KARACHI: The Sindh High Court (SHC) on Thursday ruled that monthly and annual membership/entrance fee and subscription charges of clubs don’t fall under the purview of the Sales Tax on Services Act, 2011.

A division bench of the SHC, comprising Justice Muhammad Junaid Ghaffar and Justice Agha Faisal, gave this ruling in a written order in three petitions, which were clubbed for hearing.

The petitions were filed by the Karachi Golf Club (Private) Limited, the Karachi Club and others and the Southend Club (Private) Limited against the Sindh government and the Sindh Revenue Board (SRB).

The petitioners challenged the membership/entrance fees and subscription charges (monthly and/or annual) received by members’ clubs from their members fall within the purview of sales tax as per a synchronized reading of the Sindh Sales Tax on Services Act 2011 (“Act”) with the Doctrine of Mutuality.

The bench declared that membership/entrance fees and subscription charges obtained by members’ clubs from their members do not constitute monies generated from an economic activity and do not accrue out of rendering of any taxable service, as per the interpretation of the relevant provisions of the Act; hence, fall outside the purview of the Act.

The bench stated that the circular issued by the board, encumbering clubs covered by the doctrine of mutuality with the burden of taxability as per the act, is dissonant with the law, to the extent of members’ clubs.

“Rule 42(2)(a) of the Rules cannot be read to impose tax liability upon members’ clubs, since the same is not borne out from reading of the act and in any event no rules can be interpreted to exceed the mandate of the parent statute,” the bench ruled.

In the judgment, the bench declared that membership/entrance fees and subscriptions charges (monthly and/or annual) obtained by members’ clubs from their members do not fall within the purview of sales tax, per a reading of the Act synchronized with the doctrine of mutuality.

The court also declared that the Sindh Revenue Board does not have the legal sanction to recover any amounts from members’ clubs, in respect of activities covered by the doctrine of mutuality, and set aside any show-cause/demand notices or constituents thereof issued to members’ clubs in this regard.

Copyright Business Recorder, 2021