GHMC exempt from service tax on manpower supply and rent-a-cab services under reverse charge mechanism

CESTAT Hyderabad held that Greater Hyderabad Municipal Corporation (GHMC) is not liable for service tax under reverse charge mechanism on manpower supply and rent-a-cab services as it is neither a business entity nor body corporate under Finance Act 1994. GHMC, being a local authority performing statutory functions under GHMC Act 1955, is exempt from service tax on cell tower verification fees as these constitute regulatory functions. Service tax demand on road cutting services was set aside following Notification No. 1/2018 exempting local authorities from service tax on right of way services. Penalties under Sections 77 and 78 were also set aside. Appeal allowed in appellant's favor.

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Issues Involved:
1. Demand of service tax under reverse charge mechanism for Manpower Recruitment or Supply and Rent a cab Service.
2. Demand of service tax on Road Cutting and Refilling Services under Renting of Immovable Property Service.
3. Demand of service tax on Tower Verification charges under Business Support Service.
4. Imposition of penalty u/s 78 of the Finance Act, 1994.
5. Invocation of extended period of limitation for issuing the show cause notice.

Summary:

1. Demand of Service Tax on Manpower Recruitment or Supply and Rent a Cab Service:
The Tribunal found that the Greater Hyderabad Municipal Corporation (GHMC) is neither a "business entity" nor a "body corporate" as defined u/s 65B(17) and 65(14) of the Finance Act, 1994, read with Clause (7) of Section 2 of the Companies Act, 1956. GHMC, being a local authority performing statutory functions, does not engage in activities related to industry, commerce, or business. Consequently, the demand of Rs. 30,71,27,798/- on Manpower Supply services and Rs. 1,49,02,365/- on Rent a Cab service under Reverse Charge Mechanism, in terms of Notification No. 30/2012-ST dated 20.06.2012, was set aside.

2. Demand of Service Tax on Road Cutting and Refilling Services:
The Tribunal noted that the activity of granting "right of way" by GHMC for laying cables is not taxable under Renting of Immovable Property Service. It was held that the service tax demand for the period from 1st July 2012 to 30th June 2017 is not leviable in terms of Notification No. 1/2018 dated 30.11.2018. Furthermore, for the period prior to 1st July 2012, the demand was also not sustainable as per the decision in CUDDALORE MUNICIPALITY Versus JOINT COMMR. OF GST & C. EX., TIRUCHIRAPPALLI. Consequently, the demand of Rs. 15,18,18,931/- was set aside.

3. Demand of Service Tax on Tower Verification Charges:
The Tribunal held that the activity of Cell Tower Verification and certification by GHMC is a statutory and regulatory function, not liable to service tax. It was clarified that such functions do not constitute taxable services as per Circular No. 89/7/2006-ST dated 18.12.2006. The demand of Rs. 1,70,83,907/- under Business Support Services was set aside.

4. Imposition of Penalty u/s 78 of the Finance Act, 1994:
Since the appeal was allowed on merits, the penalty imposed under Section 77 & 78 of the Finance Act, 1994, was set aside.

5. Invocation of Extended Period of Limitation:
As the appeal was allowed on merits, the Tribunal left the ground of limitation open.

Conclusion:
The impugned order was set aside, and the appeal was allowed with consequential benefits to the appellant in accordance with law. The appropriation of Rs. 7,98,52,484/- paid by the appellant during the investigation was also set aside.

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