The Chennai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) remanded the case to the adjudicating authority, stating that the municipality is liable to pay service tax under Renting of Immovable Property Services and other related services.
The issue to be decided was whether the demands of service tax under various services including renting of immovable property services are sustainable or not.
The assessee M/s Coimbatore City Municipal Corporation has five zonal offices. These zones are separately registered with the Department for service tax purposes. The assessee through its zones provide various services which according to the Department are taxable under the provisions of Finance Act, 1994. The assessee did not discharge appropriate service tax and did not file ST-3 Returns. Show Cause Notices were issued separately proposing to demand the Service Tax for the period from 01.04.2007 to 30.06.2014 under the category of renting of immovable property services, selling space for advertisement Services, Mandap Keeper Services, Demolition Charges for Unauthorized Construction, Garbage Removal Fees, Market Fees, Bus Stand Fee, Slaughter House Fee,etc. After due process of law, the Original Authority confirmed the demand, interest and imposed penalties. Against such order, assessee filed appeal before the Tribunal.
As per the Final Order No. 40465-40484/2017 dated 13.03.2017, the matter was remanded to the Adjudicating Authority for fresh consideration. After denovo adjudication, the demand, interest and penalties were again confirmed though some amount was dropped. Aggrieved by the confirmation of demand of service tax along with interest and penalties imposed, the Coimbatore City Corporation (assessee) are once again before the Tribunal. The Department has filed appeal against that part of the order by which the adjudicating authority confirmed less amount than that proposed in the show cause notices.
Mr. S Durairaj representing the assessee argued for the assessee. The arguments put forth were mainly threefold. Firstly, that the assessee being municipality had provided services / facilities while discharging sovereign functions and therefore the levy of service tax cannot be sustained. It is submitted that though the assessee had put forward this contention before the Adjudicating Authority, the same has been decided in favour of the department observing that the Municipalities are not discharging sovereign functions while providing the services.
Further, the assessee did not advertise the State legislation, the Municipalities Act by which the Municipality is constituted and is discharging various functions and services in light of Article 243W of the Constitution of India. This aspect had not been considered. This issue was of much importance as the right to collect such fee, fine, rent, etc., emanate out of the State enactment.
It was thus prayed that the assessee may be given an opportunity to put forward these arguments before the Adjudicating Authority. Further took assistance of the judgment of the Jurisdictional High Court in the case of Cuddalore Municipality vs. Joint Commissioner of GST and Central Excise. The said case, the High Court had considered the issue as to whether the services of renting of immovable property provided by municipality would be a sovereign function and has held the issue in favour of the assessee.
Mr. Ambe representing the department submitted that major part of the demand is under Renting of Immovable Property Services. The assessee through a municipality has let out shops and other premises to individuals and are receiving rental charges. The said activity would fall under the definition of Renting of Immovable Property Services and the demand has been correctly proposed and confirmed by the Department. Certain fees and other charges collected by the Municipality are for slaughter house, bus stand, public toilet, etc. These activities cannot be said to be sovereign functions. Further filed appeal on the ground that the Adjudicating Authority has dropped part of the demand after accepting the contention of the assessee that the amount quantified in the Show Cause Notice is not correct.
The bench observed that Municipalities (local authority) were rendering such services as sovereign function and therefore the amounts received was outside the purview of levy of service tax. In the said judgment, the High Court considered the liability to pay service tax for the period prior to 01.07.2012 as well as after 01.07.2012.
Further 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 and other services. It is to be noted 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, all these services are carried out as per the provisions of Coimbatore City Municipal Corporation Act, 1981. The State (Tamil Nadu) has bestowed the local authority vide the above enactment to carry out certain functions and services in consequence to Article 243X read with Article 243W of the constitution. These issues have to be examined in detail. If the activities are in discharge of sovereign right / function, the levy of service tax cannot be attracted. Accordingly, the two member bench of the tribunal comprising Vasa Sesha Giri Rao (Technical member) and Sulekha Beevi CS (Judicial member) concluded that the impugned orders were set aside. The appeals were allowed by way of remand to the Adjudicating Authority
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