No service tax applicable on the services rendered by Milk Cooperative Societies to its milk unions

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT Delhi) in the matter of M/s Rajasthan Co-operative Dairy Federation Limited Vs. The Commissioner, Central Excise ruled out that No service tax applicable on the services rendered by Milk Cooperative Societies to its milk unions.

M/s Rajasthan Cooperative Dairy Federation Limited1 is registered as an Apex Society under the Rajasthan Co-operative Societies Act, 2001 for implementation of ‘Operation Milk Flood’ in the State. The District Milk Cooperative Societies and the milk unions formed under the same Act are members of the appellant Apex Society.

The appellant is responsible for planning policies, financial resource mobilization and management, liaison with agencies of the State and Central Government, financing institutions, imparting training and orientation to daily cooperative members, advising and assisting milk unions, etc. It charges an amount @ 1.25% of the annual turnover of milk unions to manage their finances and other services and this amount is called by the appellant as Rajasthan Cooperative Dairy Federation Cess (RCDF Cess).

The appellant’s records were audited and an audit report No. 862/2014 dated 23.03.2015 was issued to it stating that it had started paying service tax on RCDF cess from July 2012 but had not paid service tax before and that it was liable to pay service tax on the RCDF cess before June 2012 under the category of ‘business support services’ under Section 65(104c) of the Finance Act, 1994.

Whether services provided by the appellant to its own members can be considered as services provided by one entity to another?

“It is undisputed 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. As an apex cooperative society, the appellant is a legal entity by itself. The milk unions are also legal entities by themselves. The milk unions are engaged in purchasing milk, processing it and selling milk and milk products. The appellant is providing various services to support the milk unions in this endeavour and is charging a fee which is called RCDF cess at the rate of 1.25% on the turnover of the milk unions. The question which falls consideration is whether in this factual matrix the services provided by the appellant to its own members (who are also separate legal entities) can be considered as service provided by one entity to another.”

The Tribunal ruled out that, “The law laid down in Calcutta Club is that a club and its members are one and the same and the club is formed for the purpose for mutual benefit of its members. Therefore, any amount paid by the members to the club and the services rendered by the club to its members are self service and cannot be taxed. The fact that the club is incorporated as a separate legal entity makes no difference. We find no good reason not to apply the same principle to the appellant, which is also a cooperative federation of milk unions who are its members. Although the milk unions (district cooperative societies) and the appellant (apex society) are registered under the Cooperative Societies Act of the State and are, therefore, distinct legal entities, the nature of relationship between the appellant and the milk unions continues to that of club to its members. Therefore, no service tax is payable on the services rendered by the appellant to the milk unions.

Thus, in view of the judgment of the Constitution Bench of the Supreme Court in Calcutta Club, and the decision of the Tribunal in Karnataka Co-operative Milk Producers Federation Limited it has to be held that no service tax was payable by the appellant for the services rendered to its members.

Accordingly, the demand confirmed by the impugned order cannot be sustained. The interest on the demand and the penalties imposed also need to be set aside and are set aside. The appeal is, accordingly, allowed and impugned order is set aside with consequential benefits to the appellant, if any.”

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