Municipal Corporation Vs Commissioner of Central Excise and Service Tax (CESTAT Chandigarh)
Summary: The Chandigarh Regional Bench of CESTAT allowed the appeal filed by Municipal Corporation, Mohali against the order of the Commissioner (Appeals), CGST, Chandigarh, which had upheld service tax demand relating to “Selling of Space for Advertisement” for the period April 2012 to June 2012.
The Department had alleged that the Municipal Corporation had been providing “Selling of Space for Advertisement” services to different parties without payment of service tax under Section 65(105)(zzzm) of the Finance Act, 1994. A Show Cause Notice dated 06.05.2014 demanded service tax of ₹5,29,597/- for April 2012 to September 2012 by invoking the extended period of limitation, together with interest and penalties.
The adjudicating authority dropped demand of ₹96,823/- for July 2012 to September 2012 because the impugned service was covered by the negative list under Section 66D of the Finance Act. However, it confirmed demand of ₹3,85,175/- for April 2012 to June 2012 after allowing cum-tax benefit and imposed penalties of ₹38,517/- under Section 76 and ₹30,000/- under Section 77. The Commissioner (Appeals) upheld the order.
Before CESTAT, the Municipal Corporation submitted that the issue had already been decided in its favour for an earlier period by Final Order No. 60400-60401/2026 dated 01.07.2026. It contended that during April 2012 to June 2012, the Finance Act did not define “person” and a local body was also not covered within the definition of “person” under Section 2(42) of the General Clauses Act. Consequently, the activity of the Municipal Corporation could not constitute a taxable service under Section 65(105)(zzzm). Reliance was placed on the Tribunal’s decision in Deputy Commissioner of Police, Jodhpur Vs Commissioner of C. Ex. and S.T., Jaipur-II, where it was held that the State and Police Department were not covered by the expression “person” for the relevant taxable service.
The Municipal Corporation further submitted that the licence fee/advertisement tax collected under Sections 90 and 122 of the Punjab Municipal Corporation Act was a statutory levy and not consideration for a taxable service. It also argued that penalties could not survive when the underlying demand itself was unsustainable.
The Tribunal found that the identical issue had already been considered in the Municipal Corporation’s own case by Final Order No. 60400-60401/2026 dated 01.07.2026. In that earlier order, the Tribunal had held that during the relevant pre-01.07.2012 period the activity of selling space for advertisement was taxable only where a “person” provided service to another person. The Municipal Corporation, being a local body, was not covered within the term “person” and therefore did not fall within the definition of taxable service.
The earlier decision had also relied upon Deputy Commissioner of Police, Jodhpur and the Tribunal’s decision in M/s Indian Red Cross Society, holding that Government/local bodies were not covered by the term “person” in the relevant statutory framework before 01.07.2012. The Tribunal also noted that the Supreme Court had upheld the decision concerning Deputy Commissioner of Police, Jodhpur.
The Tribunal further adopted its earlier finding concerning the character of the amounts collected by the Municipal Corporation. It held that the advertisement tax collected under Sections 90 and 122 of the Municipal Corporation Act was a statutory levy. Referring to Karad Nagar Parishad, the earlier order had held that advertisement tax, being a statutory levy collected for display of advertisements, could not be subjected to service tax.
On limitation, the earlier order had held that the extended period was unavailable because the issue involved interpretation of law and the appellant was a local body/public undertaking of the Government. The earlier order relied on Commissioner of CGST, Jaipur Vs Rajasthan Tourism Development Corporation Ltd., where the extended period was held unavailable in the case of a State public undertaking. Since the demand itself was held unsustainable, the earlier Tribunal order also held that interest and penalties could not arise.
Applying the ratio of its own earlier Final Order No. 60400-60401/2026 to the present appeal, CESTAT Chandigarh held that the same reasoning squarely applied to the April 2012 to June 2012 period. The impugned order was accordingly set aside and the appeal was allowed with consequential relief, if any, as per law.
Cases Discussed
- Deputy Commissioner of Police, Jodhpur Vs. Commissioner of C. Ex. and S.T., Jaipur-II, [2017 (48) STR 275 (Tri-Del)].
- M/s Indian Red Cross Society, Final Order No. 60361/2025 dated 05.03.2025.
- Karad Nagar Parishad, [2019 (20) GSTL 288 (Tri. Mumbai)].
- Commissioner of CGST, Jaipur Vs. Rajasthan Tourism Development Corporation Ltd., [2018 (15) GSTL 307 (Raj.)].
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT, CHANDIGARH
The present appeal is directed against the impugned Order-in-Appeal dated 05.06.2018 passed by the Commissioner (Appeals), CGST, Chandigarh, vide which the learned Commissioner (Appeals) has rejected the appeal of the Appellant and has upheld the Order-in-Original dated 21.03.2016.
2. Briefly stated facts of the case are that the Appellant, Municipal Corporation Mohali, is a sovereign local body. During the relevant period, an inquiry was conducted by the Department and a view was formed that the Appellant had been engaged in the “Selling of Space for Advertisement” to different parties and had not paid service tax on the amounts so received. The Department alleged that it was liable to pay service tax under the category of ‘Selling of Space for Advertisement’, taxable under Section 65(105)(zzzm) of the erstwhile Chapter V of the Finance Act, 1994. On this allegation, a Show Cause Notice dated 06.05.2014 was issued to the Appellant demanding service tax amounting to ₹5,29,597/- by invoking the extended period of limitation for the period from April 2012 to September 2012, along with interest and penalty. After following the due process, the Adjudicating Authority, vide Order-in-Original dated 21.03.2016, dropped the demand of ₹96,823/- for the period from July 2012 to September 2012 as the impugned service was specified under the negative list provided under Section 66D of the Finance Act. However, the Adjudicating Authority confirmed the demand amounting to ₹3,85,175/- for the period from April 2012 to June 2012 after allowing the benefit of cum-tax value, and also imposed penalties of ₹38,517/- and ₹30,000/- under Sections 76 and 77 of the Finance Act respectively. Aggrieved by the said order of the Adjudicating Authority, the Appellant filed an appeal before the Commissioner (Appeals), who upheld the Order-in-Original and rejected the appeal of the Appellant. Hence, the present appeal.
3. Heard both sides and perused the material on records.
4. The learned Counsel for the Appellant submits that the impugned order is not sustainable in law as it has been passed without properly appreciating the facts, the law, and the binding judicial precedents in the Appellant’s own case for the earlier period.
4.1 He further submits that the issue involved in the present appeal is no longer res integra as this Tribunal vide its Final Order No. 60400-60401/2026 dated 01.07.2026 has already dropped the demand of the impugned service in the Appellant’s own case for the earlier period. He also submits that the impugned demand, being of the subsequent period involving the same service, is also not sustainable.
4.2 He further submits that the impugned demand pertains to period from April 2012 to June 2012, and during this period, no definition of ‘person’ was provided under the Service Tax Laws and the ‘local body’ was also not covered under the definition of ‘person’ provided under Section 2(42) of the General Clauses Act, accordingly, the activity rendered by the Appellant does not fall under the definition of ‘taxable service’ as provided under Section 65(105)(zzzm) of the Finance Act. In this regard, he places reliance on the decision of the Tribunal in the case of Deputy Commissioner of Police, Jodhpur Vs. Commissioner of C. Ex. and S.T., Jaipur-II – [2017 (48) STR 275 (Tri-Del)], wherein it was held that the State and the Police Department is not covered under the definition of a ‘person’ providing the security service.
4.3 He also submits that the licence fee (advertisement tax) collected in terms of the provisions of Sections 90 and 122 of the Punjab Municipal Corporation Act is a statutory levy and not consideration. Further, he also argues that penalties cannot be imposed because the demand itself is not sustainable.
5. On the other hand, the learned Authorized Representative for the Department reiterates the findings of the impugned order.
6. We have considered the submissions made by both the parties and perused the material on record. We find that the identical issue as involved in the present case has already been considered by this Tribunal vide Final Order No. 60400-60401/2026 dated 01.07.2026 in the Appellant’s own case. The relevant findings of the Tribunal are extracted herein below:
“6. We have considered the submissions made by both the parties and perused the material on record. We find that the only issue involved in the present case is whether the Appellant, being a sovereign local body, are liable to service tax under the category of ‘Selling of Space for Advertisement Service’ classifiable under Section 65(105)(zzzm) of the Finance Act, 1994 or not?
7. We note that the period involved in the present appeal is from April 2005 to March 2010 and during that time, the activity of Selling of Space for Advertisement was taxable if a person provides service to another person. But in the present case, the Appellant being a local body, are not covered within the term “person” and consequently not covered under the definition of “taxable service”. Further, we also find that this issue has been decided by the Principal Bench of the Tribunal in the case of Deputy Commissioner of Police, Jodhpur (supra), wherein the Tribunal has held that the State and the Police Department is not covered under the definition of a person providing the security service; and accordingly, the demand was set aside by the Tribunal and further, the said decision of the Tribunal has been upheld by the Hon’ble Supreme Court, as cited supra. Similarly, the Tribunal in the case of M/s Indian Red Cross Society [Final Order No. 60361/2025 dated 05.03.2025], has held that the Government is not covered by the term ‘person’ prior to 01.07.2012 when the word ‘person’ was not defined in the Finance Act, 1994. Therefore, by following the ratios of these decisions, we hold that the Municipal Corporation is not a ‘person’ and hence, it does not fall under the ambit of service tax.
8. Further, we find that the learned Commissioner (Appeals) has wrongly held that the amount received by the appellant as ‘Licence fee’ cannot be equated with ‘advertisement tax’ leviable under Sections 90 and 122 of the Municipal Corporation Act. We also find that in fact, the properties which were given to the different persons for placing advertisements, are not owned by appellant but are owned by GMADA which were handed over to the Appellant for maintenance, repair and management of parks, green belts, bus shelters etc and the appellant further gave those properties to different parties for maintenance, repair and management of the allotted area and allowed them to display advertisements and levied and charged ‘advertisement tax’ from them under Sections 90 and 122 of the Municipal Corporation Act which they were authorized to do so in view of the provisions of Article 243X of the Constitution of India. We note that the same issue was considered by the Tribunal in the case of Karad Nagar Parishad [2019 (20) GSTL 288 (Tri. Mumbai)], wherein the Tribunal held as under:
“4. —— but it is an advertisement tax which is a statutory levy and collected for display the advertisement by any person at any place whether the place owned by the Corporation or by any individual therefore the advertisement tax being a statutory levy cannot be chargeable to service tax.”
9. As regards the invocation of extended period, we find that the demand pertains to the financial years from 2005-06 to 2009-10 and the Show Cause Notice was issued on 30.05.2011 which is beyond the normal period of one year as provided under Section 73 of the Finance Act, 1994 during material period. We also find that the issue involved in the present case relates to interpretation of legal issue and the Appellant being a local body/public undertaking of the Government cannot be alleged to have suppressed the facts with intent to evade the tax as held by the Hon’ble High Court of Rajasthan in case of Commissioner of CGST, Jaipur Vs. Rajasthan Tourism Development Corporation Ltd [2018 (15) GSTL 307 (Raj.)], wherein it was held that extended period in case of public undertakings of State cannot be invoked. Therefore, we hold that the extended period of limitation is not invokable in the present case and entire demand is not sustainable.
10. As regards the imposition of penalties and the interest, we hold that since the demand itself is not sustainable, the question of any interest and penalty cannot arise.
11. Keeping in view of our discussion above, we are of the considered opinion that the ratios of the decisions (cited supra) are squarely applicable to the facts & circumstances of the present case and by following the same, we hold that the entire demand is not sustainable in law and therefore, we set aside the impugned order by allowing both the appeals of the Appellant with consequential relief, if any, as per law.”
7. In view of our above observations, we are of the considered opinion that the ratio laid down by the Tribunal in its Final Order No. 60400-60401/2026 dated 01.07.2026, passed in the Appellant’s own case, is squarely applicable to the facts & circumstances of the present case and by following the same, we set aside the impugned order and allow the appeal filed by the Appellant with consequential relief, if any, as per law.
(Order pronounced in the open court on 24.08.2026)
