Custom, Excise & Service Tax Tribunal
Srivilliputhur Municipality vs Tirunelveli on 7 November, 2024
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Service Tax Appeal No. 40559 of 2015
(Arising out of Order-in-Appeal No. 107/2014 dated 26.08.2014 passed by Commissioner of
Central Excise (Appeals), Madurai)
M/s. Srivilliputhur Municipality ...Appellant
Virudhunagar District,
Srivilliputhur - 626 125.
Versus
Commissioner of GST and Central Excise ...Respondent
Madurai Commissionerate, Lal Bahadur Shashtri Marg, C.R. Buildings, Madurai - 625 002.
APPEARANCE:
For the Appellant : Shri Abraham John Samuel, Advocate For the Respondent : Smt. Anandalakshmi Ganeshram, Authorised Representative CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL) HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) FINAL ORDER No. 41414 / 2024 DATE OF HEARING : 29.10.2024 DATE OF DECISION : 07.11.2024 Order :- Per Mr. VASA SESHAGIRI RAO M/s. Srivilliputhur Municipality (hereinafter referred to as the 'Appellant') have filed this appeal No. ST/40559/2015 which is directed against the Order-in-Appeal No. 107/2014 dated 26.08.2014 passed by the Commissioner of Central Excise (Appeals), Madurai.
2.1 Brief facts of the case are that the Appellant is renting / leasing out their own immovable properties for commercial purposes which is 2 taxable under the category of 'Renting of Immovable Property service' under the Finance Act, 1994., but the Appellant had not registered with the Department nor paid the Service Tax and also had not filed ST-3 returns for the period from June 2007 to March 2012. As such the Appellant was issued with a Show Cause Notice No. 18/ST/ADC/2011 dated 20.09.2012 which was adjudicated by the Joint Commissioner vide Order-in-Original No. 13/JC/ST/2013 dated 19.12.2013 demanding Service Tax amount of Rs.13,39,667/- and also imposing equal penalty.
2.2 On appeal being filed before the Commissioner (Appeals), the Lower Adjudicating Authority have confirmed the tax but set aside the penalty imposed on the ground that the Appellant being the statutory body of State Government. The Lower Adjudicating Authority have held that the Appellant is liable to pay service tax on the income received from the renting of immovable property as the levy of immovable property is constitutionally valid relying on the decisions rendered in the cases of M/s. Shubh Timb Steels Ltd. Vs. UOI and another [2010 (20) STR 737 P & H)], M/s. Retailers Association of India and another, M/s. Multiplex Association of India V UOI [2011 (23) STR 561 (Bom)] and M/s. Cinemax India Ltd vs. UOI [2011 (204) STR 0003 (Guj)]. The Hon'ble Punjab and Haryana High Court in the case of M/s. Shubh Timb Steels Ltd Vs UOI and another [2010 (20) STR 737 P & H)] held that 'Renting of property for commercial purpose is a service and has a value for the service receiver and the levy of service tax on 'Renting of Immovable Property with retrospective effect from 1 June 2007 is constitutionally valid. The Hon'ble Bombay High Court in the case of M/s. Retailers Association of India and another and M/s. Multiplex Association of India V UOI [2011 (23) STR 561 (Bom)] held that the levy of service tax on 3 'Renting of Immovable Property' with retrospective effect from 01 June 2007 is constitutionally valid. The Hon'ble Gujarat High Court in the case of M/s. Cinemax India Ltd vs. UOI [2011 (204) STR 0003 (Guj)] held that Renting of property for use in furtherance of business or commerce entails value addition and hence it is a service and the levy of service tax on 'renting of immovable property with retrospective effect from 01 June 2007 is constitutionally valid. Hon'ble Delhi High Court (Larger Bench) decision in second M/s. Home Solutions case (23 September 2011) [2011 (24) STR 19 (Del)] held that 'Service tax is a value added tax which, in turn, is a general tax applicable to all commercial activities involving provision of service when a particular building or premises has the "effect potentiality" to be let out on rent for the said purpose, an element of service is involved in the immovable property and that tantamounts to value addition which would come within the component of service tax. An element of service arises because a person who intends to avail the property on rent wishes to use it for a specific purpose. The value of the building gets accentuated because of scarcity of land or building, goodwill, accessibility and similar ancillary advantages which constitute value addition'. The immovable properties of the appellants were utilised in the course or furtherance of business or commerce is well established and the above findings in the case laws are well applicable to the facts in this appeal. He has further observed that the appellants are well aware that the amendment came into effect 4 years back, but the Appellant has not bothered to register themselves with the department and pay service tax for the services provided by them.
3.1 The Ld. Advocate Shri Abraham John Samuel representing the Appellant has referred to the grounds of appeal and prayed for setting aside 4 the service tax demand on the plea that the Srivilliputhur Municipality is a creature of an Act of the Tamil Nadu Legislature and is the statutory body being governed by the Tamil Nadu District Municipalities Act, 1920 and it is an autonomous self-government in terms of the Article 243Q of the Constitution of India. He has submitted that the law is well settled that municipalities are covered under the definition of the 'State' as enshrined under the Article 12 of Constitution of India. He has stated that the Appellant owns number of properties both the movable and immovable, vacant land, markets, etc., which have been leased and given on license on monthly or annual basis for one year or for three years by tender-cum-public auction as per the State Government orders and the object of the creation of a municipal body is to promote and to develop the quality of small-scale businesses and economic status of the people. So, the Appellant established Shopping Complex, Kept Tv sets for advertisement purposes and etc., apart from leasing or renting of the immovable properties, vacant lands, etc. He has argued that it is well settled by the constitutional courts that the municipalities are covered under Article 12 of the Constitution of India and imposing tax on the unit of the State is in violation of Article 289 of the Constitution of India which exempts the property and income of a State from the union taxation.
3.2 He has argued that under Article 243 W of the Constitution of India the Appellant municipality is having the Constitutional obligation to promote the economic development and Social justice in its Municipal area. In order to raise revenue to meet its obligation, the municipality has let out its immovable properties, vacant lands, etc. Therefore, imposing the tax on 5 the Appellant violates Constitution of India. He has referred to Article 243W of the Constitution of India which reads as follows: -
243W-Powers, authority and responsibilities of Municipalities, etc. 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 as listed hereunder.
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 ponds; 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 slaughterhouses and tanneries.
63.3 In terms of Article 289 Constitution of India, the Ministry of Finance had issued the Mega Exemption Notification No. 25/2012-ST and amending Notification No. 02/2014 which excludes governmental authority from the purview of paying Service Tax. The relevant portion of the Notification reads as follows: -
"(s) Governmental authority means an authority or a board or any other body;
(i) Set up by an Act of Parliament or a State Legislature; or
(ii) Established by the Government, With 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243 W of the Constitution"
3.4 The Ld. Counsel has explained that the Appellant was not keeping any telephone booths and many of the shops were let out for educational purpose and assessing to tax, on such properties is against the Finance Act, 1994. Section 66D of the Finance Act, 1994 provides a negative list and many of the shops which were run in their immovable properties come under the negative list and the Lower Appellate Authority has failed to consider the above provisions of the Constitution and also the exemption accorded by the above Notifications. He has finally submitted that the Appellant is a unit of State and therefore levy of service tax on the property and income of the municipality is not sustainable.
4. The Ld. Authorised Representative Smt. Anandalakshmi Ganeshram has affirmed the findings of the Lower Appellate Authority. She has argued that the Appellant is liable to pay service tax on the income generated out of renting out / leasing out immovable properties of the municipality under 'Renting of Immovable Property service' as upheld by 7 various High Courts and the Tribunal as detailed in para 5 of the impugned Order-in-Appeal No. 107/2014 dated 26.08.2014.
5. Heard both sides and considered the submissions both written and oral and other evidences and documents available on record.
6. The only issue that arises for determination in this appeal is whether the demand of service tax under the category of Renting of Immovable Property service on the appellant is sustainable or not?
7. We find that the issue involved has been squarely covered by the decisions rendered by this Tribunal in the case of The Commissioner, Krishnagiri and Others Vs. Commissioner of Central Excise [F.Nos. 40613- 40615/2024 dated 04.06.2024]. The relevant portions of the order are extracted below: -
" 6.2 The Hon'ble High Court of Madras in the case of Cuddalaore Municipality (supra) had analysed the matter in detail for the period prior to 01.07.2012 and post 01.07.2012. It was held that prior to 01.07.2012, the word 'person' was not defined in the Finance Act, 1994. The definition of the taxable service used the word 'person' and so did not include Municipality prior to 01.07.2012. The definition of 'Renting of Immovable Property Service' introduced w.e.f. 01.06.2007 under Section 65 (90a) reads as under:
''Renting of Immovable Property' includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of 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'.8
6.3 The taxable service as under Section 65 (105) (zzzz) reads as:-
'to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce'.
The definition underwent a small amendment in 2010 and reads as:
'to any person, by any other person, by renting or immovable property or any other service in relation to such renting, for use in the course of or for furtherance of, business or commerce'.
6.4 The definition uses the words 'to any person, by any other person'. It was held by the Hon'ble High Court in the case of Cuddalore Municipality that service tax was payable only if such services were provided 'by any other person' which means other than the owner to any person. In the case of Cuddalore Municipality, the Hon'ble High Court set aside the demand for the period prior to 30.06.2012. The relevant discussion of the Hon'ble High Court reads as under:
"22. I have considered the arguments advanced by the learned counsel for the petitioner and the respective learned Senior Standing Counsel for the respective respondents in the respective Writ Petitions.
23 Since the dispute pertains to the period prior to July 2012 and thereafter, I shall deal with the issues in two parts, i.e. for the period prior to July 2012 and for the period after July 2012. The period prior to 2012 is partly covered by W.P.No 12489 of 2018.
24 in WP.No.12489 of 2018, the petitioner has challenged Orderin Original No 05/2018-ST in C.No V/ST/15/21/2018 ST.Adj. Dated 06.04.2018. For the period prior to July 2012, the demand is confined to levy of tax under Section 65(105)(zzzz) of the Finance Act, 1994 read with definition of "Renting of Immovable Property Services under Section 65(90a) of the Finance Act, 1994 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) (2222) 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 cut 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-9
Definition of Taxable Service taxable service of Definition of "renting of immovable property"
in "renting of immovable property" Section in Section 65 (90a) of the Finance Act, 1994 65(105) (zzzz) ) of the Finance Act, 1994 To any person, by any other person, by renting "Renting of immovable property" includes of immovable property or any other service in renting letting, leasing, licensing or other relation to such renting, for the use in the similar arrangements of immovable property course of or furtherance of business or for use in the course or furtherance of commerce. business or commerce but does not include-
Explanation 1: For the purpose of this
subclause, "immovable property" includes- (i) renting of immovable property by a
(i) building or part of a building, and the land religious body or to a religious body,
are pertinent thereto; or
(ii) land incidental to the use of such building (ii) renting of immovable property to
or part of a building, the common or shared an educational body, imparting skills
areas and facilities relating thereto, and or knowledge or lessons on any
(iii) the common or shared areas and facilities subject of field, other than a
relating thereto: and commercial, training or coaching
(iv) in case of a building located in a complex or centre.
an industrial estate, all common areas and Explanation 1 For the purpose of this clause
facilities relating thereto, within such complex "for use in the course of furtherance of
or estate, but does not include- business or commerce includes use of
(a) vacant land solely used for immovable property as factories, office
agriculture, aquaculture, farming buildings, warehouses theatres, exhibition
forestry animal husbandry, mining halls and multiple-use buildings;
purposes Explanation 2: For the removal of doubts, it is
(b) vacant land, whether or not having hereby declared that for the purpose of this
facilities clearly incidental to the use clause "renting of immovable property
of such vacant land, "includes allowing or permitting the use of
(c) land used for educational sports space in and immovable property, irrespective
circus entertainment and parking of the transfer of possession or control of the
purposes, and said immovable property.
(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
(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".
Explanation 2 For the purposes of this
10
subclause, and immovable property, partly for
use in the course offurtherance of business or
commerce and partly for residential or any
other purposes shall be deemed to be
immovable property for use in the course of
furtherance of business commerce.
30. The Delhi High Court in the 2nd Home Solutions Retails (India) Ltd. v. Union of India 2011 (24) STR 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 | 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 il 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 propertyto various person in the course of or furtherance of business or commerce of the lessee as defined in Section 65(90) 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 immovableproperty or provision any other service in relation to such renting, for use in the course of or furtherance ofbusiness or commerce to "any person. Only if service was provided by "any other person", le, by a personother 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-11
Section 65(88) Section 65(89) "Real Estate Agent" means a person "Real estate consultant" means a who is engaged in rendering any service person who renders in any
in relation to sale, purchase, leasing or manner, either directly or renting, of real estate and includes a indirectly, advice, consultancy or real estate consultant 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 In the light of the about discussion, W.P. No. 12489 of 2017 filed Vridhachalam Municipality for the period April 2012 June 2012 deserves to be allowed. To that extent impugned Order-in- Original No. 5/2018-ST in C No V/ST/15/21/2017-ST. Adjn, is liable to be quashed straight away 6.5 In the very same judgement the Hon'ble High Court has considered the demand proposed and confirmed for the period after 30.06.2012 also. It was held that a Government or local authority is exempted from payment of service tax on Renting of Immovable Property Service being services rendered in terms of their sovereign right to business entities. Section 66D (a) - (d) of the Finance Act 1994 reads as under:
66D. Negative list of services.
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-12
(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) any service, other than services covered under clauses (i) to (iii) above, provided to business entities;
(b) services by the Reserve Bank of India;
(c) services by a foreign diplomatic mission located in India;
(d) services relating to agriculture or agricultural produce by way of-
(i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;
(ii) supply of farm labour;
(iii) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;
(iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
(v) loading, unloading, packing, storage or warehousing of agricultural produce;
(vi) agricultural extension services;
(vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce;
The relevant para of the judgement in the case of Cuddalore Municipality reads as under:
"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 2012.13
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 20.06.2012 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.
58 As far as renting of immoveable property is concerned, though under Rule 2(1)(d)(E) of the Service Tax Rules, 1994, service tax is payable by the service provider, it has to be held that if such services are provided by a Government or Local Authority, they are exempted under Section 65D(1)(a) of the Finance Act, 1994 as amended and as in force from 01.07.2012. Only ancillary service provided by a third party towards renting of immovable property of a non-governmental or local body will be able to pay service tax like any other service provider. Therefore, service tax is payable by the service provider himself.
59. That apart, it is seen that some of the services provided are also exempted under the Mega Exemption Notification No.25/2012-ST dated 20.06.2012 vide Sl. Nos.38 and 39. They are reproduce below:-
38. Services by way of public conveniences such as provision of facilties of bathroom, washrooms, lavatories, urinal or toilets;
39. Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution.
60. Thus, there is no jurisdiction in the impugned Show Cause Notices/Orders-Original issued by the respondent in the light of the above discussion, demand proposed in the impugned S.C.N.No. 04/2018 (ST) inC.No.V/ST/15/2/2018-ST. Adjn. Dated 07.03.2018 and demand confirmed in Order-in-original No 3/2017- STC No IV/09/04/2017-ST Adjn. (RO OC No 100/2016, dated 24.03.2017 and Order-in-Original No.5/2018-ST in C.No.V/ST/15/21/2018-ST.Adj, dated 06.04.20/18 are able to be quashed and are accordingly quashed.
61. In the result, i. W.P.No.3969 of 2018 as mentioned above is dismissed as infructuous ii. W.P.No.890 of 2018, W.P.No.31799 of 2017 and W.P.No.12489 of 2007 are allowed.
iii. No cost. Consequently, connected Miscellaneous Petitions are closed." 6.6 The above decision was rendered by the Hon'ble High Court on 22.03.2021. However, prior to this, the Hon'ble jurisdictional High Court at Madurai Bench in the case of Madurai Corporation had considered the issue of taxability of renting of immovable property and held that Municipality is liable to pay service tax. The relevant paragraph of the judgement in the case of Madurai Corporation reads as under:"
"This Court heard the learned counsel for the petitioner at considerable length. Though I found the contentions to the worthy of http://www.judis.nic.in consideration, as rights pointed out by the learned standing counsel, the issue is no longer res integra. The Division Bench of the Madras High Court had already decided the issue in the decision reported in 2014- TIOL-2545-HC-MAD-ST (G.V.Matheswaran vs the Union of India and others) after upholding the validity of Section 65(105)(zzzz) of the Act, in Paragraph No 56, the Hon'ble Division Bench observed that it is open to the local body to pass on the burden to the recipient of the service. It is necessary to note that among the petitioners in that batch of writ petitions, there were a few local bodies also. That is why, in R. Nambi vs. Tenkasi Municipality (2015) (37) STR 696 (Mad, a learned Judge of this Court observed as follows 14 "13 At the out set it has to be pointed out that the petitioner it not a service provider The first respondent Municipality is the service provider, who has been registered with the Department. The onus is on the first respondent Municipality to remit the service tax. In turn, the first respondent Municipality has demanded the same from the petitioner, who is their licensee in respect of four contracts, wherein the petitioner has been given license to collect fees. Furthermore, the petitioner has not challenged the validity of the provisions of the Finance Act nor the notification issued by the second respondent and in such http www.judis.nic in circumstances a challenge to a demand notice issued by the service provider under whom the petitioner is a licensee has to necessarily fail. Nevertheless, since this Court heard the learned counsel for the petitioner in great length, this Court proposes to consider the submissions made by the parties as regards the jurisdiction to levy the service tax.
14 Renting of immovable property was brought under the Act with effect from 01.06.2007, Section 65(105) defines taxable service, which means any service provided 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 of or for furtherance of, business or commerce and it includes vacant land given on lense or license and the test is as to whether it is used in the course of of furtherance of business of commerce Admittedly, the petitioner is a licensee of the first respondent Municipality and the property has been used in the course of business or commerce. As noticed above, Section 65(90a)) defines renting of immovable property including renting, letting. leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce.
15 Admittedly, the properties in question de not fall within the two exemptions provided under Section 65(90) http://www.judis.nic.in of the Act. Explanation 2 under Section 65(90a) makes it more clear that renting of immovable property includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property. The duty performed by the first respondent Municipality would clearly fall within the ambit of the provisions referred above and therefore they have been remitting service tax to the Department. Further, Section 66D(a)(iv) of the Act deals with negative list of services and Clause (a) provides services by Government or a local authority excluding the following services to the extent they are not covered elsewhere and the relevant clause would be Clause (IV) namely support services, other than services covered under Clauses (i) to (iii), provided to business entities. Therefore the Municipality is bound to pay service tax on the nature of transaction, which they have entered into with the petitioner".
5. When the Division Bench of the Madras High Court has already held that the local bodies are also liable to pay service tax for rendering "renting of immovable properties" service mandap keeper services etc, then, it is not for me to go into the issue once again. Judicial discipline demands that I respectfully follow these binding precedents http://www.judis.nic.in
7. It is to be noted that the Hon'ble High Court in the case of Madurai Corporation has followed the decision of the Hon'ble High Court rendered in batch case of G.V. Matheswaran Vs. UOI 2014-TIOL-2545- HC-MAD-ST. In the case of G.V. Matheswaran the constitutional validity of the levy of service tax of renting of immovable property was under challenge. The main ground raised was that it is a tax on immovable property and that Centre has no powers to levy tax as immovable property (land) falls within the State List. There were decisions passed by various High Courts upholding the validity of the provisions of Section 65 (105) (zzzz) and Section (90a) of the Finance Act. [Shubh Timb Steels Ltd. Vs. UOI (2011) 37 VST 46 (P&H), Utkal Builders Ltd, Vs. UOI 2011 (22) STR 257 (Ori), Entertainment World Developers Ltd. Vs. UOI 2012 (25) STR 231 (M.P), Home Solutions Retails (India) Ltd. Vs. UOI 2011 (24) STR (129) Del (FB) Home Solution II]. In these cases, there was no specific discussion upon the issue whether 'local authority' would be liable to pay service tax on Renting of Immovable Property services. There was also no discussion as to the definition of person; in the case of Madurai Corporation, the Ld. Single Judge sustained the demand mainly on the view that the Hon'ble High Court in the batch case 15 observed that Municipality can pass on the burden of service tax to the tenant (recipient of service); The Ld. Single Judge also referred to the case of R Nambi Vs. Tenkashi Municipality [2015 (37) STR 696 (Mad)]. The petitioner therein was a licensee of the Tenkashi Municipality and challenged the demand notice of service tax served by the Municipality upon him. In these cases, the taxability in general was considered. The issue as to whether local authority (Panchayat, Municipality, Corporation) would be liable to discharge service tax as these services are provided in discharge of sovereign function was not considered. The Hon'ble High Court in the case of Cuddalore Municipality has considered this specific issue.
8. In a recent judgement, the Hon'ble High Court in the case of ST. Thomas Mount Cum Pallavaram Cantonment Board (supra) had referred to the decision in the case of Cuddalore Municipality (supra) and remanded the matters to consider a fresh the issue as to whether Municipality / Cantonment Board is liable to pay tax. The relevant paragraph reads as under:
"4. The petitioner claims that as a Cantonment Board and being a Municipality they are exempted from paying Service Tax. The petitioner had earlier challenged the Show cause notice issued by the respondents in WP. Nos 28468 and 28080 of 2021.
5. A learned Single Judge of this Court by her common order dated 10-8-2022 disposed of the said writ petitions on the ground that at the stage of Show cause notice, writ petitions cannot be entertained. But, however the learned Single Judge has made it clear that the respondent will have to consider the decision rendered by another learned Single Judge of this Court in a batch of wit petitions in WP No 8900 of 2017 in the case of Cuddalore Municipality v. The Joint Commissioner of GST and Central Excise, before passing final orders
6. However the Learned Senior Panel Counsel appearing for the respondent would submit that the order passed in the Cuddalore Municipality case referred to (supra) is the subject matter of challenge in a writ appeal. He would also submit that a contrary view has been taken by another learned single Judge of this Court in another batch of writ petitions in WP (MD) Nos 7599 of 2018 etc batch in its decision dated 9-9-2020. According to him in the said decision, it has been held that a Municipality is liable to pay ServicеТаx.
7. The learned Standing Counsel for the respondent would also submit that the decision of the Hon'ble Supreme Court in the case of Krishi Upaj Mandi Samiti v. Commissioner of C Ex &S.T. Alwar reported in 2022 GSTL 129[2022] 135 laxmann com 354 (S.C.) applies to the case of the petitioner and therefore they are liable to pay Service Tax as demanded under the impugned order.However the same is disputed by the Leamed Counsel for the petitioner who would submit that the said decision is not applicable to the case of the petitioner. The matter will have to be examined by the respondent. Admittedly, the Cuddalore Municipalily case rendered by a Leamed Single Judge of this Court referred to (supra) has not been considered by the respondents in the impugned order and therefore, necessarily the impugned order has to be quashed and the matter will have to be remanded back to the respondent for fresh consideration on merits and in accordance with law within a timeframe to be fixed by this Court.
8. For the foregoing reasons, the impugned order dated 30-9-2022 passed by the respondent is hereby quashed and the matter remanded back to the respondent for fresh consideration on merits and in accordance with law within a time frame to be fixed by this Court. The respondent shall pass final orders, after giving due consideration to the orders of this Court in the cases of (a) Cuddalore Municipality v. Joint Commissioner of GST and Central Excise WP. No 8900 of 2017, dated 22-3-2021 as well as (b) St Thomas Mount Cam Pallavaram Cantonment Board v. The Additional Director's and others in WP Nos 28468 and 28080 of 2021 dated 10-8-2022, within a period of twelve weeks from the date of receipt of a copy of this order.
9. With the aforesaid directions, this writ petition is deposed of No costs Consequently, connected miscellaneous petition is closed
9. It is represented before us that the department has filed appeal upon the decision passed by the Ld. Single Judge in the case of Cuddalore Municipality and that the assessee has filed appeal upon the decision passed in the case of Madurai Corporation. These appeals are pending before the 16 Hon'ble High Court. Since the Hon'ble High Court in the case of St. Thomas Mount Cum Pallavaram Cantontment Board has remanded the matter for considering the issue afresh, we are of the considered opinion that in the interest of justice, these matters also require to be remanded to the adjudicating authority to consider afresh the issue as to whether Municipality is liable to pay service tax under Renting of Immovable Property Services as well as other demands on the basis of the above observations and judgements rendered by jurisdictional High Court.
10. It is to be seen that some of the amounts falling within the demand pertain to fees and charges collected for carrying out functions specifically listed in 12th schedule. Further, services are carried out as per the provisions of Panchayat Act, Municipalities Act etc. by which State has bestowed the local authority to carry out such functions and services. These issues require to be examined. If sovereign functions, the levy of tax cannot be attracted.
11. The Ld. Counsel has argued on the ground of limitation also. The appellants being local authority, which is a wing of the Government, it cannot be said that appellants had suppressed facts with intention to evade payment of service tax. So also there is no positive act of suppression alleged in the Show Cause Notices against these municipalities. As the matter is remanded, we direct the adjudicating authority to consider the issue of limitation also. All issues are left open.
12. In the result, the impugned orders are set aside. The appeals are allowed by way of remand to the adjudicating authority."
8. We find that the Lower Appellate Authority vide impugned Order- in-Appeal No. 107/2014 dated 26.08.2014 has set aside the penalty imposed under Section 78 of the Finance Act, 1994 on the Appellant being a municipality which is affirmed. Appreciating the ratio of the above decisions and the facts being identical, the impugned Order-in-Appeal No. 107/2014 dated 26.08.2014 passed by Commissioner of Central Excise (Appeals), Madurai is set aside only to the extent of demand of Service Tax on 'Renting of Immovable Property service' by allowing the appeal by way of remand to the Adjudicating Authority who is directed to pass fresh order in strict observance to the principles of natural justice.
(Order pronounced in open court on 07.11.2024)
Sd/- Sd/-
(VASA SESHAGIRI RAO) (P. DINESHA)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
MK