Whether municipal corporation can be held liable to pay service tax?

PJ/Case Law/2013-14/1612

Case:- MUNICIPAL CORPORATION, AURANGABAD Vs COMMISSIONER OF CENTRAL EXCISE, AURANGABAD.

Citation:- 2013-TIOL-897-CESTAT-MUM.

Brief facts:- The appeal and stay application are directed against the Order-in-Original No.18/ST/Comm./2012 dated 17.10.2012 passed by the Commissioner of Central Excise & Service Tax, Aurangabad. The appellant, M/s Aurangabad Municipal Corporation rendered various services such as renting of immovable property service, mandap keeper service, sale of space or time for advertisement service, supply of tangible goods for use and Health club and fitness service. However, they failed to discharge the Service Tax liability on these services during the period, April 2006 to March, 2011 in respect of mandap-keeper and health club and fitness services, May, 2006 to March, 2011 in respect of sale of space and time for advertisement service, 1.6.2007 to March 2011 in respect of renting of immovable property and from 16.5.2008 to March, 2011 in respect of supply of tangible goods for use service. Notice was issued vide notice dated 22.10.2011 proposing to demand Service Tax amounting to Rs.1,28,73,441/- along with interest thereon and also proposing to impose penalties. Notice was adjudicated vide the impugned order and the demand was confirmed along with interest and penalties were imposed on the appellant under Sections 76, 77 and 78 of the Finance Act, 1994.

Appellant’s contention:- The appellant submits that the appellant is a local authority and they were not aware that they are liable to pay Service Tax in respect of these services. In respect of renting of immovable property service, the issue itself was pending before the various High Courts and only in 2010, the issue was finally settled in favour of the Revenue by the Hon'ble Bombay High Court in the case of Infinity Retail Ltd. - 2010 (19) STR 801 (Bom).Therefore, the appellant was under bona fide belief that they are not liable to pay Service Tax. However, the Advocate fairly concedes that the appellant is now discharging the Service Tax on all these services. In view of the fact that they were under bona fide belief that they are not liable to pay Service Tax and the appellant being a Municipal Corporation, the suppression of facts with intent to evade duty cannot be alleged. He also offers to make pre-deposit of Service Tax demand involved during the normal period of time, which is approximately Rs.35 lakhs. He also submits that they have already paid an amount of Rs.4.5 lakhs in respect of renting of immovable property.

Respondent’s Contention:- The learned Dy. Commissioner (AR) appearing for the Revenue submits that the appellant cannot make an excuse in view of the fact that various letters were issued to the appellant as early as 08.09.2009 and onwards. They were also issued summons as early as March, 2009. However, these were not heeded to by the appellant. Therefore, the extended period of time has been rightly invoked in this case.

Reasoning of Judgement:- As the appellant is Municipal Corporation, a statutory body of the Government, prima facie the allegation of suppression of facts with intent to evade the service tax may not be sustainable in law. Therefore, the offer made by the appellant to pay Service Tax amount of Rs. 35 lakhs towards the Service Tax demand for the normal period of time was accepted and it was directed to the appellant to make the pre-deposit of Rs. 35 lakhs within six weeks and report compliance on 1.5.2013. On such compliance, pre-deposit of balance of dues adjudged against the appellant shall stand waived and recovery thereof stayed during pendency of the appeal.

Decision:- Part stay granted.

Comment:- The gist of this case is that the Municipal Corporation is a statutory body of the Government, and so prima facie, the allegation of suppression of facts with intent to evade the service tax may not be sustainable in law.

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PJ/Case Law/2013-14/1612

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