Service Tax on Societies, Clubs & Associations

The service tax department started demanding service tax on member’s contributions in 2005. In 2006, a “clarification” was issued confirming such demand. This is applied to member’s contribution towards expenses of a Cooperative Housing Society, membership subscription of associations, and similar collections.

Maharashtra Chamber of Commerce Industry Agriculture, circulated this demand through its Patrika of January 2008. Subsequently, there was a meeting with the finance secretary; where the finance secretary reminded members that contributions below Rs.3000 were exempted. This satisfied most members and the issue was abandoned.

Litigation in Kolkata and Delhi High Courts confirmed that where every member was a share-holder and every share-holder was a member, there was no provision of service from one entity to another and therefore the application of service tax does not arise. However, this stand has not been accepted by the service tax department. A 2014 circular confirms service tax on contributions to Resident Welfare Associations.

At present, several housing societies are collecting and paying service tax. Associations, clubs and chambers of commerce are also collecting tax on membership subscriptions.

A report in Times of India of 2015 Jan.13 states that two societies have secured a favourable decision in the Mumbai High Court. This is good news not only for the two societies; but also for thousands of other societies and associations. It states:

“The CESTAT decision is the first of its kind for the western zone. The tribunal, based on decisions of other jurisdictions, accepted the principle of mutuality – the society provided services to itself which could not be subject to service tax. However, finality will be reached only once the Supreme Court adjudges on a similar matter pending before it”, said Bakul Mody, chartered accountant, who represented Mittal Towers.

We should be thankful to the two societies and Bakul Mody for taking up the fight. Now let us support them by joining in the fight.

M. B. Damania.

2015 Jan.13

Click Here for copy of the order


Housing Societies Service Tax

CERS helps buyer get refund of amount charged illegally as Service Tax by Builder.

CERS helps buyer get refund of amount charged illegally as Service Tax by Builder.

Ahmedabad, January 23rd 2013: Exposing fraudulent practice adopted by builder community to fetch extra amount from the buyers, Consumer Education & Research Society (CERS) has won a case against an Ahmedabad based builder, who had illegally charged an amount of Rs. 28,800 on the pretext of service tax in the Consumer Disputes  Redressal Forum, Ahmedabad (City). The Forum ordered the builder to pay the complainant the amount charged as service tax with 9% interest along with a compensation of Rs. 5,000 for the mental agony caused and Rs. 2,000 towards litigation costs involved. The amount involved had been collected as service tax from a gullible buyer of a flat on the pretext of providing services in the premises despite the fact that the buyer was not liable to pay it as he was not the owner of the flat when the said service was provided and more importantly, the builder never deposited the amount of service tax to the concerned government department.

As per the case details, Rahul M. Talwaria, resident of Chandkheda area of the city, purchased a flat from Deluxe Purohit Infrastructure Pvt. Ltd. Representatives from Deluxe Purohit Infrastructure Pvt. Ltd collected an amount of Rs. 28,800 on October 2, 2006, from Rahul towards service tax for the flat in question. About two years after paying this as service tax, Rahul came to know that he was not liable to pay the amount of service tax, as the flat was not transferred on  his name when the services were provided. Citing this reason, when Rahul asked for the refund of the money, the builder refused bluntly saying the amount had already been deposited to the service tax department.

But when Rahul sought information in this regard from the concerned office under the provision of the  RTI act, he realized the builder had never deposited the amount and also the fact that there was no account of  the builder in the service tax department.

As a result of this repeated refusal from the builder, Rahul approached CERS and after verifying the facts, they filed a case against the builder in the Consumer Disputes Redressal Forum, Ahmedabad (City).

No representative of the builder attended the hearing of the case and finally the consumer forum gave a ruling in favor of CERS.                                   

For further information please contact Ms Pritee Shah (O) 079-27489945/46 

How is Service Tax and Service Charge calculated in Restaurants ?

A typical restaurant bill has the items which you have ordered and their prices. Then there is service charges, service tax and value added tax as well.

“Service charge is not the same as service tax. Service charge is the amount you pay for the service of the establishment and it goes into their pocket,” said Anil Rego, chartered accountant and CEO, Right Horizons, an investment advisory and wealth management firm.

The following example will illustrate the tax calculation.

Total for food items is: Rs 865

Service charge (5%): Rs 43

Sub total: Rs 908

Service tax is 12.36% of 40% of Rs 908.

40 percent of Rs 908 is Rs 363.20

12.36% of Rs 363.20 is Rs 44.89.

So the service tax to be charged is Rs 44.89.

Grand total (after rounding off) = (Sub total + Service tax) = (908 + 44.89) = Rs. 953

The most important thing to remember is that service tax is not charged on VAT. The restaurant might cheat you by charging you a service charge, even when it’s not mentioned in the menu. Or, they might cheat you by charging a service tax which includes VAT as well. Or they might collect a service tax but calling it service charge and cheat you as well as the government.

Click Here for the full story and the detailed explanation