The Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that municipal corporations engaged in commercial activities are liable to pay service tax.
Bidhannagar Municipality ( appellant ) is a municipal corporation established under Article 243 ( W ) of the Constitution of India. The Department issued a show cause notice demanding service tax of Rs. 1,28,33,502 to the appellant.
The appellant made submissions that the corporation undertook constitutional function and their services were not covered under the definition of service tax. Despite the submission, the department confirmed the demand and levied a penalty on the appellant. Aggrieved by the order, the appellant filed an appeal before the Tribunal.
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The counsel for the appellant argued that the corporation undertook functions under Article 243 ( W ) of the Constitution of India. The counsel submitted that ‘selling of space’ cannot be treated as a service since it is undertaken by the concerned agency.
The counsel also argued that the appellant is a government body and there was no intention to suppress the facts in order to evade the service tax. Therefore, the counsel sought to set aside the demand order.
On the other hand, the counsel of the department argued that the activities engaged by the appellant amounted to commercial activities. Therefore, the counsel justified the demand and sought to dismiss the appeal of the appellant.
The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that the appellant engaged in the sale of space for an advertisement to clients which cannot be taken as a public utility service.
The tribunal also observed that the appellant engaged in commercial activities. The tribunal ruled that the appellant was liable to pay service tax with interest for the normal period.
In spite of this, the tribunal also accepted the contention of the appellant counsel and observed that the corporation being the government agency, the appellant has no necessity to suppress facts with intent to evade tax.
Considering all these observations, the tribunal set aside the demand for an extended period and directed the appellant to pay service tax for the normal period with interest.
Taking into account that the appellant is a government body, the tribunal set aside the penalty levied by the department. The appellant’s appeal was partially allowed.
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