M/S Chiplun Nagari Sahakari Patsanstha ... vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI

COURT No. I

Appeal No. ST/318/11

(Arising out of Order-in-Appeal No. PII/AV/03/2011 dated 25.02.2011 passed by Commissioner of Central Excise, Pune II)

M/s Chiplun Nagari Sahakari Patsanstha Ltd. Appellant Vs.

Commissioner of Central Excise Kolhapur Respondent

Appeal No. ST/381/11

Commissioner of Central Excise Kolhapur Appellant Vs.

M/s Chiplun Nagari Sahakari Patsanstha Ltd.

Respondent

Appeal No. ST/66/12

(Arising out of Order-in-Appeal PII/RKS/135/2011 dated 24.11.2011 passed by Commissioner of Central Excise, Pune II)

M/s Chiplun Nagari Sahakari Patsanstha Ltd. Appellant Vs.

Commissioner of Central Excise Kolhapur Respondent

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

Appearance:

Shri V.B. Gaikwad, Advocate for appellant Shri S.R. Nair, E.O. (AR) for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 30.09.2015 Date of Decision: 30.09.2015

ORDER NO

Per: M.V. Ravindran

These 3 appeals are directed against Orders-in-Appeal No. PII/AV/03/2011 dated 25.02.2011 and PII/RKS/135/2011 dated 24.11.2011. Revenue as well as the assessee are aggrieved by the impugned orders hence both challenge the findings of the first appellate authority, which are against them.

2. The relevant facts that arise for consideration are the appellant assessee herein is a Co-operative Society formed in Chiplun, Ratnagiri. The said Society is of members and is engaged in accepting deposits, lending and operation of the accounts. After an investigation, it was noticed that the appellant had not discharged the service tax liability on the various fees collected by them from the members in respect of the functioning of the Society. Accordingly a show cause notice was issued demanding differential tax liability with interest and also proposing for imposition of penalties. Appellant assessee contested the show cause notice on merits as well as on limitation. The adjudicating authority did not agree with the contentions raised by the appellant. Adjudicating authority confirmed the demands raised with interest and also imposed penalties. On an appeal, the first appellate authority also agreed with the order in original that the service tax liability arises along with interest, but agreed with the contentions of the appellant assessee that the tax liability needs to be reworked. Accordingly, the appeal was disposed of by reworking the tax liability interest thereof and upholding penalties under section 77 and 78 but set aside the penalties imposed under section 76 of the finance act 1994. Appellant assessee is aggrieved by the confirmation of demand and the consequences thereof, while revenue is aggrieved by the impugned order on the ground that the first appellate authority should have upheld the order in original in total.

3. At this juncture, learned Counsel submits that an identical issue of the very same assessee in appeal number ST/66/12 is listed for disposal on 01.10.2015 and may be taken up for disposal along with this appeal. The case records were called for from the Registry and ascertaining that the issue is the same and in respect of the very same appellant assessee, the said appeal is also disposed of by this order.

4. Learned Counsel appearing on behalf of appellant assessee submits that appellant is a Co-operative Society formed for the welfare of its members. Explaining the activity of the appellant assessee, he submits that appellant assessee accepts deposits from its own members and distributes the said amount as a loan to its own members and is not extending loan to outsiders and not functioning as a financial institution engaged in financial activities towards general public. He would submit that they being a Co-operative Society run by members, question of service tax does not arise on any charges collected from their members. He would draw our attention to the case law as decided by the Honourable High Court of Gujarat in the case of Green Environment Services Co-op. Soc. Ltd. as reported at 2015 (37) STR 961 (Guj.) wherein on similar situation, tax liability was struck down by holding that the provisions of Section 65 (25a) and also 65 (105) (zzze) are unconstitutional to the extent it pertains to levy of services provided by Society to its members. He would also submit that same view was expressed by the Tribunal in the case of Punjab State Federation of Co-operative Sugar Mills Ltd  2014 (36) STR 110.

5. Learned departmental representative would draw our attention to the findings recorded by the lower authorities. It is his submission that the appellant had registered under the provisions of Finance Act, 1994, and did not discharge the service tax liability on the various charges collected by them from their members. He would reiterate the findings of the lower authorities. As regards the appeal filed by the revenue, it is his submission that the first appellate authority has erred in reducing the tax liability and also setting aside the penalties imposed under Section 76 of the Finance Act, 1994.

6. We have considered the submissions made by both sides and perused the records.

6.1 The issue that needs deliberation in the appeals filed by the assessee is whether differential service tax liability arises on them in respect of the various charges collected by them from their members or otherwise. If we decide the appeals of the assessee, revenues appeal automatically gets disposed of.

6.2 Undisputed facts that transpires from the records are that appellant assessee is a society of members formed for the welfare of its members; they are accepting deposits from their members and interest is paid on the said deposits; members are given loan to tide over their financial difficulty; charged interest from the members. In order to process such loan applications, appellant assessee charges amounts as incurred for stationary, other expenses. These amounts, according to revenue, are collected by the appellant, according to revenue in the course of rendering the services under the category of banking and other financial services.

6.3 From the factual matrix as reproduced hereinabove, it transpires that the appellant assessee is functioning as a co-operative Society for their members and welfare of their members only. They do not extend any loan or accept any deposits from public at large. The services rendered by the appellant assessee, if any, is to their own members is undisputed. We find that the learned Counsel was correct in placing reliance on the judgement of the Honourable High Court of Gujarat in the case of Green Environment Services Co-op. Soc. Ltd. (supra). The entire judgement is reproduced as we find that the said judgement lays down a ratio in respect of the tax liability on the members of the Society.

Petitioners have challenged the vires of Section 65(25a) and also 65(105)(zzze) of the Finance Act, 1994 as amended by Finance Act, 2005 to the extent that said provisions pertain to levy of Service Tax in respect of the services provided by the petitioner-society to its members. The petitioners have also challenged an order dated 9-10-2007 passed by the adjudicating authority confirming the Service Tax demand of Rs. 71,43,582/- with interest and penalty at the rate of 200% of the tax demanded. He also imposed a separate penalty of Rs. 200/- per day or 2% of the tax not paid, whichever is higher.

2.?The petitioner No.1 is a society registered under the Gujarat Cooperative Societies Act and is engaged in the activity of maintaining a common effluent treatment plant at Vatva Industrial Estate, Ahmedabad. The petitioner No. 1 provides the facility of common effluent treatment to its members through the medium of cooperative society. The case of the petitioners is that such society was created solely with a purpose of providing effluent treatment facility commonly to its members who were the industrial establishments located at Vatva. Any service provided by them, therefore, could not be made taxable since it was merely a service provided by the members to themselves. There was no element of any commercial service provided by the service provider to its consumers. Inter alia on such basis the petitioners challenged the constitutionality of Section 65(25a), which authorizes collection of such Service Tax from the agencies such as the petitioner No.1. Pending this petition, the adjudicating authority confirmed the duty demand with penalty and interest as mentioned above. The petitioners have, therefore, separately challenged such order-in-original.

3.?Learned counsel, Shri Shelat for the petitioners pointed out that initially the show cause notice was issued basing the recoveries on Section 65(19) of the Finance Act, 1994 however, realizing that such demand would not be maintainable under said provision, separate show cause notice was issued why the services provided by the petitioner No.1 society to its members be not classified as one under Club or Association and accordingly chargeable under Section 65(25a) of the Finance Act, 1994. It was on this basis that the Commissioner of Service Tax in the impugned order confirmed the Service Tax demand. It was held as under :-

37.?Since it was found that the service provided does not fall under the category of business auxiliary service as alleged in the show cause notice dated 28-2-07, but it appeared to fall under the category of club or association services as defined under section 65(2Sa) of the Finance Act, 1994 from 16-6-05 onwards, a notice was issued to M/s. GES on 7-8-07 asking them to show cause as to why the service provided by them should not be categorized accordingly and service tax recovered thereon. In their written reply as well as during personal hearing, M/s. GES have made only two counter submissions viz.

1.?The society does not have any independent existence or identity of its own. The members have come together for the purpose of discharging their legal obligation to eliminate pollutants. There is no other party rendering any service to the members. As such, it cannot be said that M/s. GES is rendering any service to its members.

2.?Clubs or associations are essentially for recreational or social purposes. This can be inferred from the clauses (i), (ii), (iii) & (iv) of Section 65(25a) of the Finance Act, 1994.

38.?I do not find any merit in either of these submissions. The very existence of the service club or association service in the Finance Act, 1994 implies that a distinction is made between a club or association and its members. For legal purposes they are two separate entities. As far as their submission that clubs or associations as defined under the Finance Act, 1994 cover only recreational or social associations, 1 find no such restriction. 1, therefore, hold that the service provided by M/s. GES is actually a club or association service which is taxable from 16-6-2005.

The Service Tax liability for the services rendered by M/s. Green Environment Services Co-operative Society Ltd. from 16-6-2005 to 31-3 2006 comes to Rs. 71,43,582/- (Rs. 70,03,512/- Service Tax plus Rs. 1,40,070/- Education Cess).

4.?Learned counsel, Shri Shelat pointed out that the provision of Section 65(25a), insofar as it pertains to the service provided by a society to its members, came to be declared as unconstitutional by a Division Bench of this Court in the case of Sports Club of Gujarat Ltd. v. Union of India and Others reported in (2013) 64 VST 191 = 2013 (31) S.T.R. 645 (Guj.) The Court held as under :

The learned advocate Mr. Ravani appearing for the Authorities i.e. Union of India, Commissioner of Central Excise, and Deputy Commissioner/Assistant Commissioner, Service Tax Cell, vehemently opposed the petitions and submitted that the Department has not accepted the aforesaid judgment. Learned advocate submitted that the Department has filed SLP before the Honble Apex Court and the judgment is under challenge. Merely because the judgment is not accepted by the Department, its persuasive value is not lost and it can always be considered by this Court for its persuasive value, more particularly when the said judgment has relied upon a decision of the Full Bench of Patna High Court in the matter of Commissioner of Income-Tax v. Ranchi Club Ltd., 1992(I) PIJR 252 (Pat) (FB), which is referred to by the Division Bench.

The learned advocate for the Department also submitted that there is no question of mutuality because the club is a legal entity as it is incorporated under the Companies Act. This Court is unable to accept the submissions made by learned advocate for the Department because they were the very facts before the Division Bench for consideration and learned advocate for the Department could not set out any convincing grounds on which this Court should not follow the decision of the Division Bench of Jharkhand High Court.

In the result, these petitions are allowed and it is hereby declared 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. Rule is made absolute with no order as to costs.

5.?The issue being covered by the said decision and the ratio laid down therein and such provision having been declared unconstitutional to the extent noted above, impugned order dated 9-10-2007 passed by the Commissioner of Service Tax is required to be set aside.

6.?Before closing learned counsel for the Revenue pointed out that by notification giving retrospective effect such services have been exempted from payment of Service Tax. In our opinion, this would be one of the additional ground for setting aside the impugned order of adjudication.

Accordingly, impugned order dated 9-10-2007 passed by the Commissioner of Service Tax is set aside. Rule made absolute. No costs.

6.4 In view of the foregoing and in the facts and circumstances of this case and the authoritative judicial pronouncement, it is held that appellant assessee has made out a case in their favour. Holding so the impugned order is set aside and appeals filed by appellant assessee are allowed with consequential relief, if any.

6.5 As we have disposed of appeals in the favour of the assessee, the appeal filed by the revenue, consequentially is rejected.

7. The appeals are disposed of as indicated hereinabove.

(Dictated in Court)

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

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1 9 Appeal No. ST/318, 381/11, 66/12