No Service Tax Payable On Service Charges Collected By Rajasthan Cooperative Dairy Federation From Milk Unions: CESTAT Delhi

The Bench, consisting of Justice Dilip Gupta (President) and technical member P.V. Subba Rao, held that although the Rajasthan Cooperative Dairy Federation and the milk unions/district cooperative societies are registered under the Rajasthan Cooperative Societies Act, 2001 and are thus distinct legal entities, the nature of the relationship between them continues to be that of a club and its members. The CESTAT ruled that no service tax was payable on the services rendered by the Rajasthan Cooperative Dairy Federation to the milk unions.

The appellant M/s Rajasthan Cooperative Dairy Federation Limited is registered as an Apex Society under the Rajasthan Cooperative Societies Act, 2001 for implementation of 'Operation Milk Flood' in the State.

The District Milk Cooperative Societies and the milk unions formed under the Rajasthan Cooperative Societies Act are members of the appellant. The appellant charges a specified percentage of the annual turnover of milk unions for managing their finances and for rendering other services. The amount so collected is called by the appellant as Rajasthan Cooperative Dairy Federation Cess (RCDF Cess).

The appellant's records were audited and an audit report was issued to it stating that the appellant was liable to pay service tax on the RCDF Cess collected by it before June 2012, under the category of 'business support services' under Section 65 (104c) of the Finance Act, 1994.

Thereafter, a show cause notice was issued to the appellant demanding service tax along with interest. The show cause notice also proposed to impose penalties upon the appellant. The Commissioner passed an order confirming service tax demand along with interest, and imposed penalties upon the appellant under the Finance Act, 1994.

Against the order of the Commissioner, the appellant filed an appeal before the CESTAT.

Before the CESTAT, the appellant M/s Rajasthan Cooperative Dairy Federation submitted that no service tax was leviable on the services provided by the appellant to the milk unions and the district cooperative societies. The appellant averred that although the appellant was registered as a separate entity under the Rajasthan Cooperative Societies Act, 2001, its members were district cooperative societies and milk unions. The appellant contended that the services provided by the appellant to its members was akin to the services provided by a club or association to its own members.

The appellant averred that no service tax can be levied on a club or association for the services which it renders to its own members since there is no relationship of a service provider and service recipient between a club and its members. The appellant contended that the services provided by the appellant were not 'business support services' but in the nature of services provided by a club or association, which is not taxable.

The revenue department contended that the appellant provides marketing support to the milk unions, and also provides services in the form of customer service and pricing policies, for which the appellant charges service charges referred to as RCDF Cess. Thus, the revenue department submitted that the services provided by the appellant were squarely covered in the definition of 'business support services' under Section 65 (104c) of the Finance Act, 1994 and, therefore, service tax must be paid by the appellant.

The revenue department averred that the appellant did not act as a club but was providing business support services to its members in return for a consideration.

The CESTAT observed that the appellant is registered as a cooperative society under the Rajasthan State Cooperative Act, 2001, and the district cooperatives and milk unions are its members. The CESTAT noted that the appellant as well as the milk unions were separate legal entities by themselves. The CESTAT observed that the appellant was providing various services to support the milk unions and was charging a fee, called RCDF Cess, from the milk unions.

The CESTAT noted that as per the law laid down by the Supreme Court in the case of State of West Bengal versus Calcutta Club Ltd (2019), a club and its members are one and the same, and the services rendered by the club to its members are self-service, therefore, any amount paid by the members to the club cannot be taxed. The CESTAT reiterated that the fact that the club is incorporated as a separate legal entity makes no difference.

The CESTAT held that although the milk unions (district cooperative societies) and the appellant Rajasthan Cooperative Dairy Federation are registered under the Rajasthan Cooperative Societies Act and are, therefore, distinct legal entities, the nature of the relationship between them continues to be that of a club and its members. Therefore, the CESTAT ruled that no service tax was payable on the services rendered by the appellant to the milk unions.

The CESTAT thus allowed the appeal and quashed the order of the Commissioner. The CESTAT set aside the service tax demand raised, along with the interest and penalty imposed by the revenue department on the appellant.

Case Title: M/s Rajasthan Co-operative Dairy Federation Limited versus Commissioner, Central Excise, Jaipur

Dated: 09.05.2022 (CESTAT Delhi)

Representative for the Appellant: Narendra Singhvi, Advocate

Representative for the Respondent: Ravi Kapoor, Authorised Representative

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