevalent real estate
practices.
4. 2
As per the terms and conditions we had paid Rs 12,500/- in Feb 2006 during
allotment. Subsequently, in a letter dated 25-May-2007, BSHDL communicated:
As you are aware that service tax is imposed on club membership under section 65
(25a) Notification No. 15/2005-ST as per Financial Act, (amendment) at the rate of
12.36%, thus Rs.1545/- (Rupees one thousand five hundred forty five only) is
payable on Club membership (12.36% of Rs.12500/-). So, you are being requested to
pay the amount within 15 Days from the' date of this letter.
We raised a request for clarification in this regard, but there was no response from
BSHDL. Finally, when the flat is ready for possession, BSHDL in a letter dated 18Feb-2009, indicated the following charges payable:
Balance amount towards utility room cost & club membership & Service Tax on Club:
Rs. 15590/-(Service Tax Rs. 3090/-)
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Through our repeated communications since April 2009, we have had raised this
issue with service tax authorities in Kolkata and New Delhi, if service tax is really
applicable in this case and prayed so that the matter is evaluated and endorsed as a
fair, equitable and transparent practice for the revenue department. We needed the
Service Tax office to confirm this matter being an authority, as unfortunately we did
not find such clear guidelines of non-applicability of service tax in such a case
available in the form of a service tax notification in the website of CBEC. We felt
uncomfortable to pay off amounts pertaining to service tax, at the builders behest,
without having a due clarity on the matter. In the meantime through their letter dated
10-Aug-2009, Central Board of Excise and Customs (CBEC), New Delhi, directed me
to get in touch with the office of Service Tax Commissioner, Kolkata for further
clarifications, as the builder falls under the jurisdiction of Div III, Kolkata, as far as
service tax is concerned.
We were however visibly aggrieved and disappointed with the comment in letter
dated 18-Sep-2009 from the ST Commissioner, Kolkata as In view of the above, the
point raised by you whether Service Tax is payable on amount for club membership
collected by a builder before the formation of club becomes a 'Non-issue' and no
comments can be offered thereon. We strongly felt that the collection of service tax
by the builder on the amounts paid by the flat owners, before the formation of the
club has been inappropriate and hence fervently wished that the service tax
authorities in the country take cognizance of the matter communicated to them
umpteen number of times and clarify to our satisfaction, clearly indicating through a
written response indicating if service tax in this case is
Applicable / Nonapplicable.
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Since had not heard from the service tax office till 14-Oct-2009, took the liberty to
write to Consumer Affairs and Fair Business Practices, Kolkata Eastern Subarban
Regional Office, requesting kind attention/ intervention and cooperation in this regard.
Kindly refer the letter dated 09-Feb-2010 from Consumer forum.
We, the flat owners, are under the impression that before a club, the concerned
service provider is formed; service tax does NOT apply on the amount that had
been collected towards club membership. Hence a builder may not be in a position to
collect any service tax on such amounts before the actual club formation, as these
are merely capital costs and service tax can not be levied on such capital costs. The
charges recovered by the builder in the name of club membership are only to cover
up construction cost of the facility created by him. Service is only after transfer of
ownership and since here had not been provided as of now, before the registration /
execution of the sale deed, it cannot be treated as a service in real term and service
tax would not be applicable.
Unfortunately we did not find such clear guidelines of non-applicability of service tax
for amount collected as club membership even before the club formation, available in
the form of a service tax notification. Hence we looked forward to the service tax
authorities in the country to evaluate the matter and provide us a suitable clarification
in writing. We have been advised by CBEC, New Delhi to contact the Kolkata office
for further clarifications. So we requested Kolkata Service Tax office to please
address this query, and revert at the earliest that shall precisely address what we all
have been looking for. On the contrary, if they felt that CBEC, New Delhi only is
authorized to make such a decisive communication, requested forward my letter to
CBEC urgently with suitable comments, so that we are assured of a quick response.
4.5
In response to the above, the Commissioner, Service Tax, Kolkata, sent out a letter
dated 14-Oct-2009, with the following contents:
In this connection, your attention is invited to this office letter dated 18.09.09 wherein
it was stated that the stage at which club membership fees/charges are to be
collected by service provider depends upon the terms and conditions of the
'Agreement' between the buyer and the seller (Le. flat owner and the Builder in the
instant case) and the Service Tax Commissionerate is no way concerned (copy
enclosed).
As regards, whether service tax is payable on amount of club membership collected
by a builder, before the formation of club, it is stated that in terms of Section 65(105)
(zzze) "Taxable service" means any service provided or to be provided "to its
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We were however not satisfied with the reply received and put forward the following
arguments, why service tax on amounts collected under the ambit of club
membership does not qualify for service tax, before the formation of the club.
(a)
M/s Bengal Shrachi, the builder had levied service tax @ 12.36% on one time
charges purportedly under the head of club membership (Rs 10,000/- towards
deposit and Rs 15,000 for fit-out) paid by the flat owners, (allottes and not
the members of a club) referring Notification No. 15/2005-ST, even before
the creation of the club(s), as prevalent real estate practices. Your letter
refers section 65(105)(zzze) of the Finance Act 1994 and points out also the
clause to be provided to the members to define the scope of services by club
/ association. We understand that the said club for the flat owners/ residents
has been constructed by the builder as a part of the residential apartment
complex. The said club once operational, will be in future a provider of service
and will therefore be responsible for paying service tax as the provider, and
the associated tax would be collected from the members, the flat owners/
members of the club, in this case, who are the recipients of such services.
When the said club has yet not been formed, no membership exists; how
does even the condition of services to be provided to the members arise at
all? There lies our contention and difference with the interpretation provided
by service tax authorities. Rather once the club is registered, members are
enrolled, service tax on any collection made to provide service to the
members is justifiable.
(b)
Kindly note Circular No. 108/02/2009 ST dated 29th January 2009 in the
CBEC website that had been issued. Any services provided by such builder in
connection with the construction of residential complex till the execution of
such sale deed would be in the nature of self-service and consequently
would not attract service tax. As per the general terms and conditions (GTC,
the payments have been levied before execution of sale deed and hence may
not attract service tax.
Further, kindly note that any cost / expenses incurred prior to acquisition of the
premises are incidental to the cost of ownership and hence need to be
capitalized and service tax cannot be levied on such capital cost. Service is
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only after transfer of ownership and since has not been provided before
formation of the club, it cannot be treated as a service in real term and service
tax would not be applicable. Do the tax laws consider this while deciding the
scope of service tax?
4.7
We have not received any response in spite of several follow-ups and was suggested
by the Consumer forum in their letter dated 09-Feb-2010 to take up the matter with
the court of law, should the clarifications were not satisfactory and hence this petition.
5. The source of information of the facts pleaded is based on the correspondences with the
various authorities and the notifications on service tax available in the CEBC web-site.
References:
a.
b.
c.
d.
e.
f.
g.
h.
i.
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PRAYER
May I, on behalf of the flat owners of the Greenwood Sonata apartment complex, request the
Hon'ble High Court of Kolkata to kindly look into the matter and play the role of Ombudsman
by receiving the citizens complaint and bring the most important ones to the attention of
responsible government officials for satisfactory clarifications to be provided.
A clarity received from the service tax authorities, in this context may change the prevalent
real estate practices and the way of operations of the builders in the city of Kolkata/ India, as
far as service tax collection for club membership is concerned. It could also bring about
awareness and better understanding of the existing service tax laws, especially areas as
highlighted that are subject to interpretation, and will benefit the public at large.
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