The Chennai bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has directed that the municipality is liable to pay service tax under Renting of immovable property services and remanded the case to the adjudicating authority.
The appellant Commissioner were various municipalities and inter alia are engaged in renting / leasing out of their immovable properties including vacant land for commercial purposes. The department noted that these municipalities did not register with the department under the category of Renting of Immovable Property Services and did not discharge service tax on the said services. Show Cause Notices were issued to these appellants proposing to demand service tax under the category of renting of immovable property service for different periods from the date of introduction of the said service (June 2007).
Mr. M.N. Bharathi representing the appellant submitted that the municipalities have to deal with diverse functions as above and there is lack of man power for discharging these functions which are in the nature of welfare and facilities to the citizens. Certain functions are out sourced by these municipalities in the form of assigning rights to individuals to carry out the specific work. These outsourced functions include the right to collect entry fee on each cattle brought in for slaughter, the right to collect entry fee to the public market, the right to collect fee on each head load of vegetables brought in to the market, parking fee for parking vehicles etc. Such rights to collect fees and levies are assigned to the bidders through open bidding and by floating of tenders. The bidders with highest bidding will get the right to collect the levies and fees as per the norms laid down by the municipality in the Municipalities Act.
From the definition of ‘Renting of Immovable Property’, it can be seen that there should be letting/leasing/ renting of immovable property for use in furtherance of business and commerce. The amounts on which the demand has been raised are fees and levies collected which are due to the Municipality and cannot be equated with consideration for service. A few petty shops have been given for rent in the bus stand and market places, which are facilities provided as per the Municipalities Act.
Mr. M. Ambe representing the department. The findings in the impugned order were reiterated. Further submitted that the High Court at Madurai Bench had considered the very same issue as to whether Municipalities are liable to pay service tax under Renting of Immovable Property Service. In the said judgment, the High Court held that the demand was sustainable and that Municipality was liable to pay service tax. It was prayed that the appeals may be dismissed.
The two member bench of the tribunal comprising Vasa Sesha Giri Rao (Technical member) and Sulekha Beevi C.S (Judicial member) observed that 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. 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.
Further there was no positive act of suppression alleged in the Show Cause Notices against these municipalities. As the matter was remanded, CESTAT directed the adjudicating authority to consider the issue of limitation also. Accordingly, the impugned orders were set aside. The appeals are allowed by way of remand to the adjudicating authority.
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