Custom, Excise & Service Tax Tribunal
Thrissur Municipal Corporation vs Commissioner Of Central Tax & Central ... on 10 April, 2024
ST/21619/2018
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No.21619 of 2018
(Arising out of Order-in-Original No. COC-EXCUS-000-COM-05-18-19
dated 03.07.2018 passed by the Commissioner of Central GST and
Central Excise, Kozhikode.)
Thrissur Municipal Corporation Appellant(s)
M.O. Road,
Thrissur - 680 001.
VERSUS
Commissioner of Central Tax &
Central Excise Respondent(s)
Cochin.
APPEARANCE:
Shri P. Raghunathan, Consultant for the Appellant. Shri P. Saravana Perumal, Authorised Representative for the Respondent.
CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MRS. R. BHAGYA DEVI, MEMBER (TECHNICAL) Final Order No. 20240 /2024 DATE OF HEARING: 04.12.2023 DATE OF DECISION: 10.04.2024 PER : R. BHAGYA DEVI M/s. Thrissur Municipal Corporation had filed this appeal to assail the order dated 3.7.2018 passed by the Commissioner Central GST and Central Excise, Kozhikode Commissionerate by which the Service Tax demand has been confirmed under Section 73 (2) along with interest and penalty. This appeal has been filed against the demand of service tax or amount received by the appellant on various services rendered by them during the period from October 2011 to September 2016, for which showcase notice was issued on 21/4/2017 alleging suppression Page 1 of 12 ST/21619/2018 with intent to evade payment of service tax. The service tax demand as per the impugned order is as follows:
Period Service Tax Excess Net Tax 50% penalty Penalty short paid amount paid liability for 2011-12 payable (Rs.) adjusted (Rs.) (Rs.) to 2014-15 (Rs.) Oct-2011 to 56,18,102 11,49,859 44,68,243 22,34,122 22,34,122 Mar. 2012 2012-13 31, 417 31,417 15,709 15,709 2013-14 13,33,867 13,33,867 6,66,933 6,66,933 2014-15 24,91,787 24,91,787 12,45,894 12,45,894 2015-16 -11,49,859 Apr. 2016 to 2,21,206 2,21,206 2,21,206 Sep. 2016 TOTAL 85,46,520 85,46,520 43,83,864
2. Shri Raghunathan, learned consultant for the appellant mainly submitted that:
i. The various services rendered by them are in the nature of civic amenities like bus stand, markets, slaughter house, parking, etc; which are part of the negative list and these are the functions entrusted to the corporation under article 243W of the Constitution of India.
ii. The entire methodology adopted by the audit team are based on the entries in the income and expenditure statement, balance sheet, receipt and payment statement and other ledgers which led to duplication of Payments.
iii. As per the agreements with Reliance Jio, they required to deposit ₹2,00,000 as secretary deposit with the corporation which is refundable after
3 years. Any demand of service tax on this amount is not sustainable as there is no quid pro quo service being rendered.
iv. An amount of rupees 70,00,000 and ₹1,00,00,000 is appropriated from the deposits paid by the Reliance Jio which is intended for restoration of roads and restoration of bus stand which are damaged due to trenching and laying of fibre optical cable. Since repairs maintenance and management of roads is specifically exempt from service tax this demand is to be set aside.
v. The benefit of cum tax value was not given.
vi. The appellants are local self-government body whose accounts are publicly audited and are available on the public domain and they do not gain anything by suppressing taxable value with intent 2 event payment of service tax as all transactions are government to government and such do suppression of facts can be alleged against the appellants.
vii. There is a calculation error s the showcase notice is for the period October 2011 to September 2016 but the demand includes the warriors Page 2 of 12 ST/21619/2018 recoverable pertaining to service provided for the period prior to 1.4.2011 which is expressly barred you are in terms of extended period of limitation viii. Following case laws have been relied upon to substantiate his arguments:
➢ Municipal Corporation Rajahmundry versus Commissioner of Service Tax and Central Excise Visakhapatnam 2017 (7) TMI- 685 CESTAT Hyderabad.
➢ Commissioner of Central Tax and Central Excise Cochin versus M/s. The Sultan Bathery Municipality 2018 (5 )TMI -1232 CESTAT Bangalore.
➢ M/s. Nagar Palika Mandal versus CCE Jaipur 2018 (2) TMI- 1247 CESTAT, New Delhi.
➢ Southern Power Distribution Company of Andhra Pradesh Ltd. versus Commissioner of Central Tax Tirupati CESTAT Hyderabad. Final order number A/30097/2022 dated 14. 9. 2022.
➢ TS Motors India Private Ltd. versus Commissioner of CGST & CE Lucknow CESTAT Allahabad -Final order number 70112/2022 dated
17. 6. 2022.
3. The Authorised representative reiterating the detailed findings of the Commissioner submits that the Commissioner has taken into consideration the errors of calculation and devised the correct method of calculation of service tax based on the value reflected in the "Income and Expenditure statement and the Advanced Accounts", hence there is no dispute as far as the valuation is concerned. With regard to renting of immovable property he has relied on the decision of the Hon'ble High Court of Madras in the case of R. Nambi versus Tenkasi Municipalit:y 2015 (37) STR 696 (Mad.) where it was held that:
"17. It is further submitted that Section 66B of the Act deals with charge of Service Tax on and after Finance Act, 2012 and it states that there shall be levied a tax (Service Tax) at the rate of twelve per cent on the value of all services, other than those service specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Further, it is submitted that prior to 10-5-2013, there was an explanation under Section 66B, which states that for removal of doubts, it is hereby clarified that the references to the provisions of Section 66 in Chapter V of the Finance Act, 1994 (32 of 1994) or any other Act, for the purpose of levy and collection of Service Tax, shall be construed as references to the provisions of Section 66B. Though initially inserted, it was omitted by Finance Act, Page 3 of 12 ST/21619/2018 2013 (Act 17 of 2013), dated 10-5-2013. Therefore, it is submitted that Section 66 of the Act has to be read along with Section 66B.
18. It is to be noted that though Explanation under Section 66B was omitted by Finance Act, 2013, dated 10-5-2013, it was inserted as Section 66BA. Sub-section (1) of Section states that for the purpose of levy and collection of Service Tax, any reference to Section 66 in the Finance Act, 1994 or any other Act for the time being in force, shall be construed as reference to Section 66B thereof. In terms of sub-section (2) of Section 66BA, the provision namely Section 66BA shall be deemed to have come into force on 1-7-2012. It is to be noted that on and after the introduction of Section 66B with effect from 1-6-2012, there was a diametric shift in the pattern of levy and collection of Service Tax by virtue of interpretation of the negative list. Therefore, the provision had to be made with regard to the levy and collection of Service Tax, after interpretation of Section 66B, for which purpose initially there was an explanation under Section 66B, which was omitted and inserted as Section 66BA. However, this omission or insertion does not in any manner improve the case of the petitioner, who is not a service provider. Hence, the contention raised on behalf of the petitioner does not merit acceptance."
3.1 He also relied on the decision of the Principal Bench New Delhi in the case of Municipal Corporation versus CG Raipur vide Final Order No.58617/2017 where it was observed that "the appellant is a local authority functioning under Chhattisgarh Municipal Corporation Act, 1956 and the present appeal relates to tax liability of the appellant under the category of "Renting of immovable property" in terms of section 65(90a) of the Finance Act 1994. We note that the shops, which are given out on rent are used for commercial purposes. We have perused sample copies of agreements. The appellant could not place on record any exemption extended to them either due to their status or due to the purpose for which the shops were rented out. These shops were given to a particular sections of people in terms of a Scheme announced by the Government, by itself, does not take away the tax liability. "Renting of immovable property" services with reference to renting, leasing, licensing, or other similar arrangement of immovable property for use in course for "furtherance of business or commerce". The exclusion given is with the reference to renting of such property by religious body or educational body. We could not find any exclusion from the Page 4 of 12 ST/21619/2018 tax entry which will apply to the appellants. Though the appellants are created by an Act and are performing as a local Government, there is no bar in taxing their activities if the immovable property rented out by them is used in the course for "further course of business or commerce". Admittedly, in the present case, the shops premises are used for business or commerce. In such situation, we find no reason for interfering with the findings of the lower authorities regarding tax liability of the appellant under the category of "renting of immovable property".
3.2 Regarding Service Tax liability on renting of vacant land, we note that the learned AR submitted that the present dispute is not with reference to any vacant land but for such land for commercial construction for renting out. After 1.7.2010, the same will be liable to tax. This has been upheld by the Tribunal in the case of Greater Noida Industrial Development Authority 87 VST 461 (T-Delhi) as affirmed by the decision of the Hon'ble High Court of Allahabad 2015 87 VST 496. Therefore, the AR submits that they are liable to pay tax on "renting of immovable property" and "vacant land" which is meant for commercial purpose. Hence, requested to uphold the decision of the Commissioner.
4. Heard both sides and perused the records. With regard to the demand of Service Tax on various public amenities provided by the appellant such as market space, bus stands, vehicle stands, slaughter houses etc., the claim of the appellant is that these are the sovereign functions entrusted to them by the Kerala Municipality Act ,1994 which has been placed on record. As per the above Act, Section 243-W reads as follows:
243-W; Powers, Authority and Responsibilities of Municipalities etc- subject to the provisions to this constitution, the legislature of a state may, by law, endow -Page 5 of 12
ST/21619/2018 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 here in, 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;
Under the Twelfth Schedule provision of urban amenities and facilities such as parks, gardens, play grounds, burials and burial grounds, cremations, public amenities including street lighting, parking lots, bus stops, public conveniences and regulation of slaughter houses and tanneries are included.
4.1 The Commissioner also in the impugned order notes that the said activities are the constitutional functions of the Local Body under Article 243W of the Constitution. which finds specific exemption in terms of Sl. No. 33, 37 and 39 of the Notification No.25/2012-ST dated 20.06.2012 which are not liable for tax, however, holds that these services are not provided directly to the recipient of such public amenities but had licensed certain private entities to operate such facilities as a business endeavour to earn profit. He observes that the services involved in each of these proposals are in the nature of renting of immovable property including vacant land owned by the corporation and would fall within the scope of taxable service of "renting of immovable property". He also notes that the agreement entered by the appellant with their respective licences' that they are contractually obliged to remit Service Tax to the appellant in addition to the respective license fee as Service Tax has been collected by the appellant; and in these cases, they are bound to Page 6 of 12 ST/21619/2018 remit such Service Tax collected in terms of Section 73 of the Finance Act, 1994. Countering these arguments, the appellant submits that all these activities are in the nature of public amenities and the services are rendered to fulfil the constitutional responsibility as a civic body. It is further submitted that the corporations are allowed to execute these functions either directly or by appointing an agent on their behalf and the fact that the fees are collected through the agent or an intermediary is immaterial as long as these are civic amenities falling under Article 243W, which is not disputed. It is also submitted that the Commissioner in the case of Chalakudy Municipality has held that the "services provided by the Municipality when they appoint persons to collect license fee in respect of such public amenities cannot be treated as service falling under renting of immovable property service as such activities are not in the furtherance of business or commerce considering these facts I'm inclined to hold that the services provided by the appellant such as public health and sanitation, public amenities including street lighting, parking lots, bus stops and public conventions and regulation of slaughter houses and tanneries are not taxable under the category of renting of immovable property".
4.2 In the case of Karad Nagar Parishd versus Commissioner of Central Excise and Service Tax, Kolhapur: 2018 (2) TMI 733, the Tribunal held that Regulation of slaughter houses is the sovereign function of the Municipal Corporation therefore the fees collected towards the regulation of slaughter houses, the demand of Service Tax does not arise. In view of the above, the demands against the Appellant with regard to the rent markets, bus stands, vehicle stand, slaughter house and comfort station are set aside as they are the sovereign functions of the appellant and it is immaterial whether they are delivered directly or through the intermediaries. However, the Commissioner also observes that in certain cases, the appellant has collected the Service Tax and Page 7 of 12 ST/21619/2018 therefore, even though they are not liable to service tax, the tax collected needs to be deposited with the tax authorities.
5. The second issue is with regard to the taxability of services provided by the appellant to various telecom companies by way of permitting them to lay terrestrial and overhead communication cables in corporation property. There are 2 agreements involved and both are with M/s. Reliance Jio Infocomm Limited. In the first case, the appellant had received payment of Rs.3,09,27,050/-, out of which 1,00,00,000/- is towards renovation of bus stand and Rs.97,050/- is collected as installation fee for GI poles and overhead cables. In the second agreement, they have received a payment of Rs.2,00,00,000/-, out of which Rs.70,00,000/- is retained by the appellant as supervision charges. Since the amounts are not entirely refundable deposits but part of the amounts have been retained as payments for services rendered to M/s. Reliance Jio Infocomm Limited, the appellant is liable to pay Service Tax. However, the appellant's grievance is that these amounts do not figure in their 'Income and Expenditure Statement' along with the 'advanced accounts' which has been the basis for arriving at the taxable value; though; they do not dispute the above facts. Since the agreements are on record and clearly establish that part of the amounts have been retained by the appellant for certain services rendered by them to M/s. Reliance Jio Infocomm Limited, the demand of Service Tax is justified and to that extent, the order is upheld. These agreements were not on record and admittedly, the payments were also not shown in the 'income and expenditure statement' thus, non-disclosure of the amounts collected and retained amounts to suppression of facts with intent to evade payment of duty. Therefore, the Service Tax on Telecom charges is upheld, for these agreements beyond the normal period.
5.1 From Table 1 at Sl. No.13, the demand is on taxable value 'arrears recovery pertaining to service provided prior to 1.4.2011'. The appellant claims that this amount of Page 8 of 12 ST/21619/2018 Rs.3,68,00,915/- includes the arrears for the year 2011-12 which is already included in the year 2012. It is also submitted that the amount received during 2011-12 is only Rs.64,56,678/- which was received during the period April 2011 to September 2011 which is beyond the period of limitation and therefore, cannot be a part of the notice. According to the appellant, the actual taxable amount is the amount received during October 2011 to March 2012 which is Rs.37,13,989/- as against Rs.3,68,00,915/-. We agree with the submission of the learned Consultant that the any arrears beyond 5 years is not sustainable but since these are factual data errors as has been explained by the Consultant, the same needs to be verified before finalisation of demand.
6. With regard to the methodology adopted by the Revenue to arrive at the taxable value, the Commissioner observed that "all incomes are recognised on accrual basis and considering the provisions of the Point of Taxation Rules 2011 I find that the income and expenditure statement of the SSC along with advanced accounts will only render true reflection of the taxable value of the SSC, accordingly I have reworked the taxable value on the basis of the figures reflected in the income and expenditure statement and the advanced accounts". The only objection on this observation by the appellant is that he has traversed beyond the show-cause notice as the notice demanded duty based on the credit transactions reflected in the Trial Balance, wherein the Commissioner found that it was not the right method for arriving at the taxable value; since, they are not the final income receipts, thus traversed beyond the show- cause notice. We are not inclined to accept this contention of the Consultant since the Commissioner after discussing in length the Sankhya Accounting Software developed as seen from the National Municipal accounting manual has come to the conclusion that only those incomes that are recognised on accrual basis will be the basis for the arriving at the taxable value. We do not find any reason to interfere with this Page 9 of 12 ST/21619/2018 observation of the Commissioner in as much as he has in fact accepted the objections raised by the appellant with regard to the methodology of arriving at the taxable value by the Revenue at the time of issuance of the notice and considering the accounting methods has rightly arrived at the taxable value based on "income and expenditure statement" and the "advanced accounts". We do not find anything wrong in the methodology adopted by the Commissioner, which is also not disputed by the appellant except for stating that he has traversed beyond the notice.
7. The learned Consultant submits that the appellants are local self-government body whose accounts are publicly audited and are available on the public domain and they do not stand to gain anything by suppressing taxable value with intent to evade payment of service tax as all transactions are government to government. The issue that arises for consideration is as to whether the Revenue was justified in invoking the extended period of limitation. The only justification given by the Commissioner is that 'under the self-assessment scheme, the tax paid is statutorily bound to assess themselves and discharge their tax liability, upholding the tenets of mutual trust and responsibility. The assessee had failed in their statutory responsibility of self-assessment is evident from the short levy unearthed on reconciliation of their tax performance. Had the audit not under taken by department, the irregularity in tax levy would have gone unnoticed and would have continued unabated'.
7.1 There is no dispute that whenever the appellant rendered services in furtherance of business or commerce, necessary Service Tax is being paid even though there are disputes regarding the taxable value. The alleged short-payments are not with any intent to evade payment of duty but on assessing the incorrect taxable value. Having already held in the previous paragraphs that the appellant is not liable to pay Service Tax for Page 10 of 12 ST/21619/2018 some of the services, as rightly pointed out by the appellant there is nothing on record to establish the intent to evade payment of duty. The appellant has relied on the decision of TS Motors (supra) and Southern Power Distribution (supra) wherein the Tribunal in these cases referring to the decision of the Hon'ble Supreme Court in the case of Pushpam Pharmaceuticals Co. and Continental Foundation Joint Venture Holding Vs. Commissioner of Central Excise, Chandigarh where the Supreme Court had observed that "the expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or 'collusion' and, therefore has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. On the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of facts. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct."
7.2 The Commissioner has only alleged that the appellant should have assessed correctly and there are no material facts on record to establish that the appellant had suppressed any facts with intent to evade payment of duty. It is also on record that the audit had taken the Trial Balance value details for the purpose of taxable value which has been rightly rejected by the Commissioner observing that the demand has been inflated by taking incorrect taxable value. In view of the above facts and based on the observations of the Supreme Court that suppression involves misdeclaration with the intent to evade payment of duty and there is nothing on record in the impugned order to establish that the appellant's intention to evade Page 11 of 12 ST/21619/2018 payment of duty. Therefore, we set aside the demand for the extended period and restrict to the normal period of limitation except in the case of a telecom transactions discussed above as they were not part of the income expenditure statement of the appellant.
8. Appellants vide their written submissions dated 19.10.2023 has also placed on record certain factual errors in determining the value and duplication/overlapping of taxes for the same service at different periods. Therefore, since the demand except for telecom services are barred by limitation, the matter is being remanded for redetermination of the taxes based on our observations under each category. While redetermining the same, the written submissions dated 19.10.2023 filed by the appellant with regard to the factual errors and duplication of taxes need to be considered. An opportunity of being heard is to be provided before redetermination of the demands to the appellants.. All penalties are set aside.
9. Appeals allowed by way of remand.
(Order pronounced in Open Court on 10.04.2024.) (D.M. MISRA) MEMBER (JUDICIAL) (R. BHAGYA DEVI) MEMBER (TECHNICAL) rv Page 12 of 12