2023 (2) TMI 1094 - AT - Service Tax

Exemption from payment of Service Tax - supply of tangible goods - providing agricultural machinery on rental basis to the farmers - statutory functions performed under the Madhya Pradesh Tractor Dwara Kheti (Prabharo Ki Vasuli) Adhiniyam, 1972 or not - Applicability of Circular dated December 18, 2006 issued by the Department of Agriculture - HELD THAT - It cannot be doubted that the functions performed by the appellant are statutory in nature. The Act has been enacted to provide for cultivation to certain lands by means of tractors by the State Government and for the recovery of charges in respect thereof. A cultivator can make an application to the Director for carrying out tractor cultivation in whole or part of his land. If the application is accepted, a bond has to be executed by the cultivator and on execution of the bond, the Director shall cause tractor cultivation to be carried out on the land of the cultivator. The view that has been taken is supported by the judgment of the Supreme Court in Krishi Upaj Mandi Samiti vs. Commissioner of Central Excise 2022 (2) TMI 1113 - SUPREME COURT where it was held that it does not provide that on deposit of the money received by the Market Committees into the Government Treasury/sub-treasury or a bank duly approved, it ceases to be the Market Committee Fund. It will continue to be the Market Committee Fund. Even it is the case on behalf of the appellants that the fees collected, which will be deposited in the Market Committee Fund will be utilized by the Market Committee for expanding/benefit of the Market Committee etc. In the instant case, it is seen that a mandatory duty has been cast upon the appellant to provide tractor cultivation on the land of the cultivator if the application of the cultivator is accepted and a bond is executed on payment of charges as specified in the Act and the Rules. Such charges are also deposited in the District Treasury by the appellant - The Principal Commissioner, therefore, committed an error in concluding that the services performed by the appellant are not statutory in nature as they have not been performed in terms of specific responsibility assigned to it under the law in force. The Principal Commissioner was, therefore, not justified in confirming the demand of service tax. Such a being decision, even if it is held that the services provided by the appellant fall under the category of supply of tangible goods , then too by virtue of the Circular dated December 18, 2006, the appellant cannot be called upon to pay any service tax. Appeal allowed.

Summary

Issues Involved:
1. Whether the functions performed by the appellant are statutory and exempt from service tax under the Act and Circular dated December 18, 2006.

Detailed Analysis:
1. The issue in this appeal revolves around determining whether the functions performed by the appellant, as per the Madhya Pradesh Tractor Dwara Kheti (Prabharo Ki Vasuli) Adhiniyam, 1972, are statutory and thus exempt from service tax under the Circular dated December 18, 2006. The appellant challenged the order of the Principal Commissioner confirming the demand of service tax, interest, and penalty, citing the first proviso to section 73(1) of the Finance Act, 1994. The key contention was whether the services provided by the appellant to cultivators fall under taxable services as per section 65(105)(zzzzj) of the Finance Act.

2. The Act mandates the cultivation of lands by tractors by the State Government and the recovery of charges. The appellant provides services to cultivators, and the charges collected are as per the Act and Rules framed. The dispute arose when a show cause notice was issued to the appellant for not paying service tax on the rental of agricultural machinery to farmers. The Principal Commissioner upheld the demand, rejecting the appellant's defense based on the Circular dated December 18, 2006, which exempts certain statutory functions from service tax.

3. The Circular clarifies that activities performed by sovereign/public authorities under statutory obligations are not considered taxable services for service tax purposes. However, the Principal Commissioner found the appellant's services not to be statutory, as they were not mandatory under specific responsibilities assigned by law. The appellant contended that the services were indeed statutory, as per the Act and Rules, and thus exempt from service tax. The appellant's argument was supported by a Supreme Court judgment emphasizing the distinction between mandatory statutory obligations and discretionary functions.

4. The Tribunal held that the functions performed by the appellant were indeed statutory in nature, as per the Act and Rules. The appellant had a mandatory duty to provide tractor cultivation upon acceptance of cultivator applications and payment of charges, which were subsequently deposited in the District Treasury. The Principal Commissioner's decision to levy service tax was deemed erroneous, and the demand was set aside. The Tribunal allowed the appeal, emphasizing that even if the services fell under the category of "supply of tangible goods," the Circular exempted the appellant from paying service tax.

5. Consequently, the order dated 29.12.2005 by the Principal Commissioner was set aside, and the appeal was allowed in favor of the appellant. The Tribunal concluded that the services provided by the appellant were statutory and exempt from service tax, as per the Act and Circular dated December 18, 2006.