In a recent ruling, the Chennai bench of the Customs, Excise And Service Tax Appellate Tribunal ( CESTAT) remanded the matter on the challenge on leviability of service tax on renting/leasing immovable properties for commercial purposes and directed to pass denovo order.
The Commissioner, Theni-Allinagaram Municipality (the ‘Appellant’) has filed this appeal which is directed against the Order-in-Appeal No. 272/2017 passed by the Commissioner of Customs & C.Ex. (Appeals), Madurai. The Appellant is renting / leasing out their own immovable properties for commercial purposes which is 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 December 2011.
Become a PF & ESIC expert with our comprehensive course – Enroll Now
The Appellant was issued with two show cause notices relating to the period June 2007 to December 2001 and January 2012 to January 2013. For the subsequent periods also, three Statement of Demands were issued covering Feb 2013 to March 2013, April 2013 to March 2014 and April 2014 to March 2015 which came to be adjudicated by the Commissioner vide Order-in-Original demanding Service Tax with interest and also imposing equal penalty besides imposing penalties under Section 77 of the Act ibid. On appeal being filed before the Commissioner (Appeals), the Lower Appellate Authority has upheld the order of Original Authority.
It was found that the TheniAllinagaram 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. It is seen 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.
Become a PF & ESIC expert with our comprehensive course – Enroll Now
The Appellant owns number of properties both 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 etc., apart from leasing or renting of the immovable properties, vacant lands, etc.
The Authorized Representative Shri M. Selvakumar has affirmed the findings of the impugned order. He 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 various High Courts and the Tribunal. 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?
Become a PF & ESIC expert with our comprehensive course – Enroll Now
The department has filed an appeal against the decision passed by the Single Judge in the case of Cuddalore Municipality and that the assessee has filed an appeal against the decision passed in the case of Madurai Corporation. These appeals are pending before the High Court; since the 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 required to be remanded to the adjudicating authority who shall await the judgment in the above case of High Court.
A two-member bench of P. Dinesha, Member (Judicial) and Ajit Kumar, Member (Technical) found 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 are required to be examined. If the appellant is held to be performing sovereign functions, the levy of tax cannot be attracted.
The Tribunal set aside the impugned order and remanded the matter back to the file of original authority who shall adhere to the directions given by the High Court in the case of St. Thomas Mount Cum Pallavaram Cantonment Board and then pass a de novo order.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
