2020 (9) TMI 1303 - HC - Service Tax

Levy of service tax - renting of immovable property service/mandap keeper service - eligibility for Mega Exemption Notification No.25/2012 dated 20.06.2012 - time limitation - penalty - HELD THAT - The issue is no longer res integra. The Division Bench of the Madras High Court had already decided the issue in the decision GV. MATHESWARAN VERSUS THE UNION OF INDIA AND OTHERS 2015 (3) TMI 391 - MADRAS HIGH COURT . After upholding the validity of Section 65(105)(zzzz) of the Act, in Paragraph No.56, the Hon'ble Division Bench observed that it is open to the local body to pass on the burden to the recipient of the service. When the Division Bench of the Madras High Court has already held that the local bodies are also liable to pay service tax for rendering renting of immovable properties service/mandap keeper services etc., then, it is not required to go into the issue once again. Judicial discipline demands to respectfully follow these binding precedents. Whether the impugned demand are hit by limitation? - HELD THAT - Admittedly, the petitioners did not register with the respondent department immediately. From the date of registration as an assessee, the petitioner is liable to pay service tax. If limitation is computed, the impugned demands are well within time - this issue had been specifically dealt with by the Division Bench of the High Court of Judicature of Chhattisgarh in PAWAN ENGINEERING WORKS VERSUS COMMISSIONER OF CUSTOM AND CENTRAL EXCISE SERVICE TAX, RAIPUR 2019 (11) TMI 1206 - CHATTISGARH HIGH COURT where it was held that non-registration of the appellant, in the given circumstances, definitely will amount to suppression of the relevant facts, which came to the notice of the Department, only later, on the basis of some intelligence gathered by the Preventive Officers of the Central Excise. This being the position, it squarely comes within the purview of 'sub-Clause (d)' under the proviso to Section 73(1) of the Finance Act, 1994 and hence it was open for the Department to have invoked the extended period of 'five years' for issuing the show cause notice. Thus, in the present case, the impugned demands are within limitation. Levy of penalty - HELD THAT - Since the local bodies are discharging statutory obligation by way of providing public service without any profit making intent and amount so collected is eventually spent for the welfare of the public, there cannot be any malafide intention to evade payment of service tax. It is for this reason, the Tribunals throughout India have been taking a consistent stand in directing waiver of penalty. The respondent authorities are bound by the view taken by the jurisdictional Tribunal. Therefore, levying of penalty on the local body is clearly not warranted and they are accordingly set aside. Petition allowed in part.

Summary

Issues:
Challenge to adjudication orders levying service tax, interest, and penalty by local bodies for renting of immovable property service/mandap keeper service. Interpretation of Section 65(105)(zzzz) of the Finance Act, 1994 regarding taxable services. Exemption under Mega Exemption Notification No.25/2012 for services by governmental authority in relation to functions entrusted to a municipality under Article 243 W of the Constitution. Liability of local bodies to pay service tax and penalty. Application of limitation period for demands.

Analysis:

1. The writ petitions challenge adjudication orders levying service tax, interest, and penalty on local bodies for renting of immovable property service/mandap keeper service. The contention is that the local bodies did not register or pay service tax initially, leading to the impugned orders. The petitioners argue that they qualify for exemption under Serial No.39 of Mega Exemption Notification No.25/2012 as they discharge functions under Article 243W of the Constitution, making them governmental authorities.

2. The interpretation of Section 65(105)(zzzz) of the Finance Act, 1994 is crucial. The petitioners argue that the term "person" does not include local authorities within its definitional sweep. However, the Division Bench of the Madras High Court has previously upheld the validity of this section, stating that local bodies can pass on the burden to the service recipient. Additionally, the Division Bench held that local bodies are liable to pay service tax for renting of immovable properties services, setting a binding precedent.

3. Regarding the liability of local bodies to pay service tax and penalty, the court considered the argument that no penalty should be levied on local bodies due to their statutory obligations and lack of fraudulent intent. Tribunals across India have consistently waived penalties for local bodies, noting their public service nature and non-profit intent. The court upheld this view and set aside the imposition of penalties on the petitioners.

4. The application of the limitation period for demands was also analyzed. The court held that the demands were within time as the petitioners did not register immediately with the department. The contention that the extended limitation period could not be invoked against local bodies was rejected, citing a Chhattisgarh High Court decision that non-registration amounts to suppression of facts, justifying the extended period.

5. In conclusion, the court held that the petitioners are liable to pay service tax as demanded by the respondents along with interest. The demands were deemed within the limitation period, and the imposition of penalties on the petitioners was set aside. The writ petitions were partly allowed, with no costs awarded, and connected miscellaneous petitions were closed.