Clubs cannot be treated as distinct from their members and there is no sale transaction between a club and its members. Hence, there can be no sales tax or service tax on supplies by club to its members

  • Vide decision of Supreme Court of India in State of West Bengal  vs. Calcutta club Limited.

Facts of the case:

  1. The Assistant Commissioner of Commercial Taxes issued a notice to the respondent Club assessee apprising it that it had failed to make payment of sales tax on sale of food and drinks to the permanent members during the quarter ending 30-6-2002.
  2. After the receipt of the notice, the respondent Club submitted a representation and the assessing authority required the respondent Club to appear before it on 18-10-2002.
  3. The notice and the communication sent for personal hearing was assailed by the respondent before the Tribunal praying for a declaration that it is not a dealer within the meaning of the Act as there is no sale of any goods in the form of food, refreshments, drinks, etc. by the Club to its permanent members and hence, it is not liable to pay sales tax under the Act.
  4. A prayer was also made before the Tribunal for nullifying the action of the Revenue threatening to levy tax on the supply of food to the permanent members.
  5. The respondent Club treated itself as the agent of the permanent members in entirety and advanced the stand that no consideration passed for supplies of food, drinks or beverages, etc. and there was only reimbursement of the amount by the members and therefore, no sales tax could be levied.
  6. The Tribunal held that “Considering the relevant fact presented before us and the different judgments of the Supreme Court and the High Court we find that supplies of food, drinks and refreshments by the petitioner clubs to their permanent members cannot be treated as "deemed sales" within the meaning of Section 2(30) of the 1994 Act. We find that the payments made by the permanent members are not considerations and in the case of Members' Clubs the suppliers and the recipients (Permanent Members) are the same persons and there is no exchange of consideration.”
  7. Being dissatisfied with the aforesaid order passed by the Tribunal, the Revenue preferred a writ petition and the High Court opined that “ It was clear that supply of food, drinks and beverages had to be made upon payment of consideration, either in cash or otherwise, to make the same exigible to tax but in the case at hand, the drinks and beverages were purchased from the market by the Club as agent of the members.”
  8. The High Court further ruled that the members collectively was the real life and the Club was a superstructure only and, therefore, mere fact of presentation of bills and non-payment thereof consequently, striking off membership of the Club, did not bring the Club within the net of sales tax.
  9. The High Court further opined that in the obtaining factual matrix the element of mutuality was not obliterated. The expression of the aforesaid view persuaded the High Court to lend concurrence to the opinion projected by the Tribunal.


The Honorable Supreme Court of India held the case as follows

The appeals of the Revenue are dismissed.

  • Consequently, show-cause notices, demand notices and other action taken to levy and collect service tax from incorporated members' clubs are declared to be void and of no effect in law.