2017 (5) TMI 1465 - AT - Service Tax

Liability of service tax - market fees or mandi shulk - lease amount - appellant charged market fee for issuing licence to traders, agents, factory/cold storage owners or other buyers of other agricultural produce. The appellants also let out land and shops to traders and collected allotment fee/lease amount for such land/shop - Held that - with the introduction of Negative List Regime of Taxation w.e.f. 1.7.2012, the appellants‟ services were excluded from the tax liability - the appellants, being an Agricultural Produce Marketing Committee, is excluded from the tax liability - Services relating to agricultural produce by way of storage or warehousing are in the negative list. In respect of shops, premises, buildings, etc. rented/leased out for any other commercial purpose other than with reference to agricultural produce (like bank, general shop etc.), the same shall not be covered by the negative list and the appellants shall be liable to service tax. The appellants are liable to pay service tax under the category of renting of immovable property service for the period upto 30.06.2012 - For the period from 1.7.2012 (Negative List Regime), the appellants are not liable to pay service tax under the said tax entry in respect of shed/shop/premises leased out to the traders/others for storage of agricultural produce in the marketing area. The Negative List will not cover the activities of renting of immovable property for other than agricultural produce - The demands, wherever raised invoking extended period, shall be restricted to the normal period - penalties set aside. The threshold exemption available to the small scale service provider in terms of the applicable notifications during the relevant years, shall be extended to the appellant on verification of their turnover. Appeal allowed - decided partly in favor of appellant.

Summary

Issues Involved:
1. Validity of demand notices issued after 1.7.2012.
2. Liability of service tax on market fees and allotment fees.
3. Applicability of service tax under the category of "renting of immovable property."
4. Applicability of Negative List Regime from 1.7.2012.
5. Invocation of extended period for demand and imposition of penalties.
6. Eligibility for threshold exemption for small-scale service providers.

Issue-wise Detailed Analysis:

1. Validity of Demand Notices Issued After 1.7.2012:
The appellants argued that demand notices issued after 1.7.2012 invoking obsolete provisions of law are invalid. The Tribunal noted that Notification No.20/2012-ST dated 5.6.2012 clearly states that Section 65 of the Finance Act, 1994 shall not apply with effect from 1.7.2012 except for actions done before this date. Thus, the demands for periods prior to 1.7.2012 are valid even if raised after this date. Incorrect section mentions do not invalidate the proceedings as the scope of demand and facts are clearly stated in the notice.

2. Liability of Service Tax on Market Fees and Allotment Fees:
The appellants, established under the Rajasthan Agricultural Produce Markets Act, 1961, regulated the sale of agricultural produce and charged market fees for issuing licenses and allotment fees for letting out land/shops. The Revenue held that service tax is not applicable to market fees but is applicable under "renting of immovable property" for allotment fees. The Tribunal upheld this view, noting that renting out land/shops for commercial purposes is not a mandatory/sovereign function and thus taxable.

3. Applicability of Service Tax under the Category of "Renting of Immovable Property":
The Tribunal examined the agreements and found that the appellants rented out shops/land for a consideration, which is taxable under "renting of immovable property." The claim that such renting is a statutory function was rejected as there was no support for this assertion. Therefore, the appellants are liable for service tax on considerations received for renting out shops/land for commercial activities.

4. Applicability of Negative List Regime from 1.7.2012:
With the introduction of the Negative List Regime from 1.7.2012, services by Agricultural Produce Marketing Committees were excluded from tax liability. The Tribunal referred to Section 66(D) of the Finance Act, 1994, which excludes services related to agriculture, including renting of vacant land with structures incidental to its use. The Tribunal held that the appellants are not liable for service tax on renting of immovable property used for storage of agricultural produce in the market area. However, renting for non-agricultural purposes remains taxable.

5. Invocation of Extended Period for Demand and Imposition of Penalties:
The Tribunal found no evidence of fraud, collusion, or willful mis-statement by the appellants, a government organization, to evade service tax. The serious litigation surrounding the tax entry "renting of immovable property service" and the status of the appellants led to the conclusion that the extended period for demand is not applicable. Consequently, penalties imposed on the appellants were set aside.

6. Eligibility for Threshold Exemption for Small-Scale Service Providers:
The Tribunal directed that the benefit of threshold exemption available to small-scale service providers should be extended to the appellants upon verification of their turnover.

Conclusion:
(I) The appellants are liable to pay service tax for "renting of immovable property service" up to 30.06.2012.
(II) From 1.7.2012, the appellants are not liable for service tax on sheds/shops/premises leased out for storage of agricultural produce but are liable for non-agricultural purposes.
(III) Demands raised invoking the extended period are restricted to the normal period, and penalties are set aside.
(IV) Threshold exemption for small-scale service providers shall be verified and extended.

Order Pronounced on 25/05/2017.