2025 (1) TMI 1258 - AT - Service Tax

Development authority performing sovereign functions partially exempt from service tax on licensing fees

M/s Asansol Durgapur Development Authority Versus Commissioner of CGST & Central Excise, Bolpur. (Vice Versa)

CESTAT Kolkata held that a statutory development authority performing sovereign functions on behalf of the state government was partially exempt from ... Levy of service tax - services provided by the Asansol Durgapur Development Authority (ADDA), a government agency - the agency was performing statutory functions - quantification of the service tax demand - time limitation. HELD THAT:- The ADDA has been created under a specific statute and it performs all acts on behalf of the State Govt of West Bengal. Their accounts, income and expenditure etc. are all controlled by and are answerable to the State Government. Therefore, there are no hesitation to come to a conclusion that ADDA is performing sovereign functions on behalf of the State Government of West Bengal. The Bangalore Bench of CESTAT in the case of Karnataka Industrial Areas Development Board v. CCT, Bangalore (North), [2020 (6) TMI 227 - CESTAT, BANGALORE], the coordinate Bench of Bangalore has held that 'the appellant is a statutory body discharging the statutory function as per the statute KIAD Act, 1966 and hence are not liable to pay service tax in view of the ratios of the various decisions cited supra.' Thus, the assessee would be exempted from payment of Service Tax when they are performing sovereign functions. But it is also required to check if all the considerations received by ADDA would be in the course of sovereign function alone are if some of the services are commercial in nature. In the present case, though it stands established that ADDA is a statutorily created body, also recognized as such by ITAT for Income Tax purposes, and is seen to be performing some sovereign functions like collecting licensing fee and other fee on account the land development [which is required to be verified], the other services provided by them like that of Renting of Immovable property, Renting of Advertisement space, Leasing of Tangible goods like road roller are not eligible for Service Tax exemption - ADDA would be required to pay the Service Tax, since these services are not in any way on account of performing of any sovereign function. Quantification of the service tax demand - HELD THAT:- The Licensing Fee, Land Development fee would be in the nature of compulsory fee / mandatory fee, being collected as part of sovereign function and hence would be exempted. But no bifurcation has been carried out in the Annexure B to SCN, wherein the quantification is done. In respect of 2009-10, 2010-11 and 2011-12, even the above perfunctory work has not been undertaken. Simply the value shown in the Balance Sheet / Bank Statement have been taken to quantify the demand. Therefore, there are considerable force in the argument of the appellant that quantification of demand is neither scientific nor is properly backed by any concrete documentary evidence - there are no hesitation in holding that Service Tax demand for the 2009-10, 2010-11 and 2011-12 cannot be legally be sustained - the quantification adopted by the Revenue while issuing the SCN, even the confirmed demand of Rs. 2,95,48,401/- cannot be legally sustained. Time limitation - HELD THAT:- The ADDA a body created by statute and is undertaking various functions assigned to them by the State Govt. and is also rendering various taxable services. But it is an admitted fact that all their income and expenditure are subject to the control of the State Govt. Hence, it would be difficult to adduce any ulterior motive to ADDA to the effect that they have suppressed the facts with an intent to evade the Service Tax payment. It is also seen that the figures taken for quantification of demand have been derived the Income and Expenditure statement and Balance Sheet of ADDA, which shows that all the details have been disclosed in the records. Further, their reliance on ITAT order, and vehement argument about their being statutory body carrying out sovereign functions, shows that they may have carried bona fide belief that they are not required to the Service Tax. Hence, the SCN issued on 12.10.2012 for the 2007-2008 to 2011-12 is partly time barred. Accordingly, the confirmed duty for the extended period is legally not sustainable. Conclusion - i) ADDA is performing sovereign functions on behalf of the State Government of West Bengal. ii) The quantification of demand is neither scientific nor is properly backed by any concrete documentary evidence. iii) The proceedings were partly time-barred. Appeal filed by the appellant [ADDA] is allowed fully on merits. The Appeal filed by the appellant [ADDA] is allowed on time bar in respect of the confirmed demand for the extended period. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment were:1. Whether the services provided by the Asansol Durgapur Development Authority (ADDA), a government agency, were liable for service tax under the Finance Act, 1994, given that the agency was performing statutory functions.2. Whether the quantification of the service tax demand was valid and supported by concrete evidence.3. Whether the proceedings were time-barred, considering the statutory nature of ADDA and the lack of intent to evade service tax.ISSUE-WISE DETAILED ANALYSISIssue 1: Taxability of Services Rendered by ADDA- Relevant Legal Framework and Precedents: The Finance Act, 1994, specifies that services provided by government agencies in the course of performing statutory functions are not subject to service tax. This principle has been upheld in various judgments, including Karnataka Industrial Areas Development Board v. CCT, Bangalore and Commissioner v. EPFO.- Court's Interpretation and Reasoning: The Tribunal examined whether ADDA's activities were statutory in nature. It referenced the Income Tax Appellate Tribunal's (ITAT) findings, which recognized ADDA as a disbursing authority acting on behalf of the government. The Tribunal concluded that ADDA was performing sovereign functions, thus exempting it from service tax for those activities.- Key Evidence and Findings: Notifications and statutory provisions under the West Bengal Town and Country (Planning and Development) Act, 1979, confirmed ADDA's role as a government agent. The Tribunal noted that ADDA's actions were controlled and supervised by the state government, further supporting its sovereign function status.- Application of Law to Facts: The Tribunal applied the legal principle that statutory functions are exempt from service tax to ADDA's activities. It found that certain charges collected by ADDA, such as licensing fees and land development fees, were statutory in nature and thus exempt.- Treatment of Competing Arguments: The Revenue argued that ADDA's services were commercial and taxable. However, the Tribunal found that the Revenue failed to provide evidence distinguishing between statutory and non-statutory services.- Conclusions: The Tribunal concluded that ADDA's statutory functions were exempt from service tax, but non-statutory services, if any, would be taxable.Issue 2: Validity of Service Tax Demand Quantification- Relevant Legal Framework and Precedents: The burden of proof for tax liability lies with the Department. Quantification must be supported by specific evidence.- Court's Interpretation and Reasoning: The Tribunal found that the quantification of the service tax demand lacked specificity and was not supported by detailed evidence. The Show Cause Notice and adjudication order failed to provide transaction-specific details.- Key Evidence and Findings: The Tribunal noted the absence of transaction details in the Show Cause Notice and the reliance on generic headings without clear evidence.- Application of Law to Facts: The Tribunal determined that the lack of detailed evidence rendered the quantification of the service tax demand unsustainable.- Treatment of Competing Arguments: The Revenue's argument that the adjudicating authority provided full details was rejected due to the absence of specific evidence.- Conclusions: The Tribunal concluded that the quantification of the service tax demand was flawed and could not be sustained.Issue 3: Time-Barred Proceedings- Relevant Legal Framework and Precedents: A Show Cause Notice must be issued within a specified time frame unless there is evidence of intent to evade tax.- Court's Interpretation and Reasoning: The Tribunal found no evidence of intent to evade tax by ADDA. It noted that ADDA's financial records were transparent and subject to government control.- Key Evidence and Findings: The Tribunal observed that the figures used for quantification were derived from ADDA's disclosed financial statements, indicating no suppression of facts.- Application of Law to Facts: The Tribunal applied the principle that time-barred proceedings are unsustainable without evidence of intent to evade tax.- Treatment of Competing Arguments: The Tribunal rejected the Revenue's implicit argument of suppression, finding no basis for such a claim.- Conclusions: The Tribunal concluded that the proceedings were partly time-barred, and the confirmed demand for the extended period was unsustainable.SIGNIFICANT HOLDINGS- The Tribunal held that ADDA, as a statutory body performing sovereign functions, is exempt from service tax for those functions. It stated, 'We have no hesitation to come to a conclusion that ADDA is performing sovereign functions on behalf of the State Government of West Bengal.'- The Tribunal found the quantification of the service tax demand to be flawed, stating, 'The quantification of demand is neither scientific nor is properly backed by any concrete documentary evidence.'- The Tribunal concluded that the proceedings were partly time-barred, noting, 'It would be difficult to adduce any ulterior motive to ADDA to the effect that they have suppressed the facts with an intent to evade the Service Tax payment.'- The Tribunal dismissed the Revenue's appeal and allowed ADDA's appeal on both merits and time-bar grounds.