Service Tax and VAT related issues in Cooperative Societies Service Tax and VAT related issues in Cooperative Societies Committee for Co-Operatives and NPO Sectors Committee for Co-Operatives and NPO Sectors Institute of Chartered Accountant of India July 5, 2014 Institute of Chartered Accountant of India July 5, 2014 Presented by: CA CA CA CA Gaurav Gaurav Gaurav Gaurav Gupta Gupta Gupta Gupta B.Com(Hons.), FCA, LLB, DISA Partner MGS & Co. Author Author Author Author – – – Service Tax Service Tax Service Tax Service Tax – – – Law & Practice Law & Practice Law & Practice Law & Practice
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Service Tax and VAT related issues in Cooperative Societies
Service Tax and VAT related issues in Cooperative Societies
Committee for Co-Operatives and NPO SectorsCommittee for Co-Operatives and NPO Sectors
Institute of Chartered Accountant of India
July 5, 2014
Institute of Chartered Accountant of India
July 5, 2014
Presented by:
CA CA CA CA GauravGauravGauravGaurav GuptaGuptaGuptaGupta
B.Com(Hons.), FCA, LLB, DISA
Partner
MGS & Co.
Author Author Author Author –––– Service Tax Service Tax Service Tax Service Tax –––– Law & PracticeLaw & PracticeLaw & PracticeLaw & Practice
What is a Cooperative societyWhat is a Cooperative societyWhat is a Cooperative societyWhat is a Cooperative society
• An autonomous association of persons united voluntarily to meet their
common economic, social, and cultural needs and aspirations through a
jointly-owned and democratically-controlled enterprise.
Basic Understanding
jointly-owned and democratically-controlled enterprise.
- International Co-operative Alliance (ICA)
• A cooperative society means, a society registered or deemed to be
registered under any law relating to cooperative societies for the time being
in force in any State or under the Central act. Cooperative societies may be
governed by the respective State cooperative societies Act or by the Multi-
State Cooperative Societies Act, 2002.
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 3
Area of operation of Cooperative societyArea of operation of Cooperative societyArea of operation of Cooperative societyArea of operation of Cooperative society
According to the Cooperative Societies Act of each State, a cooperative society
registered within any State under the law of that State is not allowed to operate in
other States without the permission of the Government or Registrar of Cooperative
Basic Understanding
other States without the permission of the Government or Registrar of Cooperative
Societies of that State. In case of multi-State cooperative society, it can operate in
more than one State as a matter of right, under the Act and no permission of any
State is required to do its business.
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 4
Types of Cooperative societyTypes of Cooperative societyTypes of Cooperative societyTypes of Cooperative society
• Housing cooperative
• Building cooperative
• Retailers' cooperative
• Utility cooperative
• Worker cooperative
• Social cooperative
• Consumers' cooperative
• Agricultural cooperative
• Cooperative banking
• Federal or secondary
cooperatives
• Cooperative wholesale society
Characteristics of Cooperative societyCharacteristics of Cooperative societyCharacteristics of Cooperative societyCharacteristics of Cooperative society
• Separate Legal Entity - A Co-operative Society is registered under the Co-
operative Societies Act. After registration a society becomes a separate legal
entity, with limited liability of its members. Death, insolvency or lunacy of a
Basic Understanding
entity, with limited liability of its members. Death, insolvency or lunacy of a
member does not affect the existence of a society. It can enter into agreements
with others and can purchase or sell properties in its own name.
• Self-help through mutual cooperation
• General Membership
• Voluntary Association
• State control / monitoring
• Social Management
• Service motive
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• No man can trade with himself; he cannot make, in what is its true sense or
meaning, taxable profit by dealing with himself" – (As per Palles, C.B. in Dublin
Corpn. v. M. Adam 2 T.C. 387 at p. 397;)
• A service cannot be said to be rendered, if mutuality exists, it is not important
Concept of Mutuality
• A service cannot be said to be rendered, if mutuality exists, it is not important
that the service provider and service receiver are separate legal entities. This
is laid down by the Hon’ble Supreme Court in the case of Young Men’s Indian
Association, Madras and Others [1970 (26) STC 241].
• Concept of mutuality applies to Service tax / VAT as well.
Refer - Chelmsford Club v. CIT, Delhi [(2000) 3 SCC 214]
- Dalhousie Institute [2006 (3) S.T.R. 311 (Cal.)]
- Saturday Club Ltd. [2006 (3) S.T.R. 305 (Cal.)].
- Chief Commissioner v. Ranchi Club Ltd. - 2013 (32) S.T.R. J34 (S.C.) –
Appeal pending before Supreme Court
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Specific Provisions to Override concept of MutualitySpecific Provisions to Override concept of MutualitySpecific Provisions to Override concept of MutualitySpecific Provisions to Override concept of Mutuality
• Entity having separate legal existence considered as separate person
• Service Tax
Concept of Mutuality
• Service Tax
o Deemed to be separate person - an unincorporated association or a body
of persons(“BOP”), as the case may be, and a member thereof shall be
treated as distinct persons;
• VAT
o Article 366(29A)(e) of Constitution - a tax on the supply of goods by any
unincorporated association or body of persons to a member thereof for
cash, deferred payment or other valuable consideration
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VAT / Service Tax on Cooperative SocietiesVAT / Service Tax on Cooperative SocietiesVAT / Service Tax on Cooperative SocietiesVAT / Service Tax on Cooperative Societies
• Generally, Indirect taxes are uniformly applicable for any form of business and
accordingly there is neither any special benefit nor any additional compliance
for a cooperative society
Overview of Taxation
for a cooperative society
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Provisions of Service TaxProvisions of Service TaxProvisions of Service TaxProvisions of Service Tax
Service Tax on Cooperative SocietiesService Tax on Cooperative SocietiesService Tax on Cooperative SocietiesService Tax on Cooperative Societies
• Since the concept of mutuality has been done away with the deeming fiction,
collections from members become liable for Service tax if they are in the nature
of any activity carried out by society for its members.
Service Tax
of any activity carried out by society for its members.
• Thus, all charges, collection, fee and other amounts received from the members
is liable to Service Tax
• Exemption of 10 Lakhs available to cooperative society as well.
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Service Tax on Cooperative Group Housing SocietiesService Tax on Cooperative Group Housing SocietiesService Tax on Cooperative Group Housing SocietiesService Tax on Cooperative Group Housing Societies
• In case of group housing societies such taxability has been specifically provided
vide Circular No. V/ST/HQ/Tech/Ref-25/06/1956.
Service Tax
• Taxable collections – Maintenance or management fees, car parking charges,
insurance, charge for using amenities like gym, swimming place etc, use of
common area for functions etc.
• Non taxable collection – Property / Sewarge tax, capital contribution, interest on
default payments, premium on flat transfer etc.
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CST v CST v CST v CST v ShrinandnagarShrinandnagarShrinandnagarShrinandnagar----IV Co. Op. Housing Society Ltd. [2011 (23) S.T.R. 439 (IV Co. Op. Housing Society Ltd. [2011 (23) S.T.R. 439 (IV Co. Op. Housing Society Ltd. [2011 (23) S.T.R. 439 (IV Co. Op. Housing Society Ltd. [2011 (23) S.T.R. 439 (GujGujGujGuj.)].)].)].)]
• Whether the construction activity being performed/undertaken by the Society as
a service to its members, is a taxable activity or not?
Service Tax
Held - the contractor who undertakes the construction work, would be liable to
pay service tax but the society in turn, cannot be said to have supplied any
services to its members
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 12
Service by an unincorporated body or an entity registered as society to own members by
way of reimbursement of charges or share of contribution:-
(b) for the provision of carrying out any activity which is exempt from the levy of service tax;
or
(c) up to an amount of five thousand rupees per month per member for sourcing of goods or
services from a third person for the common use of its members in a housing society or
a residential complex;
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 13
Cooperative Societies and Reverse Charge LiabilityCooperative Societies and Reverse Charge LiabilityCooperative Societies and Reverse Charge LiabilityCooperative Societies and Reverse Charge Liability
• Cooperative Societies are liable to pay Service tax under Reverse Charge on
payments made to Goods transport agency
Service Tax
• Since Cooperative societies are not covered under the definition of ‘body
corporate’, no other liability exists on them to pay Service tax under reverse
chargeo “body corporate” has the meaning assigned to it in clause (7) of section 2 of the
Companies Act, 1956 (1 of 1956)
o Section 2 (7) - " body corporate" or" corporation' includes a company incorporated
outside India but 1 does not include-(a) a corporation sole; (b) a co- operative society registered under any law relating to co- operative societies; and (c) any other body corporate (not being a company as defined in this Act) which the Central Government may, by notification in the Official Gazette, specify in this behalf
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 14
Cooperative Societies and Reverse Charge LiabilityCooperative Societies and Reverse Charge LiabilityCooperative Societies and Reverse Charge LiabilityCooperative Societies and Reverse Charge Liability
• Cooperative Societies are liable to pay Service tax under Reverse Charge on
payments made to Goods transport agency
Service Tax
• Since Cooperative societies are not covered under the definition of ‘body
corporate’, no other liability exists on them to pay Service tax under reverse
chargeo “body corporate” has the meaning assigned to it in clause (7) of section 2 of the
Companies Act, 1956 (1 of 1956)
o Section 2 (7) - " body corporate" or" corporation' includes a company incorporated
outside India but 1 does not include-(a) a corporation sole; (b) a co- operative society registered under any law relating to co- operative societies; and (c) any other body corporate (not being a company as defined in this Act) which the Central Government may, by notification in the Official Gazette, specify in this behalf
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 15
Issues in VATIssues in VATIssues in VATIssues in VAT
• Cooperative Societies have been specifically specified as a dealer in the
definition clause of VAT Acts
Issues in VAT
Concept of MutualityConcept of MutualityConcept of MutualityConcept of Mutuality
• Society can act as agent of members, however, when society has authority to
decide the sale prices of goods sold to members and is not acting merely as an
agent of the members, then it is a dealer.
• In the case of Berhampur Silk Weavers Co-op. Society Ltd. vs. State of Orissa
(1972) 29 STC 359 (Ori), wherein Co-operative societypurchased inputs and
supplies it to the weavers who convert it in final products and then returned
back to the society and society in turn pays wages and distributes profits, it was
held that society is a dealer. Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 17
Concept of MutualityConcept of MutualityConcept of MutualityConcept of Mutuality
• In a similar case, in the case of Sahakari Khand Udyog Mandali Ltd. vs. State of
Gujarat(1994) 95 STC 572 (SC), Sugarcane was supplied to co-operative
society by the producer member, for manufacture of sugar and also, it ran a
Issues in VAT
society by the producer member, for manufacture of sugar and also, it ran a
factory to manufacture sugar. Factory had to pay for the sugarcane supplied by
members and non-members and the purchase price was fixed by its board of
directors, and therefore, the supply of sugarcane was held as a transaction of
sale.
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 18
Concept of BusinessConcept of BusinessConcept of BusinessConcept of Business
• Profit motive in business is not essential for the purpose of exigibility to VAT. It
is also immaterial whether the dealer earns profit or incurs loss. Thus, sale of
scrap and unserviceable goods, even if made for reduction of space or for other
Issues in VAT
scrap and unserviceable goods, even if made for reduction of space or for other
similar reasons and even if there were no profit motive, it would be liable to
VAT.
• Co-operative societies, even if engaged in the trading activities at no-profit-no-
loss basis, are liable to pay tax on their sales. A Co-operative society came into
existence in consequence of a welfare scheme formulated by the Central
Government, and in accordance with that scheme, the assessee’s canteen
provided refreshments and other articles of daily necessity to members and
non-members at cheap rates, on more or less no-profit-no-loss basis. It was
held as business activity liable to sales tax. [Income-Tax Co-operative Supply
Society Ltd. vs. CST (1980) 46 STC 433 (Delhi)]Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 19
Deduction of TDS in Works Contract agreementsDeduction of TDS in Works Contract agreementsDeduction of TDS in Works Contract agreementsDeduction of TDS in Works Contract agreements
• Co-operative societies like any other person is required to deduct TDS on
payments made to contractors for various works contract like building
out, improvement, repair or commissioning of any movable or immovable
property etc. Refer Cir-No.35(195)2000/COOP/EDP/2214 Date: 06/12/2000 by
Delhi government
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Disclaimer
“Co“Co“Co“Co----operatives are a reminder to the international community that it is operatives are a reminder to the international community that it is operatives are a reminder to the international community that it is operatives are a reminder to the international community that it is
possible to pursue both economic viability and social responsibility.”possible to pursue both economic viability and social responsibility.”possible to pursue both economic viability and social responsibility.”possible to pursue both economic viability and social responsibility.”
---- Ban Ban Ban Ban KiKiKiKi----moon, UN Secretary General moon, UN Secretary General moon, UN Secretary General moon, UN Secretary General
Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 21
DisclaimerDisclaimerDisclaimerDisclaimer
This presentation has been prepared for internal use of ICAI and its members. The contents of this document aresolely for informational purpose. It does not constitute professional advice or a formal recommendation. Thepresentation is made with utmost professional caution but in no manner guarantees the content for use by anyperson. It is suggested to go through original statute / notification / circular / pronouncements before relying onthe matter given. The presentation is meant for general guidance and no responsibility for loss arising to anyperson acting or refraining from acting as a result of any material contained in this presentation will be acceptedby us. Professional advice recommended to be sought before any action or refrainment.
---- Ban Ban Ban Ban KiKiKiKi----moon, UN Secretary General moon, UN Secretary General moon, UN Secretary General moon, UN Secretary General
Thank You
CA Gaurav Gupta�� � �� � �Service Tax and VAT on Cooperative Societies CA Gaurav Gupta 22
