2009 (10) TMI 667 - Commissioner - Service Tax

Summary

Issues involved: Determination of whether the fees collected by a Municipal Corporation for various approvals fall under Technical Inspection and Certification services liable for service tax, and whether the Municipal Corporation's activities can be categorized as sovereign and exempt from service tax.

Summary:

Issue 1: Fees collected by Municipal Corporation for approvals

The Municipal Corporation collected Building Licence fee, Scrutiny fee, and Completion Report fee for various approvals, which were considered by the authorities to fall under Technical Inspection and Certification services liable for service tax. The Municipal Corporation argued that the fees were statutory and in the nature of tax, being an impost as defined in the Constitution of India. The Municipal Corporation contended that it was a constitutional authority created by the State Legislature and not a service provider. After examining the facts, it was found that the fees collected were within the discharge of the Municipal Corporation's statutory function and not taxable.

Issue 2: Categorization of Municipal Corporation's activities as sovereign

The Municipal Corporation's activities were analyzed to determine if they could be categorized as sovereign and eligible for exemption from service tax. It was established that the Municipal Corporation, as a public authority under the Karnataka Municipal Corporation Act, performed activities in the public interest as a mandatory and statutory function. The fees collected were not considered as consideration for any specific service, and there was no quid pro quo involved. Therefore, it was concluded that the Municipal Corporation's activities were sovereign and exempt from service tax, as per relevant circulars and legal precedents.

Conclusion:

The Commissioner set aside the original authority's order and allowed the appeal, ruling in favor of the Municipal Corporation based on the exemption for sovereign activities and the non-taxable nature of the fees collected within the discharge of its statutory functions.