2022 (2) TMI 1113 - SC - Service Tax

Agricultural Produce Market Committee liable for service tax on renting activities before July 2012

The SC dismissed the appeal regarding service tax liability for an Agricultural Produce Market Committee's renting activities for the period up to ... Exemption under Circular No.89/7/2006 - statutory activity / mandatory statutory function - renting of immovable property service - Negative List Regime - strict construction of exemption notifications - Market Committee Fund versus Government TreasuryExemption under Circular No.89/7/2006 - statutory activity / mandatory statutory function - strict construction of exemption notifications - Whether the appellants (Market Committees) are entitled to exemption from service tax for allotment/renting/leasing of shops/lands/platforms under Circular No.89/7/2006 dated 18.12.2006 for the period upto 30.06.2012. - HELD THAT: - The Court held that the 2006 circular exempts only those activities performed by sovereign/public authorities which are mandatory statutory obligations, where fees are compulsory levies prescribed by law and deposited into the Government treasury. Section 9(2) of the Act, 1961 is enabling (uses 'may') and does not impose a mandatory duty on Market Committees to allot/lease/rent shops or lands; by contrast subsection (1) uses 'shall' where a mandatory duty is intended. The fees collected by Market Committees are credited to the Market Committee Fund and are not statutory levies deposited into the Government treasury; Rule 45 governs the administration of the Market Committee Fund but does not convert fees into Government receipts. Therefore the activities of allotment/renting/leasing are discretionary services for consideration and do not fall within the exemption envisaged by the 2006 circular. Exemption notifications must be strictly construed and the appellant must show that all conditions of the notification are satisfied; that was not done here. [Paras 7, 8, 9, 10]The appellants are not entitled to exemption under Circular No.89/7/2006 for the renting/allotment activities for the period upto 30.06.2012.Renting of immovable property service - Negative List Regime - Whether the appellants are liable for service tax in respect of renting of immovable property for the period on and after 1.7.2012. - HELD THAT: - The Court noted that with the introduction of the Negative List Regime w.e.f. 01.07.2012 the activity in question was placed in the Negative List and thereby excluded from tax liability. The fact that the legislature subsequently placed such activities in the Negative List indicates that they were not already covered by the 2006 circular exemption. The CESTAT's conclusion that Market Committees are not liable to service tax for renting premises used for storage of agricultural produce in the market area from 1.7.2012 was noted and left intact. [Paras 2, 11]Market Committees are not liable to pay service tax on the renting of premises for storage of agricultural produce in the market area for the period from 1.7.2012 (Negative List Regime).Final Conclusion: The appeals are dismissed: the Market Committees are liable to service tax for renting of immovable property for consideration for the period upto 30.06.2012 (no exemption under Circular No.89/7/2006), while they are not liable for the period from 1.7.2012 onward by virtue of the Negative List Regime; no order as to costs. Issues Involved:1. Liability of Agricultural Produce Market Committees (APMCs) to pay service tax under the category of 'renting of immovable property service' for the period up to 30.06.2012.2. Applicability of the Negative List Regime of taxation from 01.07.2012.3. Interpretation and applicability of Circular No. 89/7/2006 dated 18.12.2006 regarding exemption from service tax for statutory activities.4. Whether the activities of renting/leasing by APMCs are considered mandatory statutory activities exempt from service tax.Detailed Analysis:1. Liability of APMCs to Pay Service Tax up to 30.06.2012:The Supreme Court addressed whether APMCs are liable to pay service tax under the category of 'renting of immovable property service' for the period up to 30.06.2012. The Court noted that the respective appellants, APMCs, were involved in regulating the sale of agricultural produce and charged market fees for issuing licenses and renting out land and shops. The Revenue had issued show cause notices, and after adjudication, it was held that APMCs were not liable to pay service tax on 'market fee' or 'mandi shulk' but were liable under the category of 'renting of immovable property' for renting lands/shops. The CESTAT confirmed this view, holding APMCs liable for service tax for the period up to 30.06.2012.2. Applicability of the Negative List Regime from 01.07.2012:The introduction of the Negative List Regime of taxation w.e.f. 01.07.2012 excluded certain services from tax liability. The CESTAT noted that APMCs were excluded from tax liability on renting of immovable property used for storage of agricultural produce in the market area post-01.07.2012. The CESTAT held that APMCs were not liable for service tax on renting shops/sheds/platforms/land for temporary storage of agricultural produce but were liable for renting premises for other commercial purposes.3. Interpretation and Applicability of Circular No. 89/7/2006:The appellants argued that their activities of allotment of shops/premises/spaces to traders and brokers were statutory activities under Section 9 of the Rajasthan Agricultural Produce Markets Act, 1961, and thus exempt from service tax as per Circular No. 89/7/2006. The Circular exempts activities performed by public authorities under statutory obligations, where the fee collected is a compulsory levy deposited into the Government Treasury. The Court examined whether the activities of renting/leasing by APMCs fell under this exemption.4. Mandatory Statutory Activities and Exemption from Service Tax:The Court analyzed whether the activities of renting/leasing by APMCs were mandatory statutory duties. It was noted that Section 9(2) of the Act, 1961, used the term 'may,' indicating discretionary power rather than a mandatory obligation. The Court concluded that the activities of renting/leasing shops/land were not mandatory statutory duties and thus did not qualify for exemption under the 2006 Circular. The fees collected were not deposited into the Government Treasury but into the Market Committee Fund, used for market committee purposes, further disqualifying them from exemption.Conclusion:The Court dismissed the appeals, holding that APMCs were liable to pay service tax under the category of 'renting of immovable property service' for the period up to 30.06.2012. It was also held that post-01.07.2012, APMCs were not liable to service tax for renting immovable property for storage of agricultural produce, but were liable for other commercial purposes. The Court emphasized that exemption notifications should be strictly construed, and the activities of renting/leasing by APMCs did not qualify as mandatory statutory activities exempt from service tax under Circular No. 89/7/2006.