2025 (9) TMI 1220 - AT - Service Tax

Government entity performing sovereign functions not liable for service tax; extended-period demand set aside for lack of suppression

M/s. Odisha State Housing Board Versus Commr. of CGST & Central Excise, Bhubaneswar-I

CESTAT held the appeal allowed and set aside the service-tax demand and the demand under the extended period. The appellant, being a Government of Odisha ... Non-payment of service tax - services provided under the category of Real Estate Agency service - requirement to pay service tax by Housing Board - suppression with an intent to evade Service Tax payment - extended period of limitation - HELD THAT:- Admittedly, the appellant is directly functioning under Government of Odisha. All the revenues collected by them goes to the State Exchequer. They are not any commercial establishment nor are they any State Government undertaking. Delhi Bench in the case of Rajasthan Housing Board Vs. Commissioner of Central Excise [2021 (3) TMI 676 - CESTAT NEW DELHI] has held that 'the appellant is neither such a body corporate as is required for Section 65(12) of Finance Act, 1994 nor the funds as that of ASC charges and hire-purchase charges are the income of the appellant, who is held to be engaged in rendering construction services as contrary to Banking and Financial Services.' It is found that the appellant is the part of the Govt of Orissa and all the functions carried out are in the nature of sovereign functions, wherein the entire collection of the consideration received is fully transferred to the State exchequer. Therefore, the ratio laid down in the cited case law is squarely applicable to the facts of the present case. Accordingly, the demand is set aside and the appeal allowed on merits. Extended period of limitation - HELD THAT:- It is also also observed that the appellant is a Government of Orissa entity and has not charged any Service Tax for the activities undertaken by them. They can be said to have entertained bonafide belief that no Service Tax is payable by them. The Department has not brought out any specific instance of suppression on the part of the appellant. Therefore, the confirmed demand for the extended period is not legally sustainable. Accordingly, the confirmed demand for the extended period set aside on account of limitation also. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the receipts collected by the appellant for activities connected with housing schemes (including sale of application forms, sale of tender papers, advertisement/publicity, and ancillary charges) constitute consideration for a taxable Real Estate Agent service attracting Service Tax. 2. Whether the appellant, being a statutory entity functioning under State government and transferring revenues to the State exchequer, is discharging sovereign/statutory functions such that the activity falls outside taxable services (including negative-list exemption under Section 66D / relevant statutory interpretation), and whether precedent concerning statutory corporations applies. 3. Whether the demand confirmed for earlier years by invoking extended period provisions is sustainable in view of absence of mens rea or suppression by the appellant and the bona fide belief that Service Tax was not payable (i.e., limitation and extended period/penalty issue). ISSUE-WISE DETAILED ANALYSIS - 1. Taxability of receipts as Real Estate Agent service Legal framework: The question turns on the classification of the activities/receipts within the chargeable services (Real Estate Agent or otherwise) under the Service Tax regime and on whether particular receipts constitute consideration for a taxable service. Precedent Treatment: The Tribunal relied on decisions that examine statutory or sovereign functions of state bodies and whether specific receipts (deposits, application fees, service charges) are income or compulsory/statutory levies not constituting taxable consideration. Interpretation and reasoning: The Court examined the nature of the appellant's activities and receipts - noting that the appellant functions under State government, undertakes housing schemes as directed by the State, and transfers collected revenues to the State exchequer. The Court observed that significant receipts (e.g., sale of application forms) are not services at all and that certain receipts are either refundable or held as liabilities (not income), used for statutory public amenities, or represent compulsory levies connected to statutory obligations. Ratio vs. Obiter: Ratio - where a statutory body functioning as part of government collects fees/receipts in discharge of statutory obligations and transfers revenues to the State exchequer, such receipts do not constitute consideration for a taxable Real Estate Agent service. Obiter - detailed factual treatment of particular receipt categories (e.g., ASC charges/hire-purchase deposits) as liabilities rather than income, where not necessary to the broad holding, but supportive of the conclusion. Conclusions: The receipts in question do not amount to consideration for a taxable Real Estate Agent service. The confirmed demand based on classification as Real Estate Agent service fails on merits. ISSUE-WISE DETAILED ANALYSIS - 2. Applicability of sovereign/statutory-function exemption and precedents Legal framework: The exemption principles applicable where services rendered by government/statutory authorities in discharge of statutory obligations are not treated as taxable services, including negative-list considerations and the concept that statutory/sovereign functions (compulsory levies used for public purposes) are not service-provision for consideration. Precedent Treatment (followed/distinguished/overruled): The Court followed and applied the reasoning of earlier authorities which held that statutory/State-linked corporations discharging sovereign functions are not liable to Service Tax on compulsory/statutory receipts used to discharge statutory obligations. Those authorities were treated as squarely applicable to the facts and were followed. Interpretation and reasoning: The Tribunal found the appellant to be directly functioning under the State government, not a commercial enterprise or an independent corporate body for tax purposess. The functions performed (housing construction, allotment, collection of related charges) were held to be statutory/sovereign in nature and in furtherance of public duties; collections were transferred to the State exchequer or used for public amenities. The Court adopted the ratio that where an entity is a statutory body/wing of government and collects compulsory levies in discharge of statutory obligations, such activities are not services to any particular person for consideration, and thus fall outside Service Tax net. Ratio vs. Obiter: Ratio - statutory entities discharging statutory/sovereign functions and collecting compulsory levies for public purposes are not liable to Service Tax on such collections; applicable precedents are followed. Obiter - comparisons of specific statutory provisions and the finer accounting treatment of deposits as liabilities were discussed to support the main holding. Conclusions: The appellant's activities are statutory/sovereign functions carried out as part of government operations; therefore, they are not liable to Service Tax on the impugned receipts. The ratio of the cited authorities is squarely applicable and the demand is set aside on merits. ISSUE-WISE DETAILED ANALYSIS - 3. Validity of extended-period demand (limitation and suppression) Legal framework: Extended period demands require a factual/legal foundation of suppression or deliberate evasion; ordinary limitation rules do not permit extended assessment absent such grounds. Bona fide belief and lack of concealment are relevant to negating suppression. Precedent Treatment: The Court applied established principles that demands for extended periods require proof of suppression or intent to evade and that bona fide non-collection based on reasonable belief of non-liability negates extended-period sustainment. Interpretation and reasoning: The Tribunal noted that the appellant had not charged or collected Service Tax and had bona fide belief that no Service Tax was payable given its statutory status; the Department did not point to any specific instance of suppression or fraudulent concealment. Given the absence of evidence of suppression or specific intent to evade tax, the confirmed demand for the extended period was held legally unsustainable. Ratio vs. Obiter: Ratio - in absence of proof of suppression/intent to evade and where the entity had bona fide belief of non-liability, extended-period demand cannot be sustained. Obiter - remarks concerning the appellant's accounting treatment of particular receipts as liabilities supported the factual finding but are not essential to the limitation holding. Conclusions: The extended-period confirmation is set aside for lack of suppression; the demand is time-barred in respect of extended assessment. OVERALL CONCLUSION AND RELIEF The Tribunal allowed the appeal on merits, holding that (i) the impugned receipts do not constitute taxable Real Estate Agent services; (ii) the appellant is a statutory/governmental entity discharging sovereign functions and therefore not liable to Service Tax on such collections; and (iii) the extended-period demand is unsustainable due to absence of suppression or intent to evade. Consequential relief, if any, is to follow as per law.