2020 (7) TMI 589 - AT - Service Tax

Tribunal rules octroi collection by Mumbai Port Trust non-taxable under Finance Act, 1994

The tribunal ruled in favor of Mumbai Port Trust, holding that the collection of octroi was a sovereign function and therefore not taxable under the ... Levy of octroi by municipalities - Invocation of Finance Act, 1994 against the amount retained by the appellant - exemption under notification no. 13/2004- ST dated 10 September 2004 - circular no. 897/7/2006-ST dated 18 December 2006 and no. 96/07/2007-ST dated 23 August 2007 of Central Board of Excise & Customs - HELD THAT:- The adjudicating authority has proceeded on the assumption that the collection of octroi was the service rendered by the appellant and the sole aspect that remained in dispute was the fitment within the proposed taxable service. In doing so, the plea of having discharged sovereign function that was beyond the ambit of tax laws was taken up to sustain the finding that taxable service had been rendered. There can be no cavil that sovereign functions are not intended to be taxed; sovereignty of a State has its genesis in either divine right or upon entrustment by the governed and the subjecting of the exercise of that sovereignty to levy is, generally speaking, anathema. Practically too, the absence of tangibility as well as specified recipients, renders the scope for such a levy to be well nigh impossible. It can be seen from the laws enacted for commodity taxation that there is a reiteration of the taxability of government transaction; such a mandate to tax is conspicuously absent in Finance Act, 1994. Normally, there would be no cause for such eventuality as the discharge of sovereign responsibility is not characterised with corresponding consideration. The negation of the claim flows from certain responses of the adjudicating authority to the claims of the appellant. We are constrained to take note of the solecism evident in those findings. Tax officials are creations of taxing statutes and not only required to be diligent in enforcing levies contemplated in those statutes but also be soldiers in defence of rule of law. Incorrect sequencing of the hierarchy of findings underlines disregard for other taxing statutes and even of the Constitution itself which may be attributable either to ignorance or to egregious disrespect. A perusal of Part XII of the Constitution of India would have been sufficient to appreciate that levy, collection and appropriation are all employed in the design of distribution of taxing powers and relegation of collection outside the aspect of sovereignty is not acceptable. Indeed, Article 265 is explicit in denying legality to tax is ‘levied or collected’ without authority of law. The finding of the appellant having exercised delegated powers is without basis. Considering the flaws of inferences in the impugned order leading to the conclusion that collection of octroi by the appellant, we, on examination of the legal framework, finding it useful to restate the foundations. That levy and collection of tax is a sovereign privilege and must have authority of law enacted by the Union Parliament or the legislatures of constituent states is not in dispute. It is also not in doubt that List II of the Seventh Schedule in the Constitution of India empowers the legislatures of the constituent states to levy and collect tax on ‘entry of goods’ which is, essentially, what octroi is. The collection of octroi for the entry and consumption of specified goods in Greater Mumbai has been legislated under the Mumbai Municipal Corporation Act, 1888 and, in terms of the Mumbai Municipal Corporation (Levy of Octroi) Rules, 1965, Mumbai Port Trust, a statutory authority established under law and subsequently incorporated within the ambit of Major Port Trusts Act, 1963, was one of the three agencies of the Central Government empowered-and not by contract-to enforce collection - The conclusion, inevitably, is that the collection of octroi by the appellant is in pursuance of discharge of sovereign privilege. Appeal allowed - decided in favor of appellant. Issues Involved:1. Tax liability of Mumbai Port Trust under Finance Act, 1994.2. Classification of services rendered by Mumbai Port Trust.3. Sovereign function and its exemption from tax.4. Applicability of circulars and notifications.5. Procedural fairness and natural justice in adjudication.Detailed Analysis:1. Tax Liability of Mumbai Port Trust under Finance Act, 1994:Mumbai Port Trust was held liable for a tax amount of Rs. 21,19,68,032/- under section 73 of Finance Act, 1994, with interest under section 75 and a penalty of like amount under section 78. The Traffic Manager was also penalized Rs. 10,000/- under section 77. The tax liability was based on the retained amount of Rs. 186,11,14,303/- from octroi collections, considered as consideration for rendered services taxable under section 65(105)(zn) and section 66B read with section 65B(44) of Finance Act, 1994.2. Classification of Services Rendered by Mumbai Port Trust:The adjudicating authority classified the service as 'port service' under section 65 A of Finance Act, 1994, despite potential classification under 'business auxiliary service' (section 65(105)(zzb)). The authority relied on the definition changes in 2010 and the transition to the negative list regime in 2012, concluding that the retained amount for octroi collection was taxable.3. Sovereign Function and Its Exemption from Tax:The adjudicating authority dismissed the argument that octroi collection was a sovereign function exempt from tax, stating that the Mumbai Port Trust, as a trust, is a commercial organization and not a government or local authority. The authority argued that the collection of octroi was not a sovereign function but a commercial activity, thus taxable.4. Applicability of Circulars and Notifications:The adjudicating authority disregarded the applicability of circulars no. 897/7/2006-ST and no. 96/07/2007-ST, which clarified that services provided by public authorities performing statutory functions are not taxable. The authority also dismissed the exemption under notification no. 13/2004-ST, arguing that octroi was not a collection by the government but by a local body like MCGM.5. Procedural Fairness and Natural Justice in Adjudication:The appellant argued that the adjudication was effectively ex parte due to their absence during personal hearings. However, this grievance was not pressed seriously, and the tribunal agreed with the respondent that sufficient opportunities were provided.Tribunal's Findings:The tribunal found several flaws in the adjudicating authority's conclusions:- The collection of octroi by Mumbai Port Trust was a sovereign function, not subject to tax under Finance Act, 1994.- The adjudicating authority's reliance on characterizing Mumbai Port Trust as a trust and not a public authority was incorrect.- The legislative framework, including the Mumbai Municipal Corporation Act, 1888, and Mumbai Municipal Corporation (Levy of Octroi) Rules, 1965, supported the sovereign function argument.- The adjudicating authority failed to consider the constitutional provisions and the correct interpretation of the delegation of tax collection powers.Conclusion:The tribunal set aside the impugned order, ruling that the collection of octroi by Mumbai Port Trust was in pursuance of a sovereign function and not taxable under Finance Act, 1994. The appeal was allowed, and the tax liability, interest, and penalties imposed were nullified.