2016 (6) TMI 1203 - HC - Service Tax

Principle of mutuality - Co-operative Society - petitioner claim that the petitioner s co-operative society bank limited activities are confined to its members whereas activities of the ordinary bank are open to the public at large. Therefore, the petitioner s co-operative society bank limited does not fall within the purview of sub-section (10) of Section 65 of the Act - whether the co-operative society is liable to pay service tax? Held that - the petitioner is transacting the banking affairs and the business coming within the purview of banking and other financial services and this fact finds corroboration from the Form ST-3 which has been submitted by the petitioner concern expressing the same in the category of taxable services for which return was filed - Liability to pay service tax on the Contai Co-operative Bank Limited has been clarified by the Director General of Service Tax vide Annexure P4 clarifying that the service tax is required to be paid by the co-operative banks under the bank and other financial services. The petitioner/Contai Co-operative Bank Limited is running banking and other financial services as per its object and has expressed itself in its bye-laws that wherever the word society appears that be read as Bank . Therefore, by its own acts and deeds as depicted from the petition and reflected from the documents annexed to the writ application and also the documents annexed to the affidavit-in-opposition, this Court has no alternative but to hold that the petitioner is rendering services to its customers within the meaning of expression taxable services as defined under Section 65(105)(zm) and is liable to pay the service tax under FA notwithstanding the petitioner being registered under West Bengal Co-operative Societies Act, 1983. Petition dismissed - decided against petitioner-assessee.

Issues Involved:
1. Whether the Co-operative Credit Society constituted under the Co-operative Societies Act, 1983 is covered by Chapter VI of the Finance Act, 1994.
2. Whether the Co-operative Credit Society is covered by sub-sections (10), (11), and (12) of Section 65 in respect of Service Tax under the Finance Act, 1994.
3. Whether Chapter V of the Finance Act, 1994 is constitutional in view of trenching upon Entry 32 of List II of the Constitution.
4. Whether Chapter V of the Finance Act, 1994 is violative of federalism, which is one of the basic structures of the Constitution.

Analysis:

Issue I: Applicability of Chapter VI of the Finance Act, 1994
The petitioner, a co-operative society constituted under the West Bengal Co-operative Societies Act, 1983, argued that it should not fall under Chapter VI of the Finance Act, 1994. The court examined the provisions of the Co-operative Societies Act, noting that the society's activities are confined to its members and not open to the public. The court referred to the Greater Bombay Co-operative Bank Ltd. case, which distinguished between cooperative banks serving their members and corporate banks doing commercial transactions. However, the court concluded that the petitioner’s activities fall within the scope of Chapter VI of the Finance Act, 1994, as the petitioner was already registered under service tax and had been paying it.

Issue II: Coverage under Sub-sections (10), (11), and (12) of Section 65
The petitioner contended that it does not fall under the definitions provided in sub-sections (10), (11), and (12) of Section 65 of the Finance Act, 1994, which pertain to banking and financial services. The court analyzed the definitions and found that the petitioner's activities, as described in its bye-laws, include banking services such as accepting deposits and lending money. The court referred to the Madhav Nagrik Sahkari Bank Ltd. case, which held that cooperative societies are covered by the expression "any other person" in Sections 65(105)(zm) and 65(12) of the Finance Act, 1994. Therefore, the court concluded that the petitioner is liable to pay service tax under these provisions.

Issue III: Constitutionality of Chapter V of the Finance Act, 1994
The petitioner argued that Chapter V of the Finance Act, 1994, is unconstitutional as it encroaches upon Entry 32 of List II, which pertains to the incorporation, regulation, and winding up of cooperative societies. The court referred to the Supreme Court's decision in the Association of Leasing & Financial Service Companies case, which upheld the validity of service tax on financial services under Entry 97 of List I. The court concluded that the Finance Act, 1994, does not encroach upon the legislative field of the states and is constitutional.

Issue IV: Violation of Federalism
The petitioner claimed that Chapter V of the Finance Act, 1994, violates the principle of federalism, a basic structure of the Constitution. The court reiterated that the Finance Act, 1994, was enacted under the Parliament's residuary powers and does not infringe upon the states' legislative domain. The court held that the imposition of service tax on banking and financial services by cooperative societies does not violate the principle of federalism.

Conclusion:
The court dismissed the writ petition, holding that the petitioner cooperative society is liable to pay service tax under the Finance Act, 1994. The court found no merit in the petitioner's arguments and concluded that the Finance Act, 1994, is constitutional and does not violate the principle of federalism. The court directed that the petitioner must comply with the service tax provisions and dismissed the petition without any order as to costs.

← Previous Next →