Chief Municipal Officer Vs Commissioner of Customs (CESTAT Delhi)
Summary: The CESTAT New Delhi considered whether a municipality was liable to service tax on two activities: providing space for display of advertisements through hoardings and renting/licensing its immovable properties, including vacant land, to agencies, persons and traders. The disputed period was 2009-10 to 2014-15, covering both the pre-negative-list and post-negative-list service tax regimes.
The appellant had received Rs. 3,06,738/- from hoarding rent during April 2009 to June 2012 and Rs. 3,39,22,974/- as rent from various immovable properties during April 2009 to July 2014. The Department proposed service tax of Rs. 39,22,945/- together with interest, penalties and late fee for non-filing of ST-3 returns. The demand was confirmed by the adjudicating authority and Commissioner (Appeals), leading to the appeal before the Tribunal.
The appellant contended that the expression “Renting of Immovable Property Service” had been incorrectly interpreted. It argued, relying particularly on Cuddalore Municipality Vs Joint Commissioner of GST & Central Excise, that the expression “any other person” meant a person other than the owner. It also argued that vacant land was excluded from the relevant definition and that arrears of rent had been taxed at an incorrect service tax rate. On advertisement receipts, the appellant maintained that it merely collected statutory licence fees under the Madhya Pradesh Municipalities Act, 1961 for allotting land on which advertisers erected hoardings, rather than selling advertising space. It further challenged penalties on the ground that there was no intention to evade tax.
For the period before 01.07.2012, the Tribunal held that providing space for hoardings was covered by section 65(105)(zzzm) of the Finance Act, 1994. Since the statutory explanation expressly included providing space for display, advertising or showcasing products or services on billboards and public places, the demand under “Sale of Space or Time for Advertisement Services” was upheld for the period up to 01.07.2012.
The Tribunal also rejected the appellant’s interpretation of “Renting of Immovable Property” for the pre-01.07.2012 period. It examined the definitions under sections 65(90a) and 65(105)(zzzz) and held that the vacant land supplied for market places was being used for commercial purposes and did not fall within the claimed exclusion. The Tribunal further held that “any other person” in the taxable-service provision meant any person other than the recipient and did not require the service provider to be a person other than the owner.
For the period after 01.07.2012, the Tribunal examined section 65B(44), which broadly defined “service”, together with section 66D containing the negative list. The relevant negative-list provision excluded specified services by Government or local authorities but carved out services provided to business entities. The Tribunal found that the appellant had rented immovable property, including vacant land, for organising “Flee Markets” for consideration. Regardless of whether the receipts were described as licence fees, the activity was undertaken for commerce and provided to traders/business entities.
In reaching this conclusion, the Tribunal relied upon the Supreme Court decision in Krishi Upaj Mandi Samiti, New Mandi Yard, Alwar, which distinguishes mandatory statutory/sovereign functions from activities undertaken for consideration. The Tribunal applied that distinction and found the appellant’s commercial renting activity taxable. The Department’s reliance on that decision was therefore accepted in substance.
On limitation, however, the Tribunal granted substantial relief. It observed that the appellant was a government authority and that there was no evidence establishing any positive act of suppression with intent to evade service tax. Referring to Anand Nishikawa Co. Ltd. Vs Commissioner of Central Excise, Meerut, the Tribunal held that mere failure to declare or pay tax does not by itself constitute wilful suppression and that a positive act is required for invoking the extended period.
Accordingly, the Tribunal held that both activities were taxable and that service tax was payable on the value received for those services. However, the extended-period demand was set aside. The demand for the normal period was confirmed with proportionate reduction in the penalty. The appeal was therefore partly allowed.
Cases Discussed
- Cuddalore Municipality Vs Joint Commissioner of GST & Central Excise — 2021 (55) G.S.T.L. 397 (Mad.)
- Selvel Media Services Private Limited Vs Municipal Corporation of the City of Ahmedabad — 2016 (45) S.T.R. 166 (Guj.)
- Pimpri Chinchwad Municipal Corporation Vs Commissioner of Central Excise, Pune-I — 2018 (9) G.S.T.L. 394 (Tri.-Bom.)
- Nagpur Municipal Corporation Vs Commissioner of Customs & Central Excise — 2018 (12) G.S.T.L. 62 (Tri.-Bom.)
- Krishi Upaj Mandi Samiti, New Mandi Yard Vs Commissioner of Central Excise & Service Tax, Alwar — 2022 (58) G.S.T.L. 129 (S.C.)
- Anand Nishikawa Co. Ltd. Vs Commissioner of Central Excise, Meerut — 2005 (188) E.L.T. 149 (S.C.)
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT NEW DELHI
The Chief Municipal Officer, the appellant herein, is engaged in providing space for display of advertisement to its clients and receives consideration for the same and is also providing its immovable property on rent to different agencies / persons and receiving rental income regularly. But the appellant was neither registered with the Service Tax Department nor was depositing Service Tax to the Government Exchequer. The appellant was accordingly enquired by the Revenue.
1.1 On perusal of the information of the appellant provided vide chart dated 07.08.2014, it got revealed that for the period April 2009 to June 2012, the appellant had received / collected an amount of Rs. 3,06,738/- from hoarding rent on which it appears liable for payment of service tax under the category of “Sale of Space or Time for Advertisement Services” and that for the period April 2009 to July 2014, an amount of Rs. 3,39,22,974/- as rent from the various immovable property on which it appears liable for payment of service tax under the category of “Renting of Immovable property Services” till the period June 2012 and for the remaining period amount is taxable as “Service” defined under Section 65(B) 44 of the Finance Act, 1994.The appellant, however, failed to furnish the half yearly periodically return in form ST-3 for the said period before the proper officer by the stipulated dates, thus have violated the provisions of Section 70 of the said Act with the proposal of late fee.
1.2 Accordingly service tax amounting to Rs. 39,22,945/- was proposed to be recovered along with interest and penalties under Section 76, 77 and 78 of the Finance Act were proposed vide show cause notice No. 15-75/2014/7249 dated 11.09.2014. Late fee for delay filling of ST-3 returns was also proposed. The said proposal was got confirmed vide order-in-original No. 15-17/2014/5728 dated 27.10.2015. Appeal against the said order has been confirmed vide Order-in-Appeal No. 526-16-17 dated 27.12.2016. Being aggrieved the appellant is before this tribunal.
2. We have heard Shri Sandeep Mukherjee, learned Advocate for the appellant and Ms. Jaya Kumari, learned Authorized Representative for the department.
3. Ld. Counsel for the appellant submitted that the impunged order has been passed based on incorrect interpretation of the term “Renting of Immovable Property Service”. Also ld. Commissioner (Appeals) has not given any reasoning for taxing vacant land, which stood excluded from the definition of “Immovable Property”. It is further submitted that Service tax is to be charged at the rate applicable at the time when the service was provided. Accordingly, whatever be the year in which the rent is received, the tax is to be levied at the rate applicable for the year to which the rent relates. While computing the demand, the arrears of rent received has been taxed at the rate applicable to the year in which the rent is received. Therefore, the service tax has been computed erroneously.In the case of renting of immovable property, the services is taxable, where it is provided to any person by “any other person”. This means that the service is to be provided by a person other than the owner of the property. In the case of Cuddalore Municipality reported in 2021 (55) G.S.T.L. 397 (Mad.), the Honorable Madras High Court stated in para 32 of the order that only where the service was provided by any other person, i.e., by a person other than the owner, such service was liable to service tax. The text of the para is as under:
“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.”
3.1 Otherwise also the Adjudicating Authority, without allowing time for detailed chart for the rent received in arrears since from 01.07.2011 and without understanding that Point of Taxation Rules would determine the rate of service tax, passed an order confirming the proposals of the Show Cause Notice in toto. Ld. Counsel impressed upon that while not granting the opportunity to furnish the break-up of the arrears of rent, principal of natural justice was violated.
3.2 Ld. Counsel for appellant further submitted that the order is erroneous also for the reason that it has been passed under incorrect interpretation of the term “Sale of Space or Time for Advertisement”. Under Article 243X, the MP Municipalities Act, 1961 was passed. Under this Act, the powers to a Municipality to levy, collect and appropriate such taxes, duties, tolls and fees have been authorized by Section 349 of the Act. This section allows the Municipality to collect licence fee for allotment of land for use.Under this provision only, the Municipality allots land to advertisers, who in turn put up hoardings on that site and sell space on such hoardings. The appellant is denied to have not sold any space for display or for advertisement or showcasing any product on billboards etc. except that license fee, under a statute, has been collected by the appellant for use of land for erection of hoardings. It is impressed upon that this activity does not amount to sale of space for advertising. Therefore, until 30.06.2012, the income from renting of shops and other immovable properties owned by the appellant was not taxable.
3.3 Finally it is submitted that the order has erroneously confirmed the proposals to levy penalty whereas the appellant had no intention to evade the payment of service tax. Ld. Counsel relied upon following decisions: –
(i) Judgement in Cuddalore Municipality, Vs Joint Commr of GST &C.ExTiruchirapalli 2021 (55) G.S.T.L. 397 (Mad.)
(ii) Judgement in Selvel Media Services Private Limited, Vs Municipal Corporation of City of Ahmedabad 2016 (45) S.T.R. 166 (Guj.)
(iii) Judgement in Pimpri Chinchwad Municipal Corporation, Vs Commr. Of C. Ex., Pune-I 2018 (9) G.S.T.L. 394 (Tri.-Bom)
(iv) Judgement in Nagpur Municipal Corporation, Vs. Commissioner. Of Customs &C.Ex. 2018 (12) G.S.T.L. 62( Tri.-Bom)
With these submissions the order under challenge is prayed to be set aside and the appeal is prayed to be allowed.
3.4 While rebutting these submissions Ld. Departmental Representative (DR), at the outset, has reiterated the findings of Commissioner (Appeals). Impressing upon no infirmity in the said order, the appeal is prayed to be dismissed. Decision in the case of Krishi Upaj Mandi Samiti, New Mandi Yard vs. Commissioner of CEX & ST, Alwar 2022 (58) G.S.T.L. 129 (S.C.) is relied upon.
4. Having heard the rival contentions and perusing the record. it is observed that period in dispute is 2009-10 to 2014-15 i.e. pre as well as post introduction of concept of negative list in section 66D of the Finance Act, 1994 (hereinafter referred as the Act) w.e.f. 01.07.2012. Prior this date there were categories of the taxable ‘service’ as defined under section 65(105) of the Act and post thereto, all “Services” under section 65B(44) of the Act were taxable except those as were mentioned in section 66D of the Act. In view thereof, following two issues need to be adjudicated:
(a) Whether appellant’s act of Providing space for display of advertisement to its clients is taxable.
(b) Whether appellant’s act of Providing its immovable property on rent to different agencies is the taxable activity.
5. Issue No. 1- for the period prior 01.07.2012
The service of sale of space used to be governed by section 65(105)(zzzm) of the Act which reads as under:
(105) “taxable service” means any service provided or to be provided, –
(zzzm) to any person, by any other person, in relation to sale of space or time for advertisement, in any manner, but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization.
Explanation 1. For the purposes of this sub-clause, “sale of space or time for advertisement” includes,-
(i) providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet;
(ii) selling of time slots on radio or television by a person, other than a broadcasting agency or organisation;
(iii) aerial advertising
5.1 The activity of providing space for hoardings for advertising is apparently the one covered under the above provision. Hence is held to taxable. Thus we do not find any reason to differ from findings arrived in the impunged order. The order under challenge, to the extent of confirming the demand under the category of “Sale of Space or Time for Advertisement Services” for the period till 01.07.2012 is hereby upheld.
6. Issue No. 2 for the period prior 01.07.2012 :
The definition of “Renting of Immovable Property Service” during the period till 30.06.2012 was as under:
(90a) “renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include-
(i) renting of immovable property by a religious body or to a religious body; or
(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre.
Explanation. [1] For the purposes of this clause, “for use in the course or furtherance of business or commerce includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings.
The definition of taxable service of “Renting of Immovable Property” during the period till 30.06.2012 was as under:
65. In this Chapter, unless the context otherwise requires,-
(105) “taxable service” means any service provided [or to be provided],一
(zzzz) to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course or for furtherance of, business or commerce.
Explanation 1. For the purposes of this sub-clause, “immovable property” includes-
(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate,
(v) vacant land given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce, but does not include-
(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes:
(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;
(c) land used for educational, sports, circus, entertainment and parking purposes; and
(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.
Explanation 2.-For the purposes of this sub-clause, animmovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;
In the present case, the appellant has provided vacant land for market places i.e. for commercial use. In light of above definition it is clear that activity for commerce doesn’t fall under the exclusion clause of the definition of Renting of immovable property, as is claimed by the appellant. The decision of Hon’ble Madras High Court in case of Cuddalore Municipality (Supra) is held to have been wrongly interpreted. The term any other person in the provision above means any person than recipient who may or may not be the owner. In view thereof we don’t find any infirmity when demand under this category has also been confirmed in the impunged order.
6.1 For the period post 01.07.2012:
Section 65B of the Act defines Service as follows:
(44) “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-
(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
6.2 Negative list of services introduced vide Amendment Act of 2012 lists the activities which are not taxable. Thus any activity is made taxable post 01.07.2012 except those mentioned in said negative list in section 66D of the Finance Act, 1994. The section reads as follows:
66D. The negative list shall comprise of the following services, namely:-
a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere-
(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
(iii) 3 [any service], other than services covered under clauses (i) to (iii) above, provided to business entities.
6.3 In the present case, it is an admitted fact that appellants have rented the immovable property including the vacant land for purposes of organizing ‘Flee Markets’ against certain amount of fee.
Irrespective it may be License fee, the fact remains is that appellant Municipality is getting profit out of it. The activity is therefore for commerce and is being provided to the various traders, the business entities. The issue about such activities of government is being settles by hon’ble Supreme Court in Krishi Upaj Mandi (Supra) case, wherein it has been held as follows:
(a) that while no Service Tax was payable on statutory functions performed by sovereign/public authorities, exemption would not be applicable in respect of other functions not statutory in nature undertaken by such authorities for consideration, if these are otherwise taxable.
(b) activity of renting/leasing/allotment of shop/land/platform/space etc. is not a mandatory statutory activity. Section 9(2) ibid, which is enabling provision for carrying out these activities, uses word ‘may’ instead of ‘shall’ as used in Section 9(1) ibid -Therefore, legislative intent is to make activities under Section 9(1) ibid as statutorily mandatory, while making activities under Section 9(2) ibid as discretionary – These discretionary activities, therefore, are not statutory – Consideration received for such activities is not statutory levy/fees and is not credited to Government Account in Treasury – Merely because such considerations are required to be deposited in treasury/Bank for use as ‘Market Committee Fund’, not meaning that it has become Government Money.
6.4 Finally coming to the plea of invocation of extended period it is held that the appellant is the government authority and it is settled position of law that such authority has no reason to have any kind of malafide intent. Otherwise also it was the burden of the department to prove the positive act on part of the appellant which may amount to suppression of relevant facts. But there is no such evidence produced on record. Law is settled as was held by hon’ble Supreme Court in the case of Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut reported as 2005 (188) ELT 149 (SC) wherein it is held that suppression of facts can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty when facts were know to both the parties. The omission by one to do what he might have done not that he must have done would not render it suppression. It is settled that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression.
Accordingly we hold that extended period has wrongly been invoked while issuing the shoe cause notice. Hence the demand for the period beyond normal is held liable to be set aside.
7. In view of the entire above discussion we hold that both the activities rendered by the appellant are taxable and appellant is liable to pay service tax on the value received for rendering those services, however, the demand for the extended period is liable to be set aside. Hence the demand for the normal period is hereby confirmed with the proportionate reduction in the amount of penalty imposed. Resultantly, the present appeal is hereby partly allowed
[Order pronounced in the open court on 12.08.2026]
