2025 (1) TMI 1260 - AT - Service Tax

Levy of service tax on the appellant Velur Town Panchayat - Renting of Immovable Property service - exemption of service tax for performing sovereign functions - local authority - extended period of limitation - HELD THAT - In similar circumstances this Tribunal had in the Appellants own case for the previous period in M/S. VELUR TOWN PANCHAYAT VERSUS THE COMMISSIONER OF GST CENTRAL EXCISE SALEM COMMISSIONERATE AND M/S. MOHANUR TOWN PANCHAYAT VERSUS THE COMMISSIONER OF GST CENTRAL EXCISE SALEM COMMISSIONERATE 2024 (6) TMI 1182 - CESTAT CHENNAI had remanded the matter to the Adjudicating Authority by taking note of the judgement passed by the jurisdictional 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 and the subsequent decision in the case of ST. THOMAS MOUNT CUM PALLAVARAM CANTONMENT BOARD VERSUS ADDITIONAL COMMISSIONER COMMISSIONER OF GST AND CENTRAL EXCISE CHENNAI 2023 (4) TMI 1024 - MADRAS HIGH COURT . Conclusion - It is required to take a detailed examination of whether the services in question fall within the scope of sovereign functions. Appeal allowed by way of remand.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether the demand for service tax under the category of "Renting of Immovable Property Service" on the appellant, Velur Town Panchayat, is sustainable. Additionally, the Tribunal examined whether the appellant, as a local authority, is exempt from service tax on the grounds of performing sovereign functions. The Tribunal also considered the applicability of the limitation period for raising the demand.

ISSUE-WISE DETAILED ANALYSIS

1. Liability of Local Authorities under Service Tax for Renting of Immovable Property

Relevant Legal Framework and Precedents: The legal framework involves the Finance Act, 1994, specifically Section 65(105)(zzzz) concerning service tax on renting of immovable property. The Tribunal referenced several judgments, including Cuddalore Municipality v. Joint Commissioner of GST and Central Excise, which held that municipalities, as local authorities, perform sovereign functions and are exempt from service tax under Section 65D(1)(a) of the Finance Act, 1994.

Court's Interpretation and Reasoning: The Tribunal noted conflicting decisions from various High Courts regarding the liability of municipalities to pay service tax on renting of immovable property. The Tribunal highlighted the decision in Cuddalore Municipality, which exempted local authorities from service tax, and contrasted it with Madurai Corporation, which upheld the liability.

Key Evidence and Findings: The Tribunal considered previous orders and judgments, including those involving similar issues with other municipalities, emphasizing the need to assess whether the services provided fall under sovereign functions exempt from service tax.

Application of Law to Facts: The Tribunal applied the legal principles from the cited cases to the appellant's situation, focusing on whether the renting services were part of sovereign functions as outlined in the 12th Schedule of the Constitution.

Treatment of Competing Arguments: The Tribunal weighed the appellant's argument of exemption due to sovereign functions against the Department's stance on the applicability of service tax, ultimately deciding to remand the matter for further examination.

Conclusions: The Tribunal concluded that the issue requires a fresh examination by the Adjudicating Authority to determine the applicability of service tax, considering the nature of the services and the appellant's status as a local authority.

2. Applicability of Limitation Period

Relevant Legal Framework: The limitation period for raising service tax demands is governed by the Finance Act, 1994, which includes provisions for extended periods in cases of suppression of facts.

Court's Interpretation and Reasoning: The Tribunal acknowledged the appellant's argument that, as a government wing, it could not be accused of suppression with intent to evade tax. The Tribunal noted the absence of allegations of positive suppression in the Show Cause Notice.

Application of Law to Facts: The Tribunal directed the Adjudicating Authority to consider the limitation issue during the remand proceedings, recognizing the appellant's status as a local authority.

Conclusions: The Tribunal left the limitation issue open for the Adjudicating Authority to decide upon remand.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reaffirmed the principle that local authorities performing sovereign functions may be exempt from service tax. It emphasized the need for a detailed examination of whether the services in question fall within the scope of sovereign functions.

Final Determinations on Each Issue: The Tribunal set aside the impugned Order-in-Appeal and remanded the case to the Adjudicating Authority for a fresh determination on the applicability of service tax and the limitation period, allowing the appellant to present evidence and arguments.

Verbatim Quotes of Crucial Legal Reasoning: "The Hon'ble High Court in the case of Cuddalore Municipality... 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." The Tribunal also noted, "If the activities are in discharge of sovereign right / function, the levy of service tax cannot be attracted."

The Tribunal's decision reflects a careful balancing of competing legal interpretations and emphasizes the importance of a detailed factual and legal analysis to determine the applicability of service tax to local authorities.