Primary Agricultural Credit Societies are under Service Tax net: Kerala HC [Read Judgment]

Service Tax

In the case of Meloor Service Co-Operative Bank Limited V. Union Of India & Anr, the Kerala High Court refused to interfere in the proceedings of the Service Tax Department imposing service tax on the Primary Agricultural Credit Societies.The Court was considering a writ petition filed by a Primary Agricultural Credit Society registered under the Kerala Co-operative Societies Act, 1969.

Before the Court, the petitioners urged that they were forced to take service tax registration and was paying service tax from the year 2010 to 2015 from the income derived by the Bank. According to them,they do not belong to any of the organization mentioned in Section 65(105)(zm) of the Finance Act, 1994 so as to attract service tax. When they came to know that they do not come under the service net, the petitioners sought for refund of the same.

the contention of the Revenue was that petitioner is engaged in activities falling under THE DEFINITION OF “banking and financial services”under Section 65(105) of the Finance Act, 1994 and the services rendered by them are covered by Section 65(b)(44) of the Act. It was further submitted that they are also covered by section 65(19) of the Act for the’business auxiliary services’ as they were acting as commission agent.

The Court noticed that the judgment of the Court in WP(C) No. 6393/2012, whereinthe Court dismissed the petitions filed by the societies who raised a question that whether a particular scheme namely Group Deposit and Credit Scheme, in which the members of the Society alone are entitled to participate, will attract the provisions of Section 65(12)(v) read with Section 65 (105)(zm) of the Finance Act, 1994.

The bench found that found that Society was engaged in providing ‘banking and other financial services’ as defined under Section 65(12), ‘business auxiliary services’ as defined under Section 65 (19) and ‘renting of immovable property service’s as defined under Section 65(90a) of the Finance Act,1994 as it existed prior to 1/7/2012.Further, as per Section 65B(44) of the Finance Act,’service’ has the meaning of any activity carried out by a person for another for consideration and includes a declared service. Section 65B(51) defines ‘taxable service’ as any service on which service tax is leviable under Section 66B of the Act.

“There is a clear finding in the show cause notice itself that the service rendered by the Society is assessable to service tax. Once there is a finding in the show cause notice, it cannot be stated that the respondent erred in not considering the taxability, when it is stated that from the statutory provisions that the services rendered by the petitioner come within the purview of Service Tax Act, nothing further requires to be considered in the matter for issuing a show cause notice.”

Dismissing the petition, Justice A.M Shaffique observed that “As already indicated, WP(C) No. 6393/12 and connected cases have been dismissed as premature. The observation made by the Court that if the issue that the activity carried on by the society attracts provisions of Finance Act, 1994 to fasten the liability of service tax is decided against the Society,objection will be considered, is clearly complied with, while issuing the show cause notice. Even otherwise, when the respondents have in the show cause notice clearly indicated that they are proceeding after hearing the petitioner or their representative and after coming to a finding that the service rendered is taxable under the Service Tax Act, there is no reason for this Court to interfere in the matter at this stage of the proceedings. Hence, I do not think that any of the contentions urged warrant interference by this Court to a show cause notice issued by the respondent authorities. It shall be open for the petitioners to file appropriate objections in the matter, which shall be considered by the respondent authorities in accordance with law.”

Read the full text of the Judgment below.