2018 (2) TMI 1498 - HC - Service Tax

Non-payment of service tax - Renting of immovable property service - allegation under the SCN is that MIDC has not paid service tax on services charges collected from the holders of the plots situated at various Industrial areas/estates of the MIDC - circular dated 18th December, 2006 bearing No.89/7/2006. Held that - the activities performed by sovereign or public authorities under the provisions of law which are in the nature of statutory obligations are covered by clause 2 which provides that the fee collected by such sovereign or public authorities for performing such activities is in the nature of compulsory levy. Only if such authority performs service which is not in the nature of statutory activity and the same is undertaken for a consideration which is not in the nature of statutory fee, service tax would be leviable if the activity undertaken otherwise falls within the ambit of taxable service. Section 14 of the MID Act provides that the function of the MIDC is not only to develop industrial areas but to establish and manage industrial estates. The role of MIDC is not limited only to establishing industrial estates and allotting the plots or buildings or factory sheds to industrial undertakings. The function and obligation of the MIDC is also to manage and maintain the said industrial estates as provided in Section 14. Therefore, it is the statutory obligation of the MIDC to provide amenities as defined in clause (a) of Section 2 of the MID Act to the industrial estates established by it. Thus, it is the statutory obligation of MIDC to provide and maintain amenities in its Industrial estates such as roads, water supply, street lighting, drainage, etc. As provided in the circular dated 18th December, 2006, for providing amenities to the plot holders, the service fees or service charges collected by MIDC are obviously in the nature of compulsory levy which is used by MIDC in discharging statutory obligations under Section 14 - even in the OrderinOriginal, there is no finding of fact recorded that the service rendered for which service tax was sought to be levied was not in the nature of statutory obligation. MIDC is a statutory Corporation which is virtually a wing of the State Government. It discharges several sovereign functions - the Revenue ought not to have compelled MIDC to prefer Appeals before Appellate Tribunal. Appeal dismissed - decided against appellant.

Issues Involved:

1. Demand of service tax on service charges collected by MIDC.
2. Classification of services under "management, maintenance, and repairs" as per Section 65 of the Finance Act, 1994.
3. Statutory obligations of MIDC under the Maharashtra Industrial Development Act, 1961.
4. Applicability of the circular dated 18th December, 2006, issued by the Central Board of Excise and Customs.
5. Sovereign functions of MIDC and its exemption from service tax.
6. Costs imposed on the Appellant for unnecessary litigation.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on Service Charges Collected by MIDC:
The appeals arose from a demand of service tax made by the Appellant to the Respondent, Maharashtra Industrial Development Corporation (MIDC). The demand pertained to service charges collected from plot holders for the period from October 2011 to September 2012. The Additional Commissioner of Central Excise, Customs, and Service Tax, Nashik, confirmed the demand of ?31,58,157, classifying the services under "management, maintenance, and repairs" as per Section 65 of the Finance Act, 1994.

2. Classification of Services Under "Management, Maintenance, and Repairs":
The Appellant contended that the services provided by MIDC to the plot holders fell under the "management, maintenance, and repairs" category defined in clause 64 of Section 65 of the Finance Act, 1994. The Appellant argued that the service charges collected by MIDC were not part of its statutory activities and thus attracted service tax liability.

3. Statutory Obligations of MIDC Under the Maharashtra Industrial Development Act, 1961:
MIDC, established under Section 3 of the Maharashtra Industrial Development Act, 1961, has statutory functions outlined in Section 14 of the Act. These functions include establishing and managing industrial estates, developing industrial areas, and providing amenities such as roads, water supply, street lighting, and drainage. The court noted that the services for which the demand was made were part of MIDC's statutory obligations under the MID Act.

4. Applicability of the Circular Dated 18th December, 2006:
The circular dated 18th December, 2006, issued by the Central Board of Excise and Customs, clarified that activities performed by sovereign/public authorities under statutory obligations are not taxable. The court emphasized that service charges collected by MIDC for providing amenities were in the nature of compulsory levy and thus exempt from service tax as per the circular.

5. Sovereign Functions of MIDC and Its Exemption from Service Tax:
The court referenced the Supreme Court decisions in Ramtanu Cooperative Housing Society vs. State of Maharashtra and Managing Director, Haryana State Industrial Development Corporation vs. Hari Om Enterprises, which established that MIDC performs sovereign functions as a wing of the State Government. Consequently, the court held that MIDC's activities were governmental functions and not subject to service tax.

6. Costs Imposed on the Appellant for Unnecessary Litigation:
The court criticized the Revenue for compelling MIDC to appeal before the Appellate Tribunal and subsequently filing these appeals, leading to unnecessary litigation expenses for MIDC. The court imposed costs of ?10,000 per appeal on the Appellant, to be paid to MIDC within one month.

Conclusion:
The court found no error in the Appellate Tribunal's view that MIDC's activities were part of its statutory obligations and thus exempt from service tax. It dismissed the appeals, imposed costs on the Appellant, and directed compliance regarding payment of costs.

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