The principle of mutuality in financial transactions among cooperative members limits tax liabilities, pending factual clarity on member and non-member transactions.

JUDGMENT

The petitioner is a Primary Agriculture Credit Society registered under the provisions of the Kerala Co-operative Societies Act . The challenge raised in this writ petition is against Ext.P6, which is a show cause notice issued to the petitioner under Section 73 (1A) of the Finance Act , 1994, pertaining to certain transactions carried out by the petitioner during the period from 01.10.2012 to 13.09.2013. As per the show cause notice, it is alleged that the petitioner is liable to pay an amount of Rs.10,38,916/- towards service tax under the provisions of the , 1994, in respect of the income received by way of banking and other financial services. In connection with the above, an amount of Rs.20,173/- was demanded as Education Cess and a further sum of Rs.10,087/- as the Secondary and Higher Education Cess.

2. Apart from the above, a further amount of Rs.29,514/- was demanded along with Education Cess for the services of renting Immovable Property Services rendered by the petitioner for the relevant period. Even though the split-up details of the demands are not specifically referred to in the notice, the same is included in the Annexure attached to the notice and various heads under which the said demands made, are referred to therein. The petitioner had already submitted a detailed objection as evidenced by Ext.P9, highlighting the unsustainability in imposing the tax liability under the Finance Act , 1994, in respect of the various heads referred to in the Annexure to Ext.P6.

3. The writ petition was submitted by the petitioner, mainly on the ground that, one of the major portion of the demand consists of the commission claimed to have been received by the petitioner in respect of the MDS (Monthly Deposit Scheme) collected by the petitioner, which, according to the respondent, is akin to a chitty transaction, that is taxable under the provisions of the Finance Act , 1994. According to the petitioner, in the light of the decision rendered by the Hon’ble Supreme Court inUnion of India and others v. Margadarshi Chit Funds Private Limited and Others [ 2017 (13) SCC 806 ], the respondents cannot impose any tax liability in respect of the transaction referred to above upon the petitioner. It is pointed out that Margadarshi Chit Funds P. Ltd. (supra) was followed by a Division Bench of this Court inAll Kerala Association of Chit Funds (State Unit of the All India Association of Chit Funds, New Delhi) and St.George chitties (Karakkatt) Private Limited v. Union of India, represented by the Secretary to Government, Department of the Revenue Ministry of Finance, New Delhi, Central Board of Excise and Customs, New Delhi, Director General of Service Tax, Mumbai, Chief Commissioner of Central Excise and Customs, Cochin, Reserve Bank of India, represented by the Assistant General Manager, Mumbai [2018 (10) TMI 902] as well.

4. It is also the case of the petitioner that yet another major head in which the tax was proposed to be imposed as Ext.P6, was for the commission paid to Collection Agents in respect of TMTOL, which is a loan advanced by the petitioner to its members, with a facility to repay the amount payable in respect of the said loan on a daily basis. According to the petitioner, collection agents are engaged for effecting daily collection, and as per the terms and conditions of appointment of the agents, such agents are entitled to a certain amount as commission, which is collected along with loan repayment. The said amount would be deposited by the petitioner in the respective accounts of the agents without deducting any amount therefrom. Therefore, it is the contention of the petitioner that, no income is generated for the petitioner, in respect of the aforesaid commission and therefore there is no tax liability for the petitioner, in view of the fact that there is no relationship of the service provider and service recipient in the said transaction, as far as the petitioner is concerned.

5. With regard to the other