2018 (2) TMI 2139 - HC - Service Tax

Market committee exempt from service tax on leased premises; no willful suppression, proviso to s.73(1) inapplicable; ss.76-78 penalties set aside

The HC held that the respondent market committee was not liable to pay service tax on premises leased to traders under statutory provisions and there was ... Invocation of extended period of five years under the proviso to Section 73(1) of the Finance Act, 1994 - service provider, though a Government organization, has suppressed the fact with intent to evade payment of service tax - levy of penalties u/s 76, 77 & 78 of the finance Act, 1994 - HELD THAT:- The respondent herein is a market committee and does not require to pay service tax on premises that it was given on lease basis its right to use to the trader or auction purchasers who are auctioning property in the market yard under the statutory provisions, therefore, in view of the observations made by the Supreme Court in the case of Cosmic Dye Chemical [1994 (9) TMI 86 - SUPREME COURT], there is no finding recorded by the authority that there is willful and bona fide suppression by the respondents and in view of the observations in view of that observations which are made by the tribunal, the finding requires no interference. Thus, in peculiar facts of this case, it will not be appropriate to allow the Central Government to invoke provisions to extend the period in the facts of this case. The issues are answered in favour of the assessee and against the department - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the extended limitation period of five years under the proviso to Section 73(1) of the Finance Act, 1994 is invocable where a service provider that is a government/statutory organization is alleged to have suppressed facts with intent to evade payment of service tax. 2. Whether penalties under Sections 76, 77 and 78 of the Finance Act, 1994 are imposable on a government/statutory service provider for non-compliance or deliberate suppression of providing a taxable service. 3. Whether renting/letting of market shops/land to traders constitutes 'renting of immovable property' service liable to service tax for the period prior to the Negative List regime (i.e., up to 30.6.2012), and whether such activity falls within the Negative List from 1.7.2012. ISSUE-WISE DETAILED ANALYSIS - I. Invocability of extended period under proviso to Section 73(1) Legal framework: Proviso to Section 73(1) extends the one-year limitation to five years where short payment/non-payment arises by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention of provisions/rules with intent to evade service tax; burden initially on Revenue to establish these ingredients; proviso construed strictly. Precedent treatment: Decisions cited reflect two strands - authorities holding that suppression/misstatement with intent enables invocation of extended period even against government entities (tribunal and some appellate decisions), and higher court authorities (including Supreme Court and High Court rulings) emphasizing strict construction of proviso, requirement of mens rea (intent to evade), and that mere omission or bona fide belief precludes invocation. Interpretation and reasoning: The Court examined tribunal findings and record for evidence of mala fide conduct by the statutory body. It reiterated that the proviso requires both an act (suppression, misstatement etc.) and an intention to evade payment. Where the assessee is a government/statutory body, there is a rebuttable presumption against existence of such intent; Revenue must produce convincing material. The tribunal's reasoning that there was no evidence of deliberate evasive conduct and that allotments were governed by rules and agreements indicating renting for consideration were accepted. The Court applied strict construction of the proviso and found no legally tenable finding of willful suppression with intent to evade. Ratio vs. Obiter: Ratio - extended limitation cannot be invoked absent evidence of wilful suppression/mala fide intent to evade, and this standard applies robustly where the service provider is a government/statutory body because of the rebuttable presumption against mala fide intent. Observations distinguishing authorities that applied extended limitation against non-government entities serve as explanatory reasoning (obiter as to comparative weight of precedents). Conclusion: Extended five-year period under the proviso to Section 73(1) was not invocable on the facts; demands invoking extended limitation were to be restricted to the normal period. ISSUE-WISE DETAILED ANALYSIS - II. Imposability of penalties under Sections 76, 77 & 78 on a government/statutory service provider Legal framework: Sections 76-78 prescribe penalties for delay in payment, failure to register/file returns, and deliberate evasion; Section 80 and related jurisprudence allow consideration of reasonable cause and bona fide belief, and courts have recognized that penalty imposition requires proof of mens rea or culpable default depending on the provision. Precedent treatment: Authorities cited show that tribunals and courts have set aside penalties where government/statutory bodies acted under bona fide belief of non-liability or where no deliberate evasion was shown; conversely, courts have upheld penalties where suppression/misstatement with intent to evade was established even against public bodies. Interpretation and reasoning: The Court accepted the tribunal's assessment that there was no evidence of willful suppression or mala fide intention on the part of the statutory body. It relied on the principle that penal provisions require a finding of intent or deliberate non-compliance and that Section 80/related doctrines permit relief where reasonable cause or bona fide belief exists. Given the absence of material proving intent to evade and the tribunal's specific findings, penalties were not sustainable. Ratio vs. Obiter: Ratio - penalties under Sections 76/77/78 are unsustainable where Revenue fails to establish wilful misstatement/suppression with intent to evade, particularly when the assessee is a government/statutory body and adduces reasonable cause or bona fide belief. Ancillary discussion of competing precedents assessing penalties in other factual matrices is explanatory. Conclusion: Penalties under Sections 76, 77 and 78 were set aside on the facts; no penal liability in the absence of proven intent to evade. ISSUE-WISE DETAILED ANALYSIS - III. Characterization of allotment/lease receipts as 'renting of immovable property' service and effect of Negative List from 1.7.2012 Legal framework: Services falling under 'renting of immovable property' are taxable unless excluded by the Negative List introduced with effect from 1.7.2012; Section 66(D) contains the Negative List including services by Agricultural Produce Marketing Committees subject to specified exceptions and limited exclusions for services provided to business entities. Precedent treatment: Judicial decisions were cited establishing that renting immovable property for commercial/business purposes involves value addition and is a taxable service; Full Bench and Supreme Court authority recognizing Parliament's competence and validating retrospective or clarificatory legislative steps were invoked to support taxable character pre-negative list. Interpretation and reasoning: The tribunal examined allotment letters and agreements and found the arrangements were contractual allotments for monthly consideration, security deposits, and usage for commercial purposes - characteristics of renting of immovable property for business. Consequently, service tax liability existed for periods up to 30.6.2012. With the Negative List regime from 1.7.2012, the tribunal correctly held that the service, insofar as it related to agricultural produce/market activities as specified in Section 66(D), was excluded from tax; however renting for non-agricultural/commercial purposes remained taxable only to the extent not covered by the Negative List. The Court upheld these findings. Ratio vs. Obiter: Ratio - allotments on contractual terms for consideration to traders constituted 'renting of immovable property' liable to service tax prior to the Negative List; under the Negative List from 1.7.2012, services covered by Section 66(D) are excluded and must be evaluated against that list. Observations on legislative competence and retrospective clarification of taxing provisions are supportive reasoning. Conclusion: Allotments to traders constituted taxable renting of immovable property up to 30.6.2012; from 1.7.2012, the Negative List immunizes specified APMC-related services, and demands for the post-1.7.2012 period are not sustainable under the renting entry where exclusion applies. INTERPLAY AND FINAL DETERMINATION Cross-reference: Issues I and II are interlinked - invocation of extended limitation (I) and imposition of penalties (II) both require a finding of deliberate suppression/mens rea; findings on character of service (III) determine taxable periods relevant to limitation and penalty analysis. Court's conclusion: The tribunal's conclusions were upheld - (a) service tax liability for renting existed for periods up to 30.6.2012; (b) for the Negative List period from 1.7.2012 the services, as rendered in the market context, are excluded to the extent listed; (c) extended five-year period could not be invoked on the facts for earlier years for lack of evidence of wilful suppression with intent to evade; (d) penalties were set aside.