2022 (2) TMI 1009 - AT - Service Tax

Demand of service tax - Extended period of limitation - charges received by the appellant from its members - principle of mutuality of interest - HELD THAT - The appellants are a body constituted by the Karnataka Government to supervise, coordinate the functions of various cooperative milk unions operating at various districts of the State. The appellants are registered under Karnataka Cooperative Societies Act. On going through the objectives of the Federation, we find that KMF is a cooperative apex body in the state of Karnataka representing organisations of milk producers and implementing all round diary development activities and the organisation is three tyred and structured on cooperative principles i.e., dairy cooperative societies at grassroot levels, cooperative milk unions at the district level and federation at the state level, thus it is very clear from the statement of objectives that the appellants are part of the federation. Any activity undertaken by the appellants is to be seen to be in the direction of benefit of its members i.e., themselves. The appellants are registered cooperative society and any such activity rendered by them to their member societies is a service to themselves and there is no service provider service receiver relationship between the members of the same organisation. The issue before us is squarely covered in favour of the appellants in view of decision in the case of M/S CHIPLUN NAGARI SAHAKARI PATSANSTHA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND VICE-VERSA 2015 (10) TMI 1857 - CESTAT MUMBAI where it was held that Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance (No. 2) Act, 1994 as incorporated/amended by the Finance Act, 2005 to the extent that the said provisions purport to levy Service Tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires. Learned AR places reliance on Kaira District 2002 (11) TMI 97 - SUPREME COURT the issue discussed therein was whether the apex body and the cooperative societies are related persons within the meaning of Section 4(4)(c) of Central Excise Act, 1944. Therefore, it is very clear that the ratio is clearly distinguishable on facts itself. Therefore, the demand of service tax does not survive on merits. Time Limitation - HELD THAT - The department instead of giving clarification have decided to investigate the matter after two years and issued show-cause notice after further two years. In place of invoking extended period in cases of suppression of fact with an intent to evade payment of duty or tax, it is found that the department chose to invoke extended period in a case where the appellant has proactively informed the department about their activities and sought clarification. The Revenue had no case to invoke the extended period to issue show-cause notice - the impugned order does not survive on limitation either. Refund of Service Tax - tax paid under a mistake of law - applicability of time limit under Section 11B of CEA - HELD THAT - the learned Commissioner (A) has not rejected the refund claim on this count. The only ground of rejection appears to be the contention that the refund application is premature as the main issue is pending before the Commissioner for a decision. In view of the same, we find that the Revenue objection is not relevant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of service tax on a cooperative society's activities.
2. Classification of services provided by the cooperative society to its members.
3. Time limitation for issuing show-cause notice and refund claims.

Analysis:

Issue 1: Applicability of service tax on cooperative society's activities
The appellant, a cooperative society, engaged in promoting dairy development activities and also rented out a conference hall, paying service tax under Mandap Keeper Service. The department later issued a show-cause notice alleging various services provided by the appellant fell under taxable categories. The appellant argued that as a society rendering services to its members, the principle of mutuality of interest applied, and they were not liable to pay service tax. Citing relevant case laws, the appellant contended that services between a club/association and its members should be taxed under 'Club or Association Service.' The Tribunal examined the appellant's structure, objectives, and activities, concluding that the services provided were for the benefit of its members, thus falling outside the service tax net. The Tribunal distinguished the Kaira District case cited by the department, emphasizing the absence of a service provider-service receiver relationship within the same organization.

Issue 2: Classification of services provided by the cooperative society
The appellant argued that being a registered society, they were excluded from the definition of 'Club or Association' and relied on the Supreme Court's decision in Calcutta Club case. The Tribunal agreed with the appellant, citing the Madhya Pradesh High Court's decision in a similar case, emphasizing that services provided to member societies were not commercial activities but for mutual benefit. The Tribunal held that the demand for service tax did not stand on merits and that the show-cause notice was time-barred due to proactive communication by the appellant in seeking clarification.

Issue 3: Time limitation for issuing show-cause notice and refund claims
The Tribunal found that the show-cause notice was time-barred as the appellant had informed the department about their activities in 2004, and the notice was issued after a significant delay. Additionally, the rejection of the refund claim was not based on the provisions of Section 11B of the Central Excise Act, 1944. The Tribunal allowed both appeals, setting aside the impugned orders and providing consequential relief, if any, as per law.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the services provided to its members by the cooperative society were not subject to service tax, and the show-cause notice was time-barred. The decision was pronounced on 22/02/2022.