Member-Only Services by Cooperative Society Not Taxable under Service Tax: CESTAT Applies Doctrine of Mutuality [Read Order]

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed the appeal filed by a cooperative society, holding that service tax demand under the category of Banking and Other Financial Services is unsustainable when services are provided exclusively to its own members.

The appeal was filed by The Perumatty Service Co-Operative Bank Ltd, a cooperative society engaged in providing various financial and incidental services to its members. The dispute arose from service tax demands raised for the period from April 2011 to March 2013. It was alleged that income earned from activities such as locker rent, incidental charges, inspection fees, folio charges and miscellaneous receipts was liable to service tax under Banking and Other Financial Services.

The appellant contended that all the services in question were rendered only to its members and no service was provided to the general public. Relying on the doctrine of mutuality, it was argued that a person cannot provide a service to oneself and therefore, service tax could not be levied on such member-centric activities.

The Tribunal, composed of P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member,) examined the issue in light of the Supreme Court ruling in State of West Bengal v. Kolkata Club Ltd. The Supreme Court held that incorporated clubs and cooperativesocieties providing services to their own members are outside the service tax net due to mutuality.

The Tribunal held that the appellant, being a cooperative society and not a business entity, was not liable to pay service tax on legal services received from advocates. It was also noted that even if certain receipts were considered taxable, the aggregate value remained below the threshold of exemption for the relevant period.

Accordingly, the appeal was allowed with consequential relief, if any, in accordance with law

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