Ahmedabad clubs told to reimburse service tax refund to members

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has taken a firm stance on the prolonged delays by Rajpath and Karnavati clubs in refunding service tax amounts to their members. The tribunal has directed the clubs to return over Rs 20 crore in service tax refunds to members within two years time.

The tribunal, led by judicial member Somesh Arora and technical member Satendra Vikram Singh, ruled that any interest earned on the refunded amounts must be deposited in an escrow account, with no claim by the clubs. “If unclaimed within two years, both the principal and interest must be deposited into the Consumer Welfare Fund,” the tribunal stated.

The case centers on Rajpath Club Limited, which received a refund of Rs 17.18 crore from the service tax department following a 2018 ruling. The decision, based on the mutuality principle, clarified that service tax collected from members between April and Sept 2016 was not payable. According to this principle, clubs and their members are not separate entities, meaning services provided to members are not taxable.

Karnavati Club, another party in the case, reported refunding Rs 2.66 crore. However, the tribunal raised concerns over Rajpath Club’s failure to substantiate repayment claims. “The club has not provided documentation to prove that the refunds were made. Additionally, both clubs have failed to specify the relevant financial years or tax periods, creating ambiguity about the refunds,” the Tribunal noted.

The tribunal noted that despite receiving the refund in 2018, Rajpath Club has not fully reimbursed its members. The club’s efforts, such as issuing refund applications and discussing the issue at annual general meetings, have been slow, even after years of litigation. The tribunal stressed that clubs cannot retain funds owed to their members.

Commenting on the issue, vice president, Rajpath Club, told TOI, “A majority amount has been refunded to the members and the process is underway for the remaining.”

“Recognising the significance of the case and the fact that members were being deprived of their due refund from the clubs, the then CGST Commissioner Mohit Agrawal argued the primary right to the refund lies with the members who actually bore the cost,” department sources said.

Source #TOI