Case Law Details

Case Name : Mira Bhaindar Municipal Corporation Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
Appeal Number : Service Tax Appeal No. 86597 of 2018
Date of Judgement/Order : 04/01/2022
Related Assessment Year :

Mira Bhaindar Municipal Corporation Vs Commissioner of CGST & Cen. Excise, Thane (CESTAT Mumbai)

The crux of the submissions made by the appellant who is a  Municipal Corporation is that  these services (Ground rent market/ sports ground rent, Permitted Stall ground Rent, BOT Lease Rent, Blood bank and Mandap Services)  rendered by them are mandated in terms of Article 243W of the Constitution of India, read with Schedule 12 and hence fall in the category of exempted services.

We are in agreement with the observations made by the Commissioner to the effect that just because the services under consideration have been provided by Municipal Authority, the same cannot be said to be a service covered under Article 243 read with Schedule 12 of Constitution of India. Hence the arguments advanced by the appellant counsel to that effect cannot be sustained, more so over when they themselves have admitted there liability to pay service tax in respect of services under category of BOT, Mandap & Renting of Space to Blood Bank. We agree with the submissions of the appellant to effect that the value of tax able services under these category needs to be redetermined after taking into account the relevant and admissible deductions.

In respect of the services under the category of Renting of Stall etc., it is the submission of the appellant, that the amount collected by them is fees for providing small space to the street hawkers etc, for selling their goods etc., and is part of their Constitutional Duty for the upliftment and social welfare of the poor. It has also be submitted on the basis of the decisions of Hon’ble Supreme Court, wherein it has been held that street vending and selling is fundamental right of such hawkers and as per directive of the Hon’ble Supreme, Rules and Regulations have been framed to provide for the street vending and space for street hawkers. In terms of these rules and regulations some minor fee is levied for upkeep and providing facilities to such street hawkers. To the extent the space is provided to the poor for the purpose of street vending and street hawking, we would agree with the submission made by the appellant, but the same cannot be true in case of the shops and stalls rented out. Contrary has been held by the Mumbai Bench in case of Murmogoa, referred earlier by us. In our view the matter needs to be reconsidered by the original authority and suitable determination made.

FULL TEXT OF THE CESTAT MUMBAI ORDER

These appeals are directed against two orders in originals as detailed below. The first appeal and order is in respect of the demand made by the show cause notice, issued on the basis of the investigations undertaken by the DGCEI Mumbai Zonal Unit, and made by invoking the extended period as per Section 73 of the Finance Act, 1994. The second appeal is respect of the adjudication order passed pursuant to the demand notice issued in terms of Section 73 (1A) for the subsequent periods.

Appeal No Order in Original No Period Service Tax demand (Rs.)
ST/86597/2018 19/SKV-

19/THCGST/2017-18 dated 23.01.2018

2011-12 to 2015-16 17,90,16,824/-
ST/86190/2020 O1/MPM-01/THCGST01/2021 dated 29.05.2020. April 16 to June 17 19,23,991/-

2.1. Based on intelligence, DGCEI, Mumbai Zonal Unit, on scrutiny of the records of the appellants, found that appellants had collected amounts from individuals/ companies/ corporate / organizations under following headings:

a. ‘Rasta Nuksan Bharpai’ for granting permission to telecom companies like M/s Reliance Jio Infocom Ltd etc for laying of Optical Cable Fibre (OCF) on their immovable property and collected ‘Right of Way’ (ROW) charges against restoration charges for road and permission fees,

b. ‘Ground rent’; ‘Market/ Sports ground/ Apartment and other rent’, ‘Bhade Patti’, ‘Pay and Park’ ‘Bazar Lilaw/ Bazar Auction/ Bazar Fees’ and ‘Permitted Stall Ground Rent’ as being charges for allowing Pay & Park, Market, renting of sports ground etc.

c. ‘Hospital Raktapedhi Jaga Bhadel Hospital Blood Bank Ground Rent collected from blood bank allowed to operate from Municipal Hospital Building.

d. ‘Mandap/Marriage Hall’ rent collected against renting of Marriage Hall owned by the noticee.

2.3 Documents pertaining to earnings of the noticee were called for and scrutinized. Statement of several officials working with the noticee and considered relevant to the investigation was also recorded during the course of investigation under the provisions of Section 14 of Central Excise Act, 1944.

2.4 Based on the above allegations, the demand notice bearing F NO DGCEI/ MZU/ I & IS ‘El 12 (2) 17/ 2016 dated 17.01.2017 was issued to the noticee asking them to show cause as to why:

a. The extended period specified in proviso to sub section (1) of Section 73 of the Finance Act, 1994 should not be invoked to demand the Service Tax due from them;

b. The services provided by them should not be classified under Section 65 (90a) read with Section 65 (105) (zzzz) of the Finance Act, 1994 upto 30.06.2012 & under 65 B (44) & 65 B (51), 66 E (a), 65 B (41) and Section 65 B (22) of the Finance Act, 1994 thereafter;

c. Service tax amounting to Rs 20,17,98,032/- should not be demanded and recovered from them under proviso to sub section (1) of Section 73 of the Finance Act, 1994;

d. Interest at appropriate rate on this amount of service tax should not be demanded and recovered from them under Section 75 of the Finance Act, 1994;

e. Penalty should not be imposed on them under Section 76 for violations of provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of Service Tax Rules, 1994

f. Penalty should not be imposed on them under Section 77(2) of the Finance Act, 1994 for violations of provisions of Section 70 of the Finance Act, 1994 read with Rule 7 & 5(2) of Service Tax Rules, 1994,

g. Penalty should not be imposed on them under Section 78 of the Finance Act, 1994 for suppressing the material facts.

2.5 The appellant were issued demand notice bearing F. No. V/ Adj/ SCN/15-01/ MBMC/ CGST THANE/ 2019 dated 01.04.2019asking them to show cause as to why:

a. Service tax amounting to Rs 7,53,93,500/- should not be demanded and recovered from them under section 73 (1) of the Finance Act, 1994;

b. Interest at appropriate rate on this amount of service tax should not be demanded and recovered from them under section 75 of the Finance Act, 1994;

c. Penalty should not be imposed on them under section 76 of the Finance Act, 1994,

d. Penalty should not be imposed on them under section 77(2) of the Finance Act, 1994;

e. Penalty should not be imposed on them under section 70 of the Finance Act, 1994 read with rule 7 of the Service Tax Rules, 1994.

CESTAT directs Re-determination of Service Tax on Renting of Stall to Hawkers by Municipality

2.6 These show cause notices have been adjudicated by the Commissioners as per the impugned order as indicated in the para 1 above.

2.7 Aggrieved by the impugned order appellants have preferred these appeals.

3.1 We have heard Shri Prasad Paranjape, Advocate for the appellants and Shri Nitin Tagade, Joint Commissioner for the revenue.

3.2 Arguing for the appellant learned counsel submitted as follows:

> While Orders-in-Original dated 19.01.2018 confirmed the entire demand (except granting cum-duty benefit), whereas, OIO dated 29.05.2020 gave substantial benefit to the Appellant. Order dated 29.05.2020 for which, as per information and knowledge of the Appellant, the Revenue has not filed any appeal the demands made under the heads (1) Pay and Park Fees (2) Bazar auction/Bazar fees (3) Right to pay fees have been dropped. The demand confirmed in OIO dated 29.05.2020 a) Ground/Market Rent b) Marriage Hall Rent c) Stall/Ground Rent d) Built Own Transfer charges (BOT) e) Hospital / Blood Bank Rent.

> Ground Rent/Market Rent/Stalls- The Twelfth Schedule of the Constitution of India warrants the Appellant to perform functions such as urban planning including town planning for economic and social development public health protection of environment safeguarding interests of weaker sections of the society including handicapped and mentally retarded urban poverty elimination provision of urban amenities and facilities such as parks, gardens and playgrounds promotion of cultural educational and aesthetic aspects etc. The Hon’ble Supreme Court also has taken cognizance of the fact that street vending is a fundamental right and mandated the Parliament to enact a law to ensure this right in Gainda Ram & Ors vs M.C.D. & Ors – (2010) 10 SCC 715. Further, the Hon’ble Supreme Court in Maharashtra Ekta Hawkers Union vs MCGM – (2014) I SCC 490 directed that the Model Street Vendor Bill, 2009 be prepared pending enactment of national legislation. Thus this function of the appellants is a sovereign function and not liable to service tax being covered by Section 66D i.e. Negative List of Finance Act, 1994. In any case, to the extent allotted for residential use of project affected citizens, such rent will not be liable to service tax being for residential purposes. Same is also as per the CBEC circular No.192/02/2016 dated 13.04.2016 and Section 66D(a) of Finance Act, 1994 read with Sr. No. 39 of Notification 25/2012-ST dated 20.06.2012 and the decisions as follows:

a. Cuddalore Municipality [2021 (4) TMI 500 – Madras High Court]

b. Nagar Nigam [2019 (21) GSTL 436 (Tri Del)]

c. Karad Nagar Parishad [2019 (20) GSTL 288 (Tri Mum)]

d. Municipal Corpn Rajahmundry [2017 (5) GSTL 78 (Tri Hyd)]

> Bhade patti (BOT)- The Appellant, opted to develop certain facilities of playgrounds, town parks and schools through Contractor on Built, Operate and Transfer (BOT) basis. Said reservations after development were to be operated by the contractor and were eventually to be transferred to the Appellant after expiry of the terms of the Agreement dated 22nd June 2007 with Vardhman Developers, for development and reservation of town park on BOT basis and granted lease of land for a period of 30 years. Further, the Appellant has entered into an agreement dated 31 July 2007 with Shreeji Exhibitors for development of a plot of reservation exclusively for playground on BOT basis. Similarly, the Appellant has entered into an agreement dated 18 July 2007 with Deepak Charitable Trust for development of a plot for primary school and playground on BOT basis. All such developmental activities undertaken by the Appellant are covered within the Twelfth Schedule of the Constitution of India under Urban Planning for Economic and Social Development. Thus, being a functions covered by the Twelfth Schedule of the Constitution of India, this is covered by the negative list and not liable to service tax.

> Marriage Hall – The Appellant under the Twelfth Schedule of the Constitution of India is obliged to provide for the general public a place for community and religious activities/functions. As part of this function the Appellant lets out certain premises for community halls at its disposal at a very negligible rent and for recovery of certain basic expenses like water and cleanliness charges, electricity charges, furniture charges. It’s the rent collected by the Appellant for social /religious functions /educational functions from the poor and needy on no profit no loss basis. Thus these activities of the Appellant would also be not liable to service tax.

> Blood Bank- The Appellant has allowed specified part of its Indra Gandhi Hospital Building on rent to Navjeevan Medical Relief and Research Foundation, Pune, named as Rajiv Gandhi Blood Bank, which is registered under Section 12AA of the Income Tax Act for running a Blood Bank in the Appellant’s hospital. This activity is directly connected in providing health services to the general public. The Appellant considered this service as covered under the Twelfth Schedule of the Constitution and submits that the same is not liable for service tax.

> Demand on account Pay and Park Fees, Bazar auction/Bazar fees and Rusta Nuksan Bharpai (ROW) is dropped in OIO dated 29.05.2020 basis the judgement of the Hon’ble Tribunal in the case of Nagar Nigam vs. CCE & ST – 2019 (21) GSTL 436 and Notification No.1/2018- ST dated 30.11.2018.

> In Olo dated 19.01.2018 (for the period 2011-12 to 2015­-16) the demand on the above categories, including on ROW, is confirmed only on the basis that the organisations to whom the permission to dig roads or lay cables or pipes was granted are commercial organisations and hence the benefit of Notification 25/2012-ST dated 20.06.2012, is not available. The Appellant had never let out roads or space on rent but charged only for restoration of dug roads. Notification no.1/2018 -ST dated 30.11.2018, issued under section 11C also provides for non recovery of the demands on these account. Hence applying the same ratio, the demand for the earlier period also deserves to be dropped

> Limitation and Penalties – Since the appellant is Municipal Body and is discharging the functions as entrusted to them under constitution, they cannot be said to have any intention to evade the payment of tax and invocation of extended period of limitation, for making the demands cannot be sustained. So also the penalty imposed on them.

3.3 Arguing for the revenue learned Authorized Representative while reiterating the findings recorded in the impugned order submits as follows:

> The appellant had as per the submissions made before the adjudicating authority agreed to certain Service Tax letter dated 15.11.2017 [Page No 288 of the paperbook in Appeal No ST/86597/18] as well as in their letter    /         /192/2017-18 dated 29.06.2017 [Page No 108 of the paperbook in Appeal No ST/86597/18]. These demands are in respect of BOT Lease Rent, Blood bank Rent and Mandap Services.

> Though the facilitation for the hawkers was made as per Hon’ble Supreme Court’s order, and under the constitutional provisions, however, neither Hon’ble Supreme Court not the relevant articles of the Constitution have mandated or allowed levy and collection of charges from such hawkers. Therefore, this amount does not qualify for exemption under Sr No 39 of Mega Exemption Notification 25/2012-ST dated 20.06.2012 as being ‘services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution”. [Para 5.10 of OIO dated 22.01.2018 – Page 305 of the paperbook in Appeal No ST/86597/18].

> Rasta Nuksan Bharpai/ROW: The appellant has allowed various commercial organization to dig the roads for carrying out their business activities and collected the charges for the same. This facilitation of the businesses was support service rendered by the appellant for a commercial consideration. Even if it is presumed for argument sake that the charges collected were only to relay the road, but it cannot be denied that the digging took place for commercial activity by a commercial entity. Hence the primary condition for exemption under Notification 25/2012-ST dated 20.06.2012 is not satisfied and service tax is demandable from them.

> Rental Space to Blood Bank: The appellant has claimed that service tax is not payable on space allotted to run blood bank as it is charitable trust registered under Section 12AA of the Income Tax Act, 1961. However, they have not brought any evidence to record that the activity was carried out by the blood bank on charity basis meaning whether the blood bank was giving blood to needy free of cost etc.

> Renting of Town Park, Open Spaces, etc: The renting of town park, open spaces, etc to M/s Vardhman Developers Ltd, M/s Shreeji Exhibitors, M/s Deepak Charitable Trust was not free of cost. Since these activities were not free from financial considerations, therefore, these activities are not entitled for exemption as per clause 39 of Mega Exemption Notification 25/2012-ST dated 20.06.2012

> Pay and Park Services: The appellant, in their own submission dated 29.06.2017 (page 108 of the paperbook in Appeal No ST/86597/18) have admitted the liability at page 117 stating that “In any case, S S Enterprises had paid service tax effective 1st April 2013 when Sr No 24 of the Mega Exemption was omitted by Notification No 03/ 2013 dated 01.03.2013”. This was again reiterated in their submission dated 15.11.2017.

> Hence the demand for these services is maintainable. Whether the agents have discharged Service Tax liability or otherwise needs to be verified.

4.1 We have considered the impugned orders along with the submissions made in the appeal and during the course of argument of appeal.

4.2 From the two impugned orders which are in respect of the demand made in terms of Section 73 of the Finance Act, 1994 and under Section 73 A ibid, we find that the adjudicating Commissioners have adopted different approach in respect of the major demands made in respect of Pay and Park Fees, Bazar auction/Bazar fees and Rusta Nuksan Bharpai (ROW). While the adjudicating authority has in the case of notice issued under Section 73 upheld the demands, made, in subsequent order, Commissioner observes as follows:

“6. As regards Pay & Park services, the noticee has informed that the same was collected by agents appointed by them and the agents viz. M/s S. S. Enterprises, M/s A-one Care Taker Pvt. Ltd & M/s Om Sai Siddhi had obtained service tax registration numbers ABFPR214QSD001, AAFCA5831PST001 & AKAPP1143PSD001 respectively, and discharging service tax liability themselves. This submission has been supported with copies of challans evidencing payment of service tax by the agents who were appointed by the noticee Since the amount collected against Pay & Park Charges was assessed to service tax by the agents and the same is paid, therefore, demand against noticee for service tax against this amount is not maintainable. 7 As regards ‘Bazar auction fee/ Bazar fee, the same was collected by the noticee on either from a fixed place or to operate from street to account of permitting vendors to operate either from a fixed place or to opera which is an outcome of a long drawn judicial proceso …esta street. The amount is collected as ‘fee’ which is an outcome of a long dr cunreme Court which culminated in enactment of seer and as per direction of Hon’ble Supreme Court which culminated Vendors (Protection of livelihood and regulation of street Vending) Act, 2014. The amount being fee and not ‘rent cannot be subject to service tax. Moreover, since the amount was collected as statutory ‘fee’ during discharge of constitutional obligation by a statutory body i.e. Municipal Corporation, therefore, the same is covered under negative list of services as per provisions of section 66 D of the Finance Act, 1994, read with Sr. no 39 of the mega exemption Number 25/2012 ST dated 20.06.2012. Hon’ble Tribunal, in case of Nagar Nigam Vs CCE, Meerut – \ [as reported at 2019 (21) G.S.T.L. 436 (Tri. – Del.)], in a similar case has held as under:

3. It is submitted on behalf of the appellant that the appellant being a Municipal Corporation is discharging the statutory duty of providing spaces. No rent has been collected for the same, rather it is a fee. It is alleged that Department has wrongly considered it as a service. The demand is alleged to be wrong order is prayed to be set aside. Appeal is prayed to be allowed.

4. While rebutting these argument Ld. DR has impressed upon the definition of “renting of immovable property service” under Section, 60(90)(a) of the Finance Act, 1994, it is submitted that any amount received for letting, leasing or licensing of the immovable property is leviable to tax under the said provision. The order under challenge is, therefore, justified Appeal is prayed to be dismissed. .

5. After hearing both the parties and perusing the records we observe that the amount under question is admittedly collected by the Nagar Nigam, Haldwani. Apparently and admittedly the authority is existing under the Municipal Act, 1960, as came into effect in furtherance of Article 285 of Constitution of India. Section 128 of the said Municipal Act clarifies that the amount received by the Nagar Nigam from the traders permitting them to carry out their activities within the municipal limits shall be collected in the form of the tax. The provision is sufficient to hold that the activity is intended to be a sovereign Act of the Nagar Nigam ,

6. Resultantly, we are of the opinion that the authority below has wrongly considered it as a service being rendered by the appellant to the said traders. In such scenario, emphasis on the definition of “renting of immovable property” under the Finance Act has no more significance. Further we observe that the Government of India, Ministry of Finance has given the clarification on the issue regarding the levy of tax on the services provided by Government or the local authorities to be business entity vide circular dated 13th April, 2016. Perusal thereof makes it clear that tax on taxes/cesses or duties are not leviable. Though the clarification is post the impugned period, however, being merely a clarification and otherwise also beneficial to the impugned assessee, the same has to be given retrospective effect. .

7. In view of above discussion the order under challenge is hereby set aside and appeal is hereby allowed.’

8. The same issue was considered by the Commissioner CGST, Thane against the noticee and demand was confirmed vide order in original number 19/ SKV-19/ THCGST/ 2017-18 dated 19.01.2018. The judgment of Hon’ble Tribunal in case of Nagar Nigam, supra, has been passed n 13.12.2018, and as such, the judgment was not available to the adjudicating authority at material time to be considered as precedence. Moreover, as pointed out by Hon’ble Tribunal in the case of Nagar Nigam, supra, the Board vide entry at S No 3, of circular No.192/02/2016 dated 13.04.2016 issued under F. No. 334/ 8/ 2016 – TRU has clarified that no e tax is payable on taxes, cesses or duties. Applying the ratio of judgment in case of Nagar clam of the opinion that the demand of service tax in respect of Bazar fee/ bazaar · Nigam, supra, I am of the opinion that auction is not maintainable.

9. The Central Board of Indirect Taxes has issued notification number 01/ 2018 ST dated 0.11.2018 under section 11 C of the Central Excise Act, 1944 thereby exempting levy of service tax on right of way charges for period 01.07.2012 to 30.06.2017. In view of this notification; which has been issued after issue of the previous order in original; the demand in respect of amount collected as ‘right of way charges’ is not maintainable.”

4.3 In respect of the same issue as referred above two divergent approaches cannot be sustained. It is also evident that revenue has not challenged the order dated 25.02.2020 of Commissioner giving relief to the appellants in respect of the demands made on this account. Hence in our view for the past period also similar relief may be admissible, but to permit an opportunity to the revenue to re-examine these demands for the past period in similar manner, we set aside the demands confirmed by the order dated 23.01.2018 in respect of these heads and remand the matter to adjudicating authority in respect of these three demands.

4.4 In respect of the demands made under the head Mandap/ Marriage hall and Blood bank rent appellants have in their written reply filed before the adjudicating authority-

“Bhade Patti (BOT)

“MANDAP/MARRIAGE HALL – MBMC has registered itself as a service provider under the mandap keeper service and has been discharging its service tax liability. However, the inclusion of rent received towards Mandap/Ganpati Pandal on roads being an exempted service under entry no 5 of the mega exemption No 25/2012 dated 20th June 2012, is unjustifiable, illegal and impermissible under the law and needs to be deducted. As MBMC has not charged and collected any service tax separately on the rent amount of the marriage hall and the same is inclusive of all taxes and reimbursement of expenses, it is requested that the cum-value method of valuation shall be applied and MBMC sincerely offers to pay the service tax as may be reasonably and objectively determined in this regard.” [Page 135 of the paperbook in Appeal No ST/86597/18].

4.5 As per written arguments made at the time of hearing [REF F NO DGCEI/MZUI/1 & IS ‘E”/12(2)17/2016 DATED 18/01/2017] also the appellants have admitted their liability to pay tax in respect of these services.:

4 “Ground rent market/ sports ground rent- Provision of urban amenities such as playgrounds for promoting sports and physical activities is a constitutional mandate of MBMC under cl. 12 of the 12th schedule of Article 243W of Constitution of India and in furtherance of the aforesaid mandate MBMC has developed playgrounds under Urban Sports Infrastructure Scheme and collected token amounts for its maintenance and preservation. The amount so collected is not liable to service tax as rent.

5 Permitted Stall ground Rent- MBMC is mandated under the constitution of India to undertake welfare measures for the disabled, handicapped and weaker sections of the society and in pursuance thereof MBMC has accordingly issued licenses for selling outlets, cart pullers and kiosks as directed by the social justice and special assistance department of the Govt. of Maharashtra.

6 BOT Lease Rent- MBMC has already deposited Rs. 10458391/- towards service tax on the amount collected as and by way of lease rent.

7 Blood bank- MBMC will collect the service tax on the amount of rent received and pay the same

8 Mandap- The actual amount liable to service tax needs to be identified and determined as the amount collected towards exempted NOC fees for temporary installation Ganesh Mandap and other religious functions has been clubbed.”

4.5 The crux of the submissions made by the appellant in respect of these services rendered by them is that they being Municipal Corporation have rendered these as mandated in terms of Article 243W of the Constitution of India, read with Schedule 12 and hence fall in the category of exempted services. Dealing with the said argument Commissioner has in his order dated 23.01.2018, recorded as follows:

“5.6. The noticee has fallen back on the provisions of Mega Exemption for most of the services with the argument that they are a body constituted under Article 243 W of the Constitution and hence they were only discharging their statutory obligation and hence they are not required to pay service tax. There is no denial that the noticee is a Municipal Corporation, a statutory body formed under the provisions of the Constitution. But merely, for the reason of being a constitutional body are they cannot be considered as entitled for exemption under Mega Exemption. After introduction of concept of Negative List in Service Tax, the first notification for grant of exemption was issued as being Notification Number 12/ 2012 ST dated 17.03.2012 & clause 12 of the Notification number 12, 2012 ST dated 17.03.2012 are the relevant clauses which provide exemption to local bodies for repair, maintenance/ erection etc of the roads etc for non commercial use. Since this notification was rescinded, therefore, I am not incorporating the provisions of this notification here. The said notification number 12, 2012 and 121 2012 was rescinded/ modified by Notification Number 25/ 2012 ST dated 20.06.2012. The provisions of Clause 12 of Notification 25/2012-ST dated 20.06.2012 is the relevant portion which the noticee is relying in self defence and hence I am reproducing the same here:

12. Services provided to the Government a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of – (a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); (C) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; (d) canal, dam or other irrigation works; (e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or (1) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;’

5.7. The activities in question fall in the category of sub clause (a) of Clause 12 of Notification Number 25/ 2012 ST dated 20.06.2012. The noticee has also dwelled upon the provisions of Section 66 D (a) of the Finance Act, 1994 and hence I am reproducing these provisions: 66 D. The negative list shall comprise of the following services, namely (a) services by Government of local authority excluding the following services to the extent they are not covered elsewhere (i) service by Department of Posts … (ii) services in relation to an aircraft or a vessel………. (iii) transport of goods or passenger… (iv) support services, other than services covered under clauses i to (ii) above, provided to business entities;

511. Another issue is that of providing rental space to Blood Bank in the Municipal Premises. The noticee has claimed service tax is not payable on space allotted to run Blood Bank as it is charitable trust registered under Sec12 AA of the Income tax act 1961. As per clause 4 of Notification 25/2012-ST dated 20.06.2012 “Services by an entity registered under section 12AA of the income tax Act, 1961 (43 of 1961) by way of charitable activities” is exempted. The noticee has put forth the argument that the Blood Bank was registered under Section 12 AA of the Income Tax Act, but they have not brought any evidence to record that the activity was carried out by them on charity basis meaning whether the blood bank was giving blood to needy free of cost etc. The onus to prove that the activity carried out by the blood bank in the Municipal Hospital Premises was charitable is on the noticee and since this has not been established by the noticee therefore, in my opinion they do not qualify for exemption from service tax on this account.

5.12. Another issue is of providing of parking space. The noticee claimed that the same was exempted as per clause 24 of Mega Exemption Notification and after the same was rescinded, they have started paying service tax on the same. It is also admitted fact, that the noticee had allotted the work of collecting parking charges to a private party and was not collecting it themselves. Further, the amount collected as Parking Charges was not deposited with the noticee but it was on contractual basis and the noticee was getting a lump-sum amount for the same. Clause 24 of Notification Number 25 / 2012 ST dated 20.06.2012 provides exemption in respect of ‘Services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility. The provision clearly highlights the fact that in instances of leasing activity, the exemption will not be available. Therefore, I am of the opinion that collecting parking charges through M/S S S Enterprises by the noticee is not covered under clause 24 of Notification Number 25/ 2012 ST dated 20.06.2012 even for period prior to its amendment deletion. Similarly, the demand for service tax on Advertisement charges is also maintainable as the Advertising revenue was also generated by the noticee in the same manner as the parking charges,

5.13. As regards the amount collected towards ground rent in respect of Ganpati mandap and for conducting other religious Ceremonies of various Communities it is exempt under entry 5 of the notification 25/2012 ST dated 20.06.2012.

5.14. As regards renting of the town park, open spaces etc to M/s Vardhman Developers Limited, M/s. Shreeji Exhibitors M/s Deepak Charitable Trust it is seen that the same was not for free of cost. Since these activities were not free from financial considerations, therefore, these activities are not entitled for exemption as per clause 39 of the Notification Number 25/2012 ST dated 20.06.2012.”

4.6 find that CESTAT Mumbai, has in case of Mormugao Municipal Council [2017 (7) G.S.T.L. 228 (Tri. – Mumbai)} held as follows;

“9. In the Cross objection respondent have sought to challenge the levy of service tax on shops rented out by MMC under the pretext that the said shops are part of the market developed by MMC as their constitutional responsibility. Ld. Counsel has sought to rely on the Article 243W and 12th Schedule of 243W, more particularly Entries 12 and 17 thereof. The said article and the 12th Schedule reads as under :-

“Article 243W reads as under :-

“243W – Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow –

(a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to –

(i) the preparation of plans for economic development and social justice;

(ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule;

(b) the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule.”

The Twelfth Schedule of Article 243W [sic] reads as under :­“TWELFTH SCHEDULE (Article 243W)

1. Urban planning including town planning.

2. Regulation of land-use and construction of buildings.

3. Planning for economic and social development.

4. Roads and bridges.

5. Water supply for domestic, industrial and commercial purposes.

6. Public health, sanitation conservancy and solid waste management.

7. Fire services.

8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

10. Slum improvement and upgradation.

11. Urban poverty alleviation.

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.

15. Cattle pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths.

17. Public amenities including street lighting, parking lots, bus stops and public conveniences.

18. Regulation of slaughter houses and tanneries.”

10. On perusal of Entries 12 and 17 clearly shows that or has been mentioned thereunder is provisions of urban amenities and facilities, such as parks, gardens, playgrounds. The market cannot be considered to be similar in nature and therefore provision of markets cannot be considered to be the responsibility under Sr. No. 12 of the 12th Schedule. Similarly Sr. No. 17 relates to street lighting, parking lots, bus stops and public convenience. These amenities do not include market by any stretch of imagination. Thus to state that construction of market is a constitutional responsibility cast upon the MMC is misplaced. We do not find force in the argument made by the respondent. The Revenue’s appeal is dismissed. The Cross objection are also dismissed.”

4.7 In case of Cuddalore Municipality {2021 (4) TMI -500 (Madras High Court)] Hon’ble High Court has held as follows:

“14. It is submitted that the petitioners are not liable to tax as the petitioner are not a “person” within the meaning of Section 65B(37) of the Finance Act, 1994 as it stood amended with effect from 01.07.2012. It is further submitted that even if the petitioner is to be considered as a “local authority” with the meaning of Section 65B(31) of the Finance Act, 1994 as it stood amended with effect from 01.07.2012, the petitioner was exempted from payment of service tax in terms of Sl.Nos.38 & 39 to the Mega Exemption Notification 25/2012-ST dated 20.06.2012 which reads as under:~

[TO BE PUBLISHED IN THE GAZZETE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUBSECTION (i)]

Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 25/2012-Service Tax
New Delhi, the 20th June, 2012

G.S.R….. (E). In exercise of the powers conferred by sub-section

(1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Act) and in supersession of notification number 12/2012~ Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 210 (E), dated the 17th March, 2012, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 66B of the said Act, namely:~

1………………..

38. Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets;

39. Services by “”Government, a local authority” or” Inserted vide Notification 22/2016 – Service Tax. a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution.

15. The learned counsel for the petitioner further submitted that the exemption under Sl.No.39 to the Mega Exemption Notification No.25/2012 – ST dated 20.06.2012 applies to services by a Government Authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution of India. He further submitted that under Article 243W of the Constitution of India, the Legislature of a State may, by law, endow the Municipalities with such powers and authority as may be necessary to enable such Municipalities to function as institutions of self government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to.

“25. From the category of service and income generated from the petitioner, it appears that the petitioner was renting out the stops in bus stand and other areas where it was having immovable properties.

26. Service Tax on Renting of Immovable Property Service was introduced in 2007 vide 65(105)(zzzz) of the Finance Act, 1994. The expression of renting of immoveable property was defined in Section 65 (90a) of the Finance Act, 1994. 27. The High Court of Delhi in Home Solutions Retail India Ltd. & Others Vs. UOI, 2009 (237) E.L.T. 209 (Del.) by its order dated 18.04.2009 however struck down this levy by observing that the renting of immovable property for use in the course of furtherance of business or commerce did not involve any value addition and therefore, cannot be regarded as service.

28. The tenants all over the country therefore stopped reimbursing the tax element to the land owner. Since landlords were receiving regular demand notices from the department but such notices were being subjected to stalemate, the Finance Act, 2010 amended the provision with retrospective effect and attempted to cure the defect pointed out by the Delhi High Court.

29. Thus, definition of taxable service of “renting of immovable property” and “renting of immovable property” was amended to read as follows:-

……….

30. The Delhi High Court in the 2nd Home Solutions Retails (India) Ltd. v. Union of India 2011 (24) S.T.R. 129 (Del) upheld the constitutional validity of the amended definition in Section 65(105)(zzzz) in 2010 with retrospective effect with the following observation :-

“In view of our aforesaid analysis, we are disposed to think that the imposition of service tax under Section 65(105)(zzzz) read with Section 66 is not a tax on land and building which is under Entry 49 of List II. What is being taxed is an activity, and the activity denotes the letting or leasing with a purpose, and the purpose is fundamentally for commercial or business purpose and its furtherance. The concept has to be read in conjunction. As we have explained that service tax is associated with value addition as evolved by the judgments of the Apex Court, the submission that the base of the said decisions cannot be taken away by a statutory amendment need not be adverted to. Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I.”

31. This Court has also upheld the validity of the above provision. Similar view has been taken by the other High Courts also. There is no doubt that the petitioner municipality was renting immovable property to various person in the course of or furtherance of, business or commerce of the lessee as defined in Section 65(90a) of the Finance Act, 1994 as it stood during the period between April 2012 and June 2012. However, merely because there was renting of immoveable property by itself was not sufficient to attract the levy.

32. To attract levy under Section 65(105) (zzzz) of the Finance Act 1994 there should be renting of immovable property or provision any other service in relation to such renting, for use in the course of or furtherance of, business or commerce to “any person”. Only if service was provided by “any other person”, i.e, by a person other than the owner, such service was liable to service tax.

33. The expression “any other person” can only mean any other person other than the owner of the property. Therefore, owner of the immoveable property is not liable to pay tax under Section 66 of the Finance Act, 1994 for the period up to 30.06.2012.

34. An owner can be held liable to pay tax for renting of immoveable property service only if there was an appropriate notification issued under Section 68(2) of the Finance Act, 1994 read with Rule 2(1)(d) of the Service Tax Rules, 1994.

35. If the legislature intended to include both owner and a person other than the owner of the property in Section 65(105)(zzzz) of the Finance Act, 1994, the legislature would have simply adopted a wider expression such as “any person” instead of “any other person”. The expression “any other person” restricts the scope of exposure to levy of service tax to a different class of service providers. It is perhaps for this purpose, the expression any other service in relation to such renting has been used in the Section to indicate service tax has to be charged only where there is a value addition.

36. May be renting of immoveable property service partly overlapped with the taxable service of a “real estate agent”. This was because there was no definition for the expression “service” till July, 2012 and therefore there was scope for such overlap in the definition. The definitions are reproduced below:~ Section 65(88) Section 65(89) “Real Estate Agent” means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant; “Real estate consultant” means a person who renders in any manner, either directly or indirectly, advice, consultancy or technical assistance, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate Definition of taxable service in Section 65(105)(v) any service provided or to be provided to a client, by a real estate agent in relation to real estate.

37. Since the interpretation given for the expression “any other person” in this order may have a large scale ramification, it is therefore made clear the interpretation given in this order for the expression “any other person” qua Section 65(105)(zzzz) cannot be uniformly applied to other provisions of the Finance Act,1994 unless they are examined separately and individually on case to case basis for the other services.

38. In my view, service tax was payable only if such services were provided “by any other person” other than the owner, to any person by such renting, for use in the course of or in furtherance of, business or commerce.

39. As the owner of the immovable property who rents out the property simplicitor was not in contemplation in the definition of taxable service of “renting of immovable property” in Section 65(105(zzzz) of the Finance Act, 1994, demand against the petitioner was without jurisdiction.

40. Since the petitioner municipality is the owner of property, question of it being made liable to pay service tax for any service in relation to such renting of immoveable property does not arise even if it had rented out its immoveable property for use in the course of or for furtherance of, business or commerce of the person who was renting it.

41. …

42. I shall now take up demand proposed and confirmed for the period after 30.06.2012 after the Finance Act 1994 was amended drastically vide Finance Act, 2012.

43. From 01.07.2012, there was a paradigm shift in the entire structure of the provision of the Finance Act, 1994 in view of the amendments to it by Finance Act, 2010.

44. It introduced a new definition of “service” in Section 65B(44) of the Finance Act, 1944 for the first time. The said definition underwent few changes. The definition incorporating few amendments thereafter is reproduced below:-

Section 65B(44): “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

…..

45. The definition of “Service” as in Section 65B(44) of the Finance Act, 1944 is very wide. Thus, any activity carried out by any person for another for valuable consideration is service. It includes “declared service” as defined in Section 65B(22) of the Finance Act, 1944 read with 66E of the Act. The definition excluded few categories of activities as service. They are as follows:-

(a) an activity which constitutes merely,—

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or

(iii) a transaction in money or actionable claim;

(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

46. Barring the above exception, certain services were exempted under Mega Exemption Notification No.25/2012 – ST dated 20.06.2012 issued under Section 93(1) of the Finance Act, 1944. Certain activities were listed in the negative list. Those services are not liable to tax as Service tax is payable on the value of all services provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed under Section 66B of the Finance Act, 1994.

47. Under Section 66B of the Finance Act, 1994 no tax was payable for the services specified in the negative list. The expression “negative list” is defined in Section 66B(34) of the Finance Act, 1994 as those services specified in Section 66D of the Act.

48. Most services provided by the Central or State Government or local authorities are in the negative. Section 66D of the Finance Act, 1994 gives list of 17 service which were grouped under the “negative list”. Sl.No.1 to Section 66D which is relevant for the present dispute includes all service provided by Government or a local authority excluding the following:-

i. services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;

ii. services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

iii. transport of goods or passengers; or iv.[Support Service]*, other than services covered under clauses (i) to (iii) above, provided to business entities;

Note: * Substituted with Any service vide Finance Act, 2015 (20 of 2015), dated 14.05.2015.

49. …

50. …

51. Only Support services provided by the government or local authorities that have been excluded from the negative list entry are in the negative list. Otherwise, all service of government and local authorities are not taxable. Support services was defined in Section 65B of the Act as ‘infrastructural, operational, administrative, logistic marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of movable or immovable property, security, testing and analysis.

52. Services which are provided by government in terms of their sovereign right to business entities, and which are not substitutable in any manner by any private entity, are not support services.

53. In fact, in the Education Guide, list of activities such as grant of mining or licensing rights or audit of government entities established by a special law, which are required to be audited by CAG under Section 18 of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 and therefore such services are performed by CAG under the statue and cannot be performed by the business entity themselves and thus do not constitute support services.

54. If the activity carried out by the Petitioner Municipalities are categorised as “Support Service”, it cannot be held that there was a provision of taxable service and such service was liable to tax under Section 66B of the Finance Act, 1994 as in force with effect from 01.07.2012.

55. However, for such support services, service tax was payable by the recipient of such service in terms of Rule 2(1)(d)(E) of the Service Tax Rules, 1994 as amended by notification No.36/2012~ST dated 20.6.2012 with effect from 1.17.2012.

56. For support service provided, the recipient was liable to pay tax on reverse charge basis under Rule 2(1)(d)(E) of the Service Tax Rules, 1994 as amended by notification No.36/2012~ST dated 20.6.2012 as in force from 01.07.2012.

57. Therefore, the Petitioner Municipalities can be held liable to pay service tax only for service specified in Sub-Clauses in (i), (ii) and (iii) of Clause (a) of Section 66D of the Finance Act, 1994.”

4.8 In view of the above decisions we are in agreement with the observations made by the Commissioner to the effect that just because the services under consideration have been provided by Municipal Authority, the same cannot be said to be a service covered under Article 243 read with Schedule 12 of Constitution of India. Hence the arguments advanced by the appellant counsel to that effect cannot be sustained, more so over when they themselves have admitted there liability to pay service tax in respect of services under category of BOT, Mandap & Renting of Space to Blood Bank. We agree with the submissions of the appellant to effect that the value of tax able services under these category needs to be redetermined after taking into account the relevant and admissible deductions.

4.9 In respect of the services under the category of Renting of Stall etc., it is the submission of the appellant, that the amount collected by them is fees for providing small space to the street hawkers etc, for selling their goods etc., and is part of their Constitutional Duty for the upliftment and social welfare of the poor. It has also be submitted on the basis of the decisions of Hon’ble Supreme Court, wherein it has been held that street vending and selling is fundamental right of such hawkers and as per directive of the Hon’ble Supreme, Rules and Regulations have been framed to provide for the street vending and space for street hawkers. In terms of these rules and regulations some minor fee is levied for upkeep and providing facilities to such street hawkers. To the extent the space is provided to the poor for the purpose of street vending and street hawking, we would agree with the submission made by the appellant, but the same cannot be true in case of the shops and stalls rented out. Contrary has been held by the Mumbai Bench in case of Murmogoa, referred earlier by us. In our view the matter needs to be reconsidered by the original authority and suitable determination made.

4.10 While holding the invocation of extended period of limitation as per Section 73 of the Finance Act, 1994, Commissioner has in his order of 23.01.2018 has held as follows:

“5.3. The noticee has emphasized that extended period of 5 years cannot be invoked in the present case because they were under the impression that being a statutory body constituted under Article 243 W of the Constitution of India and hence they did not pay the service tax. Hence mens-rea in the case is not established to warrant invoking of extended period of 5 years. If this argument of the noticee is taken into consideration, then there was no need for them to take Service Tax registration and pay service tax ‘even for Mandap Service which was being provided by them. In the instant case, the noticee on one hand is putting forth the argument that they are a constitutional body formed under Article 243 W of the Constitution of India and hence not required to pay service tax and on other hand they on their own volition had obtained Service Tax registration and were paying service tax on Mandap Service. This paradoxical situation has remained unexplained and hence there is no doubt of whatsoever nature that mens-rea in the instant case is established. Moreover, if no investigation would have been carried out and the balance sheet of the noticee would not have been examined then there was hardly any manner by which the department could have come to know about the activities carried out by the noticee and the charges being levied for the same. Hence, I am of the opinion that the demand merits invoking of extended period as laid down under proviso to Section 73 (1) of the Finance Act, 1994 and the demand cannot be set aside for issue of limitation.”

Challenging these findings appellants refer to the observations made by the Commissioner in the second order to the effect –

“19. As the noticee is a statutory body and also major portion of the demand is not maintainable, therefore, I am of the opinion that imposition of penalty on the noticee is not warranted.”

4.11 The finding recorded by the Commissioner in second order is vis a vis penalty to be imposed. Commissioner has found the justification that being statutory authority cannot be subjected to penalty. Without stating Section 80 of Finance Act, 1994 he for these reasons has refrained from imposing penalties on the appellant. We are in complete agreement with approach adopted by the Commissioner and reaffirm that case like this are fit wherein benefit of Section 80 should be extended to such municipal authorities. However we would make it clear that extending benefit under Section 80 cannot be cited as reason for not invoking extended period of limitation under Section 73. From what has been stated above we are in agreement with the the approach adopted by the Commissioner in order dated 23.01.2018, justifying the invocation of extended period.

4.12 Thus we summarize our observations in respect of both the orders separately as follows:

Order date 23.01.2018

(i) Matter needs to be reconsidered by the adjudicating authority in respect of the demands made under the head “Pay and Park”, Bazar auction/ Bazar Fees” and Rasta Nuksan Bharpai/ ROW, and aligned with order dated 29.05.2020.

(ii) In respect demands made under categories, Ground/ market Rent. Marriage Hall, Bhade Patti (BOT), Stall Ground Rent, Hospital and Blood bank rent, while the leviability of the service tax has been upheld as per our observations in para 4.8 and 4.9, but the quantum of the value of taxable service and service tax leviable needs to be redetermined.

(iii) Extended period of limitation as held by the Commissioner is invokable.

(iv) Penalties imposed should be waived off by invoking section 80 of the Finance Act, 1994

Order date 29.05.2020

(i) Order of adjudicating authority in respect of the demands made under the head “Pay and Park”, Bazar auction/ Bazar Fees” and Rasta Nuksan Bharpai/ ROW, is upheld.

(ii) In respect demands made under categories, Ground/ market Rent. Marriage Hall, Bhade Patti (BOT), Stall Ground Rent, Hospital and Blood bank rent, while the leviability of the service tax has been upheld as per our observations in para 4.8 and 4.9, but the quantum of the value of taxable service and service tax leviable needs to be redetermined.

5.1 In view of the discussions as above the appeals are partly allowed and the matters remanded back to the original authority as per our observations in para 4.12 above.

5.2 Since the issue is quite old the adjudicating authority should finalized the matter in remand proceedings within three months of the receipt of this order after extending opportunity of hearing to the appellants.

(Order pronounced in the open court on 04.01.2022)

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