Jewel Appraisal Charges Collected by Co-operative Society for Members’ Jewel Loan Not Taxable as Business Support Service: CESTAT [Read Order]

In a recent ruling, the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that jewel appraisal charges collected by a co-operative society for granting loans to its members are not liable to service tax under the category of “Business Support Services” ( BSS ).

The appeal was filed by a co-operative society constituted for the benefit of agriculturists and farmers, who are also its members. Among its various activities, the society provides jewel loans to its members and collects a nominal appraisal fee calculated at 3% of the loan amount, subject to a ceiling of Rs. 100 per loan, to cover the cost of assessing the quality of the pledged ornaments.

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The Department had alleged that the society, by collecting such charges, was offering services in support of the members’ trade or business, thereby attracting service tax liability under Section 65(105)(zzzq) read with Section 65(104c) of the Finance Act, 1994, with effect from May 1, 2006.

According to the Department, these transactions amounted to Business Support Services since they facilitated the members in securing funds, presumably for commercial or agricultural operations.

Challenging the adjudication order dated 18.03.2015, the appellant society contended that the charges collected were merely incidental to their core function of lending to members. It was argued that the society, formed under the Co-operative Societies Act, operates solely for the welfare of its members and hence cannot be treated as a service provider for tax purposes. The appellant further submitted that they were eligible for Small Scale Industry (SSI) exemption and that there was no deliberate suppression of facts warranting extended period for demand.

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When the case came up for hearing, the Tribunal drew on its earlier decisions in similar cases. It quoted especially the ruling in M/s. The Rasipuram Agricultural Producers Co-op. Marketing Society Ltd. v. Commissioner of GST and Central Excise, Salem, where it had been held by the Tribunal that the activities of jewel loans were internal financial assistance by the society to its members out of funds availed by it from a central co-operative bank. It had been stressed that the services were limited to the members and did not constitute Business Support Services as categorized under the Act.

The two member bench of Vasa Seshagiri Rao (Technical) and Ajayan TV (Judicial) observed that the appraisal charges collected by the society were essentially to ensure the quality of the collateral and were a part of the administrative process for sanctioning loans. It held that such internal administrative measures do not constitute a taxable service. Accordingly, following the principle laid down in similar precedents, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.

To Read the full text of the Order CLICK HERE

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