2012 (8) TMI 938 - HC - Service Tax

Summary

Issues involved:
The issue involves a challenge to a demand made by the respondent-Corporation towards payment of service charges, with the petitioner claiming exemption from tax under Article 285(1) of the Constitution of India.

Judgment Details:

Issue 1 - Challenge to Demand for Service Charges:
The petitioner contended that they are exempted from tax under Article 285(1) of the Constitution of India and thus the demand for tax by the respondents is unjustifiable. The petitioner argued that the demand for tax is liable to be interfered with.

Issue 2 - Interpretation of Tax Collection and Service Charges:
The Central Government Standing Counsel for the petitioner referred to a ruling of the Apex Court in the case of Municipal Corporation, Amritsar v. Senior Superintendent of Post Officer, Amritsar Division, highlighting that tax cannot be collected under the guise of service charges. The respondents, on the other hand, explained that while they used to collect tax until 2007, they have since refrained from doing so upon realizing the prohibition under Article 285 of the Constitution of India. However, they maintained that the petitioners are still obligated to pay service charges for various amenities like water supply, street-lighting, approach roads, and sewage.

Judgment:
The Court noted that the issue at hand has been settled by the Apex Court's ruling in the case of Municipal Corporation, emphasizing that tax cannot be disguised as service charges. Consequently, the impugned notice demanding payment is set aside, and the Corporation is directed to issue a fresh demand in accordance with the observations made in the judgment. The rule is issued and made absolute to the extent indicated, thereby disposing of the petition.

This judgment clarifies the distinction between tax collection and service charges, affirming the petitioner's exemption from tax under Article 285(1) of the Constitution of India while emphasizing the obligation to pay legitimate service charges for specific amenities provided by the Corporation.