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2024 (6) TMI 767 - AT - Service TaxIssues Involved: 1. Leviability of service tax on services provided by municipalities. 2. Definition and applicability of "Renting of Immovable Property Service." 3. Exemption of municipalities from service tax under various provisions. 4. Limitation and suppression of facts by municipalities. Summary: 1. Leviability of Service Tax on Services Provided by Municipalities: 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" for different periods starting from June 2007. The Original Authority confirmed the demand, which was upheld by the Commissioner (Appeals). The appellants contested the leviability of service tax, arguing that municipalities are sovereign bodies constituted under Article 243 Q of the Constitution of India and cater to civic needs. 2. Definition and Applicability of "Renting of Immovable Property Service": The appellants argued that the activities in question did not fit the definition of "Renting of Immovable Property Service" u/s 65 (105) zzzz of the Finance Act 1994. They contended that fees and levies collected by municipalities (e.g., entry fees, market fees, parking fees) were not taxable services but were in the nature of taxes. The Hon'ble High Court in the case of Cuddalore Municipality held that prior to 01.07.2012, the term "person" did not include municipalities, and thus, they were not liable to pay service tax. Post 01.07.2012, municipalities were included in the definition of "person" but were exempted under the Mega Exemption Notification no.25/2012-ST dated 20.06.2012. 3. Exemption of Municipalities from Service Tax: The Hon'ble High Court in the case of Cuddalore Municipality ruled that municipalities are exempt from paying service tax on "Renting of Immovable Property Service" both prior to and post 01.07.2012. The court noted that services provided by municipalities in terms of their sovereign rights are not substitutable by private entities and thus do not constitute support services. The court also referred to the Mega Exemption Notification, which exempts services provided by governmental authorities in relation to functions entrusted to municipalities under Article 243 W of the Constitution. 4. Limitation and Suppression of Facts by Municipalities: The appellants argued that as local authorities discharging sovereign functions, they could not be accused of suppressing facts with the intent to evade service tax. The court agreed that there was no positive act of suppression alleged in the Show Cause Notices and directed the adjudicating authority to consider the issue of limitation. Conclusion: The Tribunal set aside the impugned orders and remanded the matters to the adjudicating authority for fresh consideration of the issues, including the applicability of service tax on municipalities and the issue of limitation. The adjudicating authority was directed to examine whether the services provided by municipalities fall under sovereign functions and thus are exempt from service tax.
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