Ahmedabad Clubs Ordered to Refund Service Tax to Members

CESTAT Directs Rajpath and Karnavati Clubs to Return Over ₹20 Crore

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has instructed Rajpath and Karnavati clubs to refund over ₹20 crore in service tax to their members within two years.

Interest on Refunded Amounts to be Deposited in Escrow Account

• 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.
• If unclaimed within two years, both the principal and interest must be deposited into the Consumer Welfare Fund.

Case Background: Mutuality Principle and Service Tax Refund

The case revolves around Rajpath Club Limited, which received a refund of ₹17.18 crore from the service tax department following a 2018 ruling based on the mutuality principle.

• 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 ₹2.66 crore.

Rajpath Club’s Failure to Substantiate Repayment Claims

The tribunal raised concerns over Rajpath Club’s failure to provide documentation proving that the refunds were made.

• Both clubs have failed to specify the relevant financial years or tax periods, creating ambiguity about the refunds.
• Despite receiving the refund in 2018, Rajpath Club has not fully reimbursed its members.

Vikram Shah’s Comments and CGST Commissioner’s Argument

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

Department sources said, “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.”