2021 (4) TMI 500 - HC - Service Tax

Court dismisses one petition, allows three others, quashes notices and orders, no costs awarded

The court dismissed W.P.No.3969 of 2018 as infructuous and allowed W.P.No.8900 of 2018, W.P.No.31799 of 2017, and W.P.No.12489 of 2017. The impugned Show ... Levy of service tax on municipalities - Renting of immovable property service - a “person” within meaning of Finance Act, 1994 as it stood prior to 01.07.2012 or not - period prior to July 2012 as well as post 01.07.2012. Period prior to 01.07.2012 - HELD THAT:- To attract levy under Section 65(105) (zzzz) of the Finance Act 1994 there should be renting of immovable property or provision any other service in relation to such renting, for use in the course of or furtherance of, business or commerce to “any person”. Only if service was provided by “any other person”, i.e, by a person other than the owner, such service was liable to service tax - The expression “any other person” can only mean any other person other than the owner of the property. Therefore, owner of the immoveable property is not liable to pay tax under Section 66 of the Finance Act, 1994 for the period up to 30.06.2012 - An owner can be held liable to pay tax for renting of immoveable property service only if there was an appropriate notification issued under Section 68(2) of the Finance Act, 1994 read with Rule 2(1)(d) of the Service Tax Rules, 1994. Service tax was payable only if such services were provided “by any other person” other than the owner, to any person by such renting, for use in the course of or in furtherance of, business or commerce - As the owner of the immovable property who rents out the property simplicitor was not in contemplation in the definition of taxable service of “renting of immovable property” in Section 65(105(zzzz) of the Finance Act, 1994, demand against the petitioner was without jurisdiction. Since the petitioner municipality is the owner of property, question of it being made liable to pay service tax for any service in relation to such renting of immoveable property does not arise even if it had rented out its immoveable property for use in the course of or for furtherance of, business or commerce of the person who was renting it. Period post 01.07.2012 - HELD THAT:- From 01.07.2012, there was a paradigm shift in the entire structure of the provision of the Finance Act, 1994 in view of the amendments to it by Finance Act, 2010. It introduced a new definition of “service” in Section 65B(44) of the Finance Act, 1944 for the first time - The definition of “Service” as in Section 65B(44) of the Finance Act, 1944 is very wide. Thus, any activity carried out by any person for another for valuable consideration is service. It includes “declared service” as defined in Section 65B(22) of the Finance Act, 1944 read with 66E of the Act. Certain activities were listed in the negative list. Those services are not liable to tax as Service tax is payable on the value of all services provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed under Section 66B of the Finance Act, 1994. Under Section 66B of the Finance Act, 1994 no tax was payable for the services specified in the negative list - Most services provided by the Central or State Government or local authorities are in the negative. Section 66D of the Finance Act, 1994 gives list of 17 service which were grouped under the “negative list”. If the activity carried out by the Petitioner Municipalities are categorised as “Support Service”, it cannot be held that there was a provision of taxable service and such service was liable to tax under Section 66B of the Finance Act, 1994 as in force with effect from 01.07.2012. However, for such support services, service tax was payable by the recipient of such service in terms of Rule 2(1)(d)(E) of the Service Tax Rules, 1994 as amended by notification No.36/2012-ST dated 20.6.2012 with effect from 1.17.2012 - For support service provided, the recipient was liable to pay tax on reverse charge basis under Rule 2(1)(d)(E) of the Service Tax Rules, 1994 as amended by notification No.36/2012-ST dated 20.06.2012 as in force from 01.07.2012. Therefore, the Petitioner Municipalities can be held liable to pay service tax only for service specified in Sub-Clauses in (i), (ii) and (iii) of Clause (a) of Section 66D of the Finance Act, 1994. Renting of immovable property Service - HELD THAT:- Though under Rule 2(1)(d)(E) of the Service Tax Rules, 1994, service tax is payable by the service provider, it has to be held that if such services are provided by a Government or Local Authority, they are exempted under Section 65D(1)(a) of the Finance Act,1994 as amended and as in force from 01.07.2012. Only ancillary service provided by a third party towards renting of immoveable property of a non-governmental or local body will be liable to pay service tax like any other service provider. Therefore, service tax is payable by the service provider himself. That apart, it is seen that some of the services provided are also exempted under the Mega Exemption Notification No.25/2012-ST dated 20.06.2012 vide Sl.Nos.38 and 39 - it includes: Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets and Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution. Petition disposed off. Issues Involved:1. Jurisdiction and applicability of service tax on municipalities under the Finance Act, 1994.2. Taxability of services provided by municipalities before and after July 1, 2012.3. Interpretation of 'person' and 'local authority' under the Finance Act, 1994.4. Exemptions under the Mega Exemption Notification No. 25/2012-ST.5. Validity of demands and orders issued by the tax authorities.Detailed Analysis:Jurisdiction and Applicability of Service Tax:The municipalities challenged the Show Cause Notices (SCNs) and Orders-in-Originals (OIOs) on the ground that they were without jurisdiction. They argued that there was no question of proposing or demanding service tax on their activities under the Finance Act, 1994.Taxability of Services Provided by Municipalities:Before July 1, 2012:- The demand for service tax was confined to 'Renting of Immovable Property Services' under Section 65(105)(zzzz) read with Section 65(90a) of the Finance Act, 1994.- The Delhi High Court in Home Solutions Retail India Ltd. v. UOI (2009) struck down the levy, stating renting of immovable property did not involve value addition and thus could not be regarded as a service.- The Finance Act, 2010 amended the provisions retrospectively to cure the defect pointed out by the Delhi High Court.- The court observed that service tax was payable only if services were provided 'by any other person' other than the owner, for use in the course of or furtherance of business or commerce.After July 1, 2012:- The Finance Act, 1994 was amended, introducing a new definition of 'service' in Section 65B(44).- Most services provided by the government or local authorities were included in the negative list under Section 66D, thus exempt from service tax.- The Mega Exemption Notification No. 25/2012-ST dated 20.06.2012 provided specific exemptions, including services by way of public conveniences and services by a governmental authority related to functions entrusted to a municipality under Article 243W of the Constitution.Interpretation of 'Person' and 'Local Authority':- Petitioners argued that municipalities were not 'persons' under the Finance Act, 1994, both before and after July 1, 2012.- The respondents contended that municipalities were 'persons' as defined in Section 65B(37) and 'local authorities' under Section 65B(31) of the Finance Act, 1994.- The court concluded that the definition of 'person' includes a local authority, and thus municipalities could be considered liable for service tax post-July 1, 2012.Exemptions under Mega Exemption Notification No. 25/2012-ST:- The petitioners claimed that their services were exempt under Sl.Nos. 38 and 39 of the Mega Exemption Notification No. 25/2012-ST.- The court noted that services by way of public conveniences and services by a governmental authority related to municipal functions were exempt from service tax.Validity of Demands and Orders:- The court held that the demands and orders issued against the municipalities were without jurisdiction for the period before July 1, 2012, as the municipalities were not liable to pay service tax on renting of immovable property.- For the period after July 1, 2012, the court found that the services provided by the municipalities were either exempt or not taxable under the amended provisions of the Finance Act, 1994.Conclusion:- W.P.No.3969 of 2018 was dismissed as infructuous.- W.P.No.8900 of 2018, W.P.No.31799 of 2017, and W.P.No.12489 of 2017 were allowed.- The impugned SCNs and OIOs were quashed.- No costs were awarded, and connected miscellaneous petitions were closed.