2024 (4) TMI 1125 - AT - Service Tax

Levy of service tax - Municipality provided services / facilities while discharging sovereign functions or not - services are in the nature of fees, fine charges collected by the Municipality while discharging the functions enlisted in 12th Schedule of the Constitution or not - reverse charge mechanism - major part of the demand is under Renting of Immovable Property Services - Extended period of limitation - HELD THAT - The Hon ble High Court in the case of CUDDALORE MUNICIPALITY VERSUS THE JOINT COMMISSIONER OF GST CENTRAL EXCISE, THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE SERVICE TAX AND VIRUDHACHALAM MUNICIPALITY VERSUS THE ASSISTANT COMMISSIONER, OFFICE OF THE ASSISTANT COMMISSIONER OF GST AND CENTRAL EXCISE, CUDDALORE 2021 (4) TMI 500 - MADRAS HIGH COURT had analysed the issue as to whether demand of service tax can be raised in regard to services / facilities provided by Municipality / Corporation. It was held that Municipalities (local authority) were rendering such services as sovereign function and therefore the amounts received is outside the purview of levy of service tax. In the said judgment, the Hon ble High Court considered the liability to pay service tax for the period prior to 01.07.2012 as well as after 01.07.2012 - It was held that the Government or local authority is exempted from payment of service tax on Renting of Immovable Property Services or for other services. The above decision was rendered by the Hon ble High Court on 22.03.2021. However, prior to this decision, the Hon ble Jurisdictional High Court at Madurai Bench in the case of Madurai Corporation Vs. The Commissioner of Central Excise 2020 (9) TMI 1303 - MADRAS HIGH COURT had considered the issue of taxability of renting of immovable property and vide judgment dated 09.09.2020 held that Municipality is liable to pay service tax - In the case of Madurai Corporation, the Ld. Single Bench Judge sustained the demand mainly on the view that it was observed by the Hon ble High Court in the batch case that the Municipality can pass on the burden of service tax to the tenant (recipient of service tax). It is represented here that the Department has filed appeal against the decision passed by the Ld. Single Judge in the case of Cuddalore Municipality and that assessee has filed appeal against the decision passed in the case of Madurai Corporation. These appeals are pending before the Hon ble High Court. Since, the Hon ble High Court in the case of St. Thomas Mount Cum Pallavaram Cantonment Board 2023 (4) TMI 1024 - MADRAS HIGH COURT has remanded the matter for considering the issue afresh, it is opined, that in the interest of justice, these matters also require to be remanded to the Adjudicating Authority to consider afresh the issue as to whether Municipality is liable to pay service tax under Renting of Immovable Property Services and other Services. Time limitation - HELD THAT - The assessee being a local authority, which is a wing of the Government, it cannot be said that assessee has suppressed facts with intent to evade payment of service tax. So also, there is no positive act of suppression alleged in the Show Cause Notice against these Municipalities. As the matter is remanded, the Adjudicating Authority is directed to consider the issue on limitation also. The Department has filed appeal aggrieved by dropping or reducing the demands. In case the demand of service tax is sustainable, the Adjudicating Authority is directed to quantify after looking into the actual amounts received in respect of each services. The appeals are allowed by way of remand to the Adjudicating Authority.

Summary

Issues Involved:
1. Levy of Service Tax on Services provided by Municipality.
2. Nature of Fees and Charges collected by Municipality.
3. Liability under Reverse Charge Mechanism.
4. Limitation and Suppression of Facts.

Summary:

1. Levy of Service Tax on Services provided by Municipality:
The primary issue was whether the demands of service tax under various services, including Renting of Immovable Property Services, provided by the Municipality are sustainable. The Tribunal noted that the Hon'ble High Court in the case of Cuddalore Municipality had held that Municipalities rendering services as sovereign functions are exempt from service tax. Conversely, the Madurai Corporation case held that Municipalities are liable to pay service tax. Given the conflicting judgments and pending appeals, the Tribunal remanded the matter to the Adjudicating Authority to reconsider whether the Municipality is liable to pay service tax under Renting of Immovable Property Services and other services.

2. Nature of Fees and Charges collected by Municipality:
The assessee argued that certain fees and charges collected, such as for bus stands, public toilets, and slaughterhouses, are in the nature of fees and fines collected while discharging sovereign functions and should not be subject to service tax. The Tribunal directed the Adjudicating Authority to examine if these activities fall within the functions listed in the 12th Schedule of the Constitution and are carried out as per the Coimbatore City Municipality Corporation Act, 1981.

3. Liability under Reverse Charge Mechanism:
The assessee contended that part of the demand raised on a reverse charge basis is not payable by them. The Tribunal did not provide a specific ruling on this issue but implied that it should be reconsidered by the Adjudicating Authority during the remand.

4. Limitation and Suppression of Facts:
The assessee argued that as a local authority, it cannot be accused of suppressing facts with the intent to evade service tax, and thus, the extended period of limitation should not apply. The Tribunal directed the Adjudicating Authority to consider the limitation issue, noting that there was no positive act of suppression alleged in the Show Cause Notices.

Conclusion:
The Tribunal set aside the impugned orders and remanded the matters to the Adjudicating Authority for fresh consideration on all issues, including the correct quantification of demands if service tax is found to be payable. The appeals were allowed by way of remand, and cross objections were disposed of accordingly.