2024 (6) TMI 767 - AT - Service Tax

Levy of service tax on Renting of Immovable Property Service as well as other services against appellants (Municipalities) - time limitation - HELD THAT - The Hon ble High Court of Madras 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 matter in detail for the period prior to 01.07.2012 and post 01.07.2012. It was held that prior to 01.07.2012, the word person was not defined in the Finance Act, 1994. The definition of the taxable service used the word person and so did not include Municipality prior to 01.07.2012 - It was held by the Hon ble High Court in the case of Cuddalore Municipality that service tax was payable only if such services were provided by any other person which means other than the owner to any person. In the case of Cuddalore Municipality, the Hon ble High Court set aside the demand for the period prior to 30.06.2012. In the case of G.V. Matheswaran the constitutional validity of the levy of service tax of renting of immovable property was under challenge. The main ground raised was that it is a tax on immovable property and that Centre has no powers to levy tax as immovable property (land) falls within the State List. There were decisions passed by various High Courts upholding the validity of the provisions of Section 65 (105) (zzzz) and Section (90a) of the Finance Act. It is to be seen that some of the amounts falling within the demand pertain to fees and charges collected for carrying out functions specifically listed in 12th schedule. Further, services are carried out as per the provisions of Panchayat Act, Municipalities Act etc. by which State has bestowed the local authority to carry out such functions and services. These issues require to be examined. If sovereign functions, the levy of tax cannot be attracted. Time Limitation - HELD THAT - The appellants being local authority, which is a wing of the Government, it cannot be said that appellants had suppressed facts with intention to evade payment of service tax. So also there is no positive act of suppression alleged in the Show Cause Notices against these municipalities. As the matter is remanded, we direct the adjudicating authority to consider the issue of limitation also. The impugned orders are set aside - The appeals are allowed by way of remand to the adjudicating authority.

Summary

Issues Involved:
1. Leviability of service tax on municipalities for renting/leasing immovable property.
2. Definition and applicability of "person" under the Finance Act, 1994.
3. Interpretation of "Renting of Immovable Property Service" under Section 65 (105) zzzz.
4. Sovereign functions and their exemption from service tax.
5. Applicability of the Mega Exemption Notification.
6. Limitation and suppression of facts for invoking the extended period.

Detailed Analysis:

1. Leviability of Service Tax on Municipalities for Renting/Leasing Immovable Property:
The appellants, various municipalities, were engaged in renting/leasing immovable properties for commercial purposes. The Department issued Show Cause Notices demanding service tax under the category of Renting of Immovable Property Service from June 2007. The Original Authority confirmed the demand, which was upheld by the Commissioner (Appeals). The appellants contested the leviability of service tax on services provided by municipalities, arguing that municipalities are sovereign bodies constituted under Article 243 Q of the Constitution of India, performing civic duties and not commercial services.

2. Definition and Applicability of "Person" under the Finance Act, 1994:
The appellants argued that municipalities did not fall within the term "person" used in the definition of Renting of Immovable Property Service under Section 65 (105) zzzz before 01.07.2012. The Hon'ble High Court in the case of Cuddalore Municipality vs. Jt. Commissioner of CGST and Central Excise held that the definition of "person" applied to a "local authority" only from 01.07.2012. Thus, municipalities were not liable to pay service tax for the period before this date.

3. Interpretation of "Renting of Immovable Property Service" under Section 65 (105) zzzz:
The definition of "Renting of Immovable Property" includes renting, letting, leasing, licensing, or other similar arrangements for business or commerce. The appellants argued that the fees and levies collected by the municipality, such as entry fees for bus stands, market fees, parking fees, and slaughter fees, do not fit into this definition. The Hon'ble High Court in Cuddalore Municipality ruled that service tax was payable only if services were provided "by any other person," meaning other than the owner, which did not include municipalities before 01.07.2012.

4. Sovereign Functions and Their Exemption from Service Tax:
The appellants argued that municipalities perform sovereign functions listed in the 12th schedule of the Constitution, which should be exempt from service tax. The Hon'ble High Court in Cuddalore Municipality held that services provided by a government or local authority in terms of their sovereign right to business entities are not substitutable by any private entity and do not constitute support services. Thus, municipalities are exempt from service tax for such functions.

5. Applicability of the Mega Exemption Notification:
The appellants cited the Mega Exemption Notification no.25/2012-ST dated 20.06.2012, which exempts municipalities from service tax for services listed in the 12th schedule of the Constitution. The Hon'ble High Court in Cuddalore Municipality confirmed that municipalities are exempt from service tax under the Mega Exemption Notification for services provided post-01.07.2012.

6. Limitation and Suppression of Facts for Invoking the Extended Period:
The appellants argued that as local authorities discharging sovereign functions, they cannot be accused of suppressing facts with the intent to evade tax. The entire transactions were accounted for in the books of the municipality and subjected to periodic audits. The Tribunal directed the adjudicating authority to consider the issue of limitation and suppression of facts, 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, taking into account the observations and judgments rendered by the jurisdictional High Court. The adjudicating authority was directed to examine the issues of taxability, limitation, and sovereign functions comprehensively. The appeals were allowed by way of remand.