Municipal Corporation exempt from service tax on market spaces and bus stands as sovereign functions under Kerala Municipality Act 1994

CESTAT Bangalore ruled on service tax liability of a Municipal Corporation for various public amenities and telecom services. The tribunal held that services like market spaces, bus stands, vehicle stands, and slaughter houses constitute sovereign functions under Kerala Municipality Act 1994, hence not taxable. However, service tax on telecom cable laying permissions was upheld as these constituted commercial services with retained amounts not disclosed in income statements, constituting suppression. Extended period of limitation was rejected except for telecom transactions due to non-disclosure. Matter remanded for redetermination of taxes with penalties set aside.

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Issues Involved:

1. Taxability of services rendered by the appellant.
2. Taxability of services provided to telecom companies.
3. Methodology for determining taxable value.
4. Invocation of the extended period of limitation.

Summary:

1. Taxability of services rendered by the appellant:
M/s. Thrissur Municipal Corporation appealed against the order dated 3.7.2018 by the Commissioner Central GST and Central Excise, Kozhikode, confirming Service Tax demand u/s 73(2) along with interest and penalty for services rendered from October 2011 to September 2016. The appellant argued that services like bus stands, markets, slaughterhouses, and parking are civic amenities under Article 243W of the Constitution of India and fall under the negative list. The Tribunal held that these services are sovereign functions and not taxable under "renting of immovable property" as per Notification No.25/2012-ST dated 20.06.2012.

2. Taxability of services provided to telecom companies:
The appellant received payments from M/s. Reliance Jio Infocomm Limited for permitting the laying of cables. The Tribunal upheld the Service Tax demand on amounts retained by the appellant for services rendered to Reliance Jio, as these were not entirely refundable deposits. The non-disclosure of these amounts in the 'Income and Expenditure Statement' amounted to suppression of facts with intent to evade payment of duty.

3. Methodology for determining taxable value:
The Commissioner reworked the taxable value based on the "Income and Expenditure Statement" and "Advanced Accounts" instead of the Trial Balance, which was found to be an incorrect method. The Tribunal agreed with the methodology adopted by the Commissioner, stating it rendered a true reflection of the taxable value.

4. Invocation of the extended period of limitation:
The Tribunal found no intent to evade payment of duty by the appellant, as there was no material evidence of suppression of facts. The demand for the extended period was set aside, restricting it to the normal period of limitation, except for telecom transactions not part of the income expenditure statement. The Tribunal remanded the matter for redetermination of taxes based on factual errors and duplication of taxes, with an opportunity for the appellant to be heard. All penalties were set aside.

Conclusion:
The appeal was allowed by way of remand, with the order pronounced in Open Court on 10.04.2024.

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