2020 (6) TMI 227 - AT - Service Tax

Statutory Authority Exempt from Service Tax for Sovereign Functions

Karnataka Industrial Areas Development Board Versus Commissioner Of Central Tax, Bangalore North

The Tribunal held that the appellant, a statutory authority, is not liable to pay service tax as its activities constitute statutory functions mandated by ... Provision of service or not - Performing statutory functions - Development and maintenance of Industrial area - providing various taxable Services such as Renting of Immovable Property Services, Construction of Commercial and Residential Complexes, Business Support Services, Management, Maintenance or Repair Services, Manpower Recruitment and Supply Services, Works Contract Services, etc., to various clients. - whether at all the appellant, which is a statutory authority (KIADB) constituted under the KIAD Act for carrying out the purposes, is providing any service as defined in the Service Tax legislation (Finance Act, 1994)? HELD THAT:- The true character / scope and intent of the Act is to be ascertained with reference to the purposes and the provisions of the Act. The Act is one to make a special provision for securing orderly establishment of industrial areas and industrial estates in the State of Karnataka and for that purpose, to establish the board. A careful reading of the aforesaid provisions of KIADAct and KIADB Regulations would clearly go to show that the appellant is a State undertaking and creature of a statute to exercise the power of ‘eminent domain’. The appellant is engaged in discharging statutory functions under an act of Legislature viz. KIAD Act, 1966. It is a statutory body performing statutory functions and exercising statutory powers. Once carrying out the objectives of the Act, then it cannot be treated as a service provider under the Finance Act, 1994 - there is no service provider-client relationship so as to warrant the levy of service tax under the provisions of Finance Act, 1994. Appellant has undertaken various activities and functions in the State of Karnataka as per the directions of the State Government given from time to time under the provisions of the Act and hence their activities cannot be considered as taxable service and no service tax can be levied for these activities. The issue whether the statutory authority performing statutory functions as provided under a statute is liable to service tax or not has been considered and decided by catena of judgments rendered by various courts. In the case of COMMISSIONER OF CENTRAL EXCISE, NASHIK VERSUS MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION [2018 (2) TMI 1498 - BOMBAY HIGH COURT], the Hon’ble Bombay High Court has categorically held that no service tax could be demanded on the charges collected by the MIDC, in terms of MID Act, 1961 towards maintenance of industrial areas as the same is in the nature of statutory function performed in terms of the statute. The appellant is a statutory body discharging the statutory function as per the statute KIAD Act, 1966 and hence are not liable to pay service tax - Since the appellant is not liable to pay the service tax at all, it is not considered appropriate to discuss the demand of service tax on individual services allegedly rendered by the appellant on which the learned Commissioner has confirmed the demand. Appeal allowed - decided in favor of appellant. Issues Involved:1. Liability of a statutory authority to pay service tax.2. Sovereign functions and statutory obligations.3. Quantification and adoption of figures for service tax demand.4. Constitutional validity of service tax on renting of immovable property.5. Specific service tax demands under various heads such as construction services, business support services, maintenance services, and manpower supply services.6. Invocation of extended period for demand and imposition of penalties.Detailed Analysis:1. Liability of a statutory authority to pay service tax:The core issue was whether the appellant, a statutory authority constituted under the KIAD Act, is liable to pay service tax. The Tribunal examined the provisions of the KIAD Act and concluded that the appellant is a statutory body performing statutory functions as mandated by the Act. The Tribunal held that the appellant's activities are not taxable services under the Finance Act, 1994, as they are statutory functions carried out under the directions of the State Government. The Tribunal relied on the decision of the Bombay High Court in the case of Maharashtra Industrial Development Corporation (MIDC), which held that no service tax could be demanded on charges collected for statutory functions.2. Sovereign functions and statutory obligations:The Tribunal analyzed the nature of the appellant's functions and concluded that they are sovereign functions. The appellant was established to promote industrial development in Karnataka, and its activities include land acquisition, development, and allotment, which are statutory functions. The Tribunal referenced several judgments, including those of the Supreme Court and the Bombay High Court, which supported the view that statutory authorities performing statutory functions are not liable to pay service tax. The Tribunal also noted that the appellant's activities are not commercial in nature and are carried out as part of its statutory mandate.3. Quantification and adoption of figures for service tax demand:The appellant contested the quantification of the service tax demand, arguing that the figures adopted by the Department were cumulative figures from financial statements and not actual service charges. The Tribunal did not delve deeply into this issue, as it had already concluded that the appellant was not liable to pay service tax on its statutory functions.4. Constitutional validity of service tax on renting of immovable property:The Tribunal noted that the constitutional validity of the levy of service tax on renting of immovable property was pending before a nine-judge bench of the Supreme Court in the case of UOI vs. UTV News Ltd. The Tribunal observed that the deposits collected by the appellant for land allotment were not rent or lease charges but were adjusted against the sale consideration of the land. Therefore, they could not be subjected to service tax under the head of renting of immovable property.5. Specific service tax demands under various heads:- Construction Services: The appellant argued that it did not provide construction services but engaged contractors to carry out construction. The Tribunal accepted this argument, noting that the appellant's role was limited to statutory functions.- Business Support Services: The appellant contended that it did not provide any business support services. The Tribunal found that the amounts considered by the Department were deposits for amenities and not service charges.- Maintenance Services: The appellant collected amounts for maintenance work, which were carried out by independent contractors. The Tribunal held that these activities were statutory functions and not taxable services.- Manpower Supply Services: The appellant did not provide manpower services for land acquisition, and the Tribunal agreed that this activity could not be taxed under the category of manpower recruitment or supply services.6. Invocation of extended period for demand and imposition of penalties:The appellant argued that being a government undertaking, it did not have the intention to evade taxes, and therefore, the extended period for demand and penalties should not be invoked. The Tribunal, having concluded that the appellant was not liable to pay service tax, did not find it necessary to discuss the invocation of the extended period or the imposition of penalties.Conclusion:The Tribunal set aside the impugned order and allowed the appeal, holding that the appellant, being a statutory authority performing statutory functions, is not liable to pay service tax. The Tribunal relied on various judicial precedents to support its conclusion that statutory functions carried out by public authorities are not taxable services.