2010 (3) TMI 1011 - HC - VAT and Sales Tax

Whether AMC is rendering any service which can be termed to be taxable service within the meaning of the said term as defined in section 65(105)(zzzm) of the Service Tax Act? If AMC is liable to pay service tax on the footing that AMC is rendering taxable service, whether AMC is entitled to recover the same from the petitioner, and if so, under which provision? Held that - The provisions of section 65(105)(zzzm) of the Service Tax Act require sale of space for advertisement, in other words, providing space for display or advertisement, and AMC is not in any manner providing space for display. In light of what is stated hereinbefore, it is apparent that the act of AMC in granting written permission for a fee is in context of provisions of sections 244, 245 and 386 of the BPMC Act read together and the said Act cannot be termed to be a service provided by AMC to make the Act a taxable service for the purposes of Service Tax Act. AMC has, therefore, erred in law in demanding service tax from petitioner in the facts of the case and recovering the same without authority of law. Accordingly, communications dated May 6, 2008 (annexure A), July 8, 2008 and September 30, 2008 (annexure AA collectively), October 6, 2008 (annexure B), July 14, 2009 (annexure D) and July 18, 2009 (annexure E), are hereby quashed and set aside, and Ahmedabad Municipal Corporation is directed not to take any steps for the purposes of effecting coercive recovery of service tax. Ahmedabad Municipal Corporation is also directed to refund an amount of ₹ 6,17,165 having wrongly recovered the same towards service tax from the petitioner. Considering the nature of the controversy, the prayer for refunding amount of ₹ 6,17,165 with interest, is not accepted.

Summary

Issues Involved:
1. Whether AMC is rendering any service which can be termed "taxable service" within the meaning of section 65(105)(zzzm) of the Service Tax Act.
2. If AMC is liable to pay service tax, whether AMC is entitled to recover the same from the petitioner, and if so, under which provision.

Detailed Analysis:

1. Whether AMC is rendering any service which can be termed "taxable service" within the meaning of section 65(105)(zzzm) of the Service Tax Act:

The petitioner, an advertising agent, challenged the communications issued by Ahmedabad Municipal Corporation (AMC) demanding service tax on licence fees for advertising boards on private properties. The petitioner argued that AMC cannot be termed as a service provider under section 65(105)(zzzm) of the Service Tax Act, which defines taxable service as any service provided in relation to the sale of space or time for advertisement.

The court examined sections 244, 245, and 386 of the BPMC Act, which provide for granting written permission for erecting advertisements and charging fees for such permissions. It was clarified that these permissions are regulatory measures to ensure public safety and compliance with municipal regulations, not services provided to the petitioner.

The court concluded that AMC's role in granting written permissions does not constitute providing space for advertisements, as AMC does not own the properties where the advertisements are placed. Therefore, AMC is not rendering a taxable service under section 65(105)(zzzm) of the Service Tax Act.

2. If AMC is liable to pay service tax, whether AMC is entitled to recover the same from the petitioner, and if so, under which provision:

AMC argued that it sought to recover service tax from the petitioner because it had been required to pay the tax to the Service Tax Department. However, the court found no statutory provision empowering AMC to collect service tax on fees charged for granting written permissions.

The court emphasized that AMC cannot act as an agent for service tax recovery, and there was no demand from the Service Tax Department on the petitioner for services rendered to its clients. Hence, AMC's demand for service tax from the petitioner was without legal authority.

The court quashed the communications demanding service tax and directed AMC to refund Rs. 6,17,165 collected from the petitioner. However, the court did not grant the petitioner's request for interest on the refunded amount.

Conclusion:

The court ruled that AMC is not providing a taxable service under the Service Tax Act by granting written permissions for advertisements. Consequently, AMC's demand for service tax from the petitioner was unlawful, and AMC was directed to refund the collected amount without interest. The petition was allowed, and the rule was made absolute to the extent of quashing the impugned communications and directing the refund.