Case Law Details
Nagar Parishad Vs Commissioner of Central Excise & C.G.ST (CESTAT Delhi)
Introduction: The recent order by the CESTAT Delhi on the case of M/s. Nagar Parishad, Chittorgarh, engaged in ‘Renting of Immovable Property Services,’ sheds light on the intricacies of service tax liabilities. The department alleged non-payment of service tax, leading to a show cause notice and subsequent penalties. This article provides an in-depth analysis of the CESTAT Delhi verdict, examining the legal arguments, penalties imposed, and the overall implications.
Detailed Analysis:
1. Background and Allegations: Nagar Parishad faced scrutiny for not paying service tax on charges collected under various heads related to ‘Renting of Immovable Property.’ The department proposed recovery of Rs.64,16,499, inclusive of interest and penalties, through a show cause notice.
2. Appellant’s Position: The appellant, despite being a local body under Article 243Q of the Constitution, argued that its duties fall under the negative list (Section 66D of the Finance Act). It asserted that income generated serves as a compensatory mechanism for constitutional powers under Article 243W and Schedule XII of the Constitution.
3. Legal Reference – Krishi Upaj Mandi Samiti Case: The Department invoked the decision in the Krishi Upaj Mandi Samiti case, upheld by the Supreme Court in 2022. The case clarified the scope of service tax on properties leased for agricultural produce storage. However, Nagar Parishad’s case involved properties leased for commercial purposes, leading to service tax liability.
4. CESTAT Delhi’s Verdict: CESTAT Delhi upheld the department’s demand, citing Nagar Parishad’s admission of tax liabilities. The appellant’s non-disclosure of income received from renting immovable properties for commercial use was a crucial factor. The verdict confirmed penalties under Sections 75, 76, 77, and 78 of the Finance Act.
5. Section 80 Claim Rejected: Despite the appellant’s claim under Section 80, the tribunal found no reasonable cause justifying non-payment of service tax over 5 to 6 years. The failure to pay the confirmed service tax and interest within the stipulated time led to the rejection of Section 80 benefits.
Conclusion: The CESTAT Delhi’s verdict in the Nagar Parishad case establishes the liability for service tax on income generated from renting immovable properties for commercial purposes. The decision emphasizes the importance of full disclosure and timely payment of taxes. Nagar Parishad’s appeal was dismissed, affirming the department’s demand and penalties. This analysis provides insights into the legal aspects, implications, and the broader context of service tax disputes in similar scenarios.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. Nagar Parishad, Chittorgarh is engaged in providing service namely ‘Renting of Immovable Property Services.’ It came to the notice of the department that local authorities like appellant are not paying service tax in respect of the charges collected under various heads which are covered under Renting of Immovable Property. Hence, the appellant was asked to provide the details of the amount being received by them during the period 2008-09 to 2012-13. From the examination of the information/documents provided by the appellant, the department noticed that during the aforesaid period from 01.04.2008 to 31.3.2013, appellant had received payouts on account of against transfer fee, forfeit charges, tamir izazat, annual lease, rent of shops and other rent amounting to Rs.5,83,46,864/-. As such the appellant was observed to be liable to pay the service tax amounting to Rs.64,16,499/-. Resultantly, vide Show Cause Notice No. 351/2013 dated 22.10.2013, the aforesaid amount of Rs.64,16,499/- along with the proportionate interest and the appropriate penalties under Section 75, 76, 77 and 78 of the Finance Act, 1994 was proposed to be recovered. The said proposal has been confirmed vide the Order-in-Original No. 0010-14-15 dated 18.03.2015. Being aggrieved, the appellant is before this Tribunal.
2. None was present for the appellant. Since it was observed that not even once the appellant had appeared and that several opportunities have been given to await the presence of the appellant after issuance of fresh notices repeatedly. Accordingly, the further adjournment was declined vide Order dated 20.07.2023. The arguments on behalf of the department were heard and the appeal was reserved for orders.
3. Learned DR while submitting the arguments has mentioned that the issue involved is no more res integra. He relied upon the decision of Hon’ble Apex Court in the case of Krishi Upaj Mandi Samiti Vs. Commissioner of C. Ex. & S.T., Alwar reported as 2022 (58) GSTL 129 (SC).
4. We have perused the entire records and the decision relied upon by the department. We observe and hold as follows:
From the appeal memo, it is apparent that appellant has mentioned itself to be a local body created under Article 243Q of the Constitution of India to discharge the constitutional obligations and the sovereign duties. One of the grounds of appeal is that the Revenue has failed to consider the fact that the appellant is a municipality and its duties are well covered under the provisions of Section 66D of the Finance Act (the negative list). It has also been submitted that the income generated by the appellant are the compensatory mechanism for which the constitutional powers are given under Article 243W read with Schedule XII of the Constitution of India. The order is prayed to be set aside for the ignorance of the said facts.
5. From the decision as relied upon by learned DR, we observe that initially this Tribunal vide its Final Order No. 5343653500/2017 dated 25.05.2017 in the case of M/s. Krishi Upaj Mandi Samiti has decided the issue of taxability. The relevant para is as follows:
“14. We have examined the scope of entry in the negative list along with various clarifications issued by the Government. On harmonious construction of all material facts on record, we find that the appellants are not liable to service tax on shops/ sheds/platforms/land leased out in the notified market area for traders for temporary storage of agricultural produce traded in the market. In respect of shops, premises, buildings, etc. rented/leased out for any other commercial purpose other than with reference to agricultural produce (like bank general shop etc.), the same shall not be covered by the negative list and the appellants shall be liable to service tax.”
6. This decision has been upheld by the Hon’ble Apex Court in Krishi Upaj Mandi Samiti (supra) of Year 2022. Otherwise also, it is observed that the appellant had admitted their tax liabilities. In view of the said settled provision and the admission of the appellant for his liability, we do not find any infirmity in the order confirming the impugned demand. Since the appellant had never declared the fact of the income received by renting of immovable property which was purely and admittedly for the purposes of commerce, we do not find any infirmity in the order imposing penalties under Section 75, 76, 77 and 78 of the Finance Act. Though the appellant claimed the benefit under Section 80 but we do not find any reasonable cause with the appellant justifying the non-payment of service tax on the income which was being received for a long period of 5 to 6 years from renting of immovable properties, also the amount of service tax as confirmed against the appellant was not paid along with the interest in full within the stipulated time. Hence, we do not find any reason to extend the benefit of Section 80 of the Act to the appellant. With these findings, we uphold the order under challenge. Resultantly, the appeal stands dismissed.
[Order pronounced in the open court on 03.11.2023]
