2014 (9) TMI 697 - AT - Service Tax

Appellant's Land Leasing Not Exempt from Service Tax

MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION Versus COMMISSIONER OF SERVICE TAX-I, MUMBAI

The Tribunal held that the appellant's activities of commercial leasing of land do not qualify as sovereign functions exempt from service tax. Service tax ... Waiver of pre-deposit - Renting of Immovable Property - services rendered by M/s Maharashtra Industrial Development Corporation (MIDC) - whether function of state or not - Held that:- Section 20 of the Act inter alia provides for maintenance fund for the Corporation and all monies received by the corporation from the Government, all fees, costs and charges received, all monies received by way of disposal of land, buildings and other properties, movable or immovable and all monies received by way of rents and profits or in any other manner or from any other sources are credited to the fund. From these provisions of the MIDC Act, it is clear that the Corporation has its own identity apart from that of Maharashtra Government and operates independently of the Government. The receipts of the corporation are credited to its own fund and do not go the consolidated fund of the State. If that be so, the activities undertaken by it can not be construed as functions of the State. In the present case we have noticed that the appellant is undertaking lease of land in two stages. In the first stage an agreement to lease the land to eligible applicants on payment of premium is entered into subject to construction of commercial buildings on the land and once the construction is completed, a lease agreement is entered into on payment of lease rental. The activity undertaken by the appellant would be amenable to service tax with effect from 1.7.2010, if not earlier. As the demand involved is huge to the extent of ₹ 536 crores, no undue hardship would be caused to the appellant if some pre-deposit is ordered, especially since no prima facie case has been made out by the appellant. - stay granted partly. Issues:Appeal against service tax demand and penalties imposed on the appellant for classifying services under 'Renting of Immovable Property' for the period 1.6.2007 to 31.3.2012.Analysis:1. The appellant argued that its activities, undertaken as an agent of the State of Maharashtra, are sovereign functions and not liable to taxation. Citing the Maharashtra Industrial Development Act and a resolution, the appellant claimed exemption based on its role in securing orderly industrial establishment. The appellant relied on legal precedents to support its stance, emphasizing that activities like leasing land are sovereign functions and not subject to service tax.2. The Revenue contended that the appellant's leasing of land constitutes 'renting of immovable property' and is therefore taxable. Referring to a previous Tribunal decision, the Revenue asserted that service tax is applicable to lease premium and rent. The Revenue argued that since the appellant engaged in renting immovable property, service tax should be levied from 1.6.2007 onwards.3. The Tribunal analyzed the provisions of the MIDC Act, highlighting the Corporation's separate legal identity from the Maharashtra Government. It concluded that the appellant's activities, involving commercial leasing of land, do not qualify as sovereign functions. The Tribunal differentiated the appellant's case from legal precedents cited, emphasizing the specific context of land leasing. It noted that the appellant's activities do not align with traditional sovereign functions, such as defense or taxation.4. Considering the appellant's lease agreements and financial position, the Tribunal determined that service tax could be applicable from 1.7.2010 onwards, given the nature of the transactions. Due to the significant demand amount, the Tribunal ordered a pre-deposit but waived the balance upon compliance. The Tribunal also cited a Supreme Court decision to justify the pre-deposit requirement, emphasizing the balance of convenience in the decision.5. Given the appellant's status as a Government Corporation, the Tribunal found no basis for allegations of suppression or misstatement of facts. It directed the appellant to make a pre-deposit of a specific amount within a stipulated timeframe, with further recovery stayed during the appeal process. The Tribunal's decision balanced the legal arguments presented by both parties and focused on the specific nature of the appellant's activities in determining the tax liability.