Service Tax on Renting of Immovable Property Payable Only for Normal Period: CESTAT Partly Allows Appeal [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at New Delhi held that the extended period of limitation cannot be invoked against a government authority in absence of intent to evade tax. The Bench upheld the demand for the normal period only and remanded the matter to the adjudicating authority for re-quantification.

The decision was delivered in Service Tax Appeal No. 50592 of 2019, arising out of Order-in-Original dated 31.10.2018, passed by the Commissioner of CGST & Central Excise, Bhopal.

The Gwalior Trade Fair Authority, established in 1996 under the Gwalior Vyapar Mela Adhiniyam Act, is a statutory body constituted by the Government of Madhya Pradesh to organize and manage the historic Gwalior Trade Fair, an event that has been held since 1905. The Authority’s management includes senior State officials such as the Collector, SP, Mayor, and MLA of Gwalior.

An intelligence report led the Department to investigate the Authority’s activities. The Department found that the appellant had rented out stalls and immovable properties during trade fairs, collecting an amount of ₹17.51 crore, but allegedly failed to discharge service tax liability under the category of Renting of Immovable Property Service.

A show cause notice dated 13.11.2017 was issued covering FY 2012–13 to 2016–17, invoking the extended period under the proviso to Section 73(1) of the Finance Act, 1994. The adjudicating authority confirmed a service tax demand of ₹2,40,79,808, along with interest and penalty.

The Authority had faced an earlier show cause notice in 2004, wherein the Department alleged tax liability under the head Business Exhibition Service. That demand was quashed by the Madhya Pradesh High Court in Gwalior Trade Fair Authority v. Union of India, which held that the activities of GTFA did not fall within that taxable service category.

Appearing for the appellant, Deepak Kumar Bajpai argued that there was no intention to evade tax, suppress facts, or misstate information. Further, the Department was already aware of the Authority’s activities since the earlier 2005 proceedings and the presence of the Central Excise Audit Office on the Authority’s premises since 2016. As per him, the Authority was under a bonafide belief of non-liability, hence invocation of the extended limitation was unjustified.

Shri Aejaz Ahmad, Authorized Representative for the Department, defended the impugned order stating that the current demand pertained to Renting of Immovable Property Service, which came under the tax net only from 1 June 2007 and was later defined as a declared service under Section 65B(41) from July 2012. He added that the earlier proceedings were under a distinct service category (Business Exhibition Service), hence the High Court’s earlier order did not cover the present issue.

The Bench comprising Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) examined whether the extended period of limitation could be sustained under the circumstances. It observed that the appellant’s belief of non-liability was supported by the High Court’s earlier judgment, creating a reasonable and bona fide belief that service tax was not applicable to its activities.

Holding that the Authority’s operations were transparent and under direct government supervision, the Bench added that the Department’s own audit office operated within the Trade Fair premises, paying rent to GTFA, showing that the Department was well aware of the renting activity. Accordingly, the Tribunal ruled that while tax liability existed for the normal period, the invocation of the extended period under the proviso to Section 73(1) was unsustainable.

The Tribunal conclusively held “In view of the Madhya Pradesh High Court’s earlier ruling and the appellant’s bona fide conduct, the invocation of the extended period is not justified..”

The Bench, thus, upheld the demand for the normal limitation period, set aside the demand for the extended period and remanded the matter to the adjudicating authority for re-calculation of tax liability for the normal period.

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