AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (6) TMI 227
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....visions of Section 75 of Finance Act, 1994. (ii). imposed penalty @ Rs. 100/- (Rupees One Hundred Only) per day up to 17.04.2006, Rs. 200/- (Rupees Two Hundred Only) per day or @ 2% of the service tax, per month, whichever is higher from 18.04.2006, under section 76; However, this penalty will be applicable for the period till 10.05.2008 in view of the amendment to Section 78 incorporated vide Finance Bill 2008, for their failure to pay service tax in accordance with the provisions of Section 68 of the Act or the rules made there under. (iii). imposed penalty of Rs. 1000/- (Rupees One Thousand Only) under Section 77 of the Act, for failure to furnish the prescribed return and failure to obtain registration. (iv). imposed a penalty of Rs. 1295,14,21,404/- (Rupees One Thousand Two Hundred and Ninety Five Crores Fourteen Lakh Twenty One Thousand Four Hundred and Four only), under Section 78 of the Finance Act 1994 for suppressing the facts and contravention of the provision of the Act/Rule with intent to evade payment of Service Tax, which shall be reduced to 25% of the service tax confirmed, provided the entire amount of service tax along with interest and ....
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....for short). The Government of Karnataka, for the purpose of establishing industrial areas and for promoting the rapid and orderly development of industries in the State of Karnataka, enacted this KIAD Act, 1966. Appellant was formed and established under the provisions of Section 5 of the said KIAD Act and performs various statutory / sovereign functions assigned to it under provisions of KIAD Act. Revenue entertained the view that the appellants are liable to pay the service tax on various services rendered by them but they have not paid the service tax and not registered under the Finance Act, 1994. On these allegations, a show-cause notice dt. 06/04/2011 was issued to the appellant. Appellant filed elaborate interim reply to the show-cause notice on 24/10/2011 and thereafter filed a further reply dt. 24/11/2011 and all the allegations were rebutted as untenable and the case was contested on merits, limitation, jurisdiction and quantification of demand. In reply to the show-cause notice, the appellant mainly contended that the appellant is a Government undertaking and being a 'State' as defined in Article 12 of the Constitution of India are not liable to pay service tax. Further ....
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....the industries; (iii) To allot residential tenements in industrial areas (iv) As part of the Scheme, KIADB has the powers as mandated under the KIAD Act, 1966 to construct and maintain the industrial areas and also provide amenities and common facilities in the industrial area; In order to support his submission, he relied upon the following decisions: - i. Narayanappa Vs. State of Karnataka [2006(7) SCC 578] ii. Shri Ramtanu Housing Co-operative Society Ltd. Vs. State of Maharashtra [1970(3) SCC 323] 4.2. Learned counsel referred to Entry 42 of the Concurrent List which provides power to make laws for the purpose of acquisition or re-acquisition of property. Further Entry 24 of the List II (State List) provides power to make laws relating to industries. He also submitted that KIAD Act was enacted for the purpose of acquisition of land and forming of industrial areas and the appellant is engaged in the activity of a public purpose viz. development of industrial areas within the State of Karnataka. Learned counsel also took us through various sections of KIAD Act viz. Sections 5, 6, 11, 13, 14, 17, 18, 21, 28(8), 32 and 36 to buttress his ar....
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....rying out the purposes of the KIAD Act, 1966. The sovereign function of the State is performed through the agency of KIADB. For this submission, he relied upon the following decisions:- i. Shri Ramtanu Housing Co-operative Society Ltd. Vs. State of Maharashtra [1970(3) SCC 323] ii. City and Industrial Development Corporation Vs. Percival Joseph Pareira [2013 SCC OnLine Bom 408] iii. Percival Joseph Pareira Vs. Special Land Acquisition Officer [2009 SCC OnLine Bom 1720] iv. City and Industrial Development Corporation of Maharashtra Ltd. Vs. ACIT [2011 SCC OnLine Bom 1865] 4.5. Learned counsel further argued that apart from being a sovereign authority, the appellant is a statutory authority under the provisions of law. It, inter alia, includes to promote orderly establishment of industries and to develop industrial areas. These are in the nature of mandatory statutory obligations which are to be fulfilled in accordance with law. For this submission, relied upon the following decisions: - i. Municipal Corporation, Amritsar Vs. Senior Supdt. Of Police [AIR 2004 SC 2912] ii. Bureau of India Standards Vs. CIT (Exemptions) [2013 358....
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....(6) STR 161 (Tri. Bang.)] ii. Tempest Advertising (P) Ltd. Vs. CCE&C, Hyderabad [2007(5) STR 312 (Tri. Bang.)] iii. Free Look Outdoor Advertising Vs. CC&CE, Guntur [2007(6) STR 153 (Tri. Bang.)] iv. Synergy Audio visual Workshop P. Ltd. Vs. CST [2008(10) STR 578 (Tri. Bang.)] 4.8. He also submitted that the deposits cannot be considered as consideration for services provided and only the consideration charged towards provision of taxable service could be brought to service tax. For this submission, he relied upon the following decisions: - i. Murli Realtors Pvt. Ltd. Vs. CCE [2015(37) STR 618 (Tri. Mumbai)] ii. Samir Rajendra Shah Vs. CCE [2015(37) STR 154 (Tri. Mumbai) iii. Karad Nagar Parishad Vs. CCE&ST [2019(20) GSTL 288 (Tri. Mum.)] 4.9. He also submitted that the demand in respect of deposits collected for alleged services were dropped in the show-cause notice pertaining to subsequent periods. Learned counsel also contested the legality of demand of services tax under various heads. But he submitted that if the Tribunal comes to the conclusion that appellant being public / state authority engaged in providing statuto....
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....ms of provisions of Section 14(c) of KIAD ACT and therefore the said function is statutory function and cannot be amenable to service tax as held by the Bombay High Court in the case of Maharashtra Industrial Development Corporation cited supra. 4.11. As far as demand of service tax under the head 'manpower recruitment or supply services', learned counsel submitted that the appellant did not provide any manpower for carrying out acquisition of land. The said activity cannot be subjected to tax under the category of manpower recruitment or supply service. 4.12. Learned counsel also question the quantification and also raised the argument that the appellant being a arm of the State Government, there cannot be any question of having intention to evade payment of taxes and hence extended period cannot be invoked and hence penalty cannot be imposed. 5.1. On the other hand, the learned special counsel appearing for the Revenue reiterated the findings of the impugned order. He also filed written submissions. In the written submissions, he referred to relevant provisions of the KIAD Act relating to the functions and powers of the appellant. He further submitted that a conjoint rea....
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....the absence of provisions of the Act excluding the income or property of an instrumentality of the State from the liability to service tax, for providing a taxable service, there is no justification for reading down the provisions of the Act to exclude taxability of activities of instrumentalities of State. He then submitted that in the present case, what is sought to be taxed are the services rendered to industrialists and persons intending to start industrial undertakings. He further submitted that service tax is not a direct tax on property as purported by the appellant rather on the services rendered in relation to the property and undoubtedly an indirect tax. Appellant being an instrumentality of the State is not entitled to claim immunity from payment of service tax.He further submitted that the judgment relied upon by the appellant to show that the appellant is instrumentality of the State and is immune from the payment of service tax is not applicable in the facts and circumstances of the case. Learned special counsel also justified the demand of service tax on individual services provided by the appellant. 5.3. He also filed additional submissions wherein the Revenue ha....
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....aiNanbhaiKhachar Vs. State of Gujarat cited supra to submit that there is no doubt that the power of 'eminent domain' to render the appellant as sovereign. He also submitted that the Revenue's reliance upon the judgment of the Hon'ble Allahabad High Court is wrong because the said judgment of the Allahabad High Court has been stayed by the Hon'ble Apex Court as reported in 2015(40) STR J231 (SC) and cannot be relied upon by this Tribunal as binding precedent. 7.1. After considering the submissions of both the parties and perusal of the material on record and written submissions of both the parties and the various decisions relied upon by them, we find that the crucial question in the instant case is whether at all the appellant, which is a statutory authority (KIADB) constituted under the KIAD Act for carrying out the purposes, is providing any service as defined in the Service Tax legislation (Finance Act, 1994). If, after analyzing the various provisions of the KIAD Act and the submissions of the parties, we come to the conclusion that there is no service being rendered by the appellant as argued by the learned counsel for the appellant, then the question of levy of service ta....
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....ncial Corporation. (d) the Executive Member of the Board; and (e) two nominees of the Industrial Development Bank of India. 7. Term of office and conditions of service of members.- (1) xxx (2) The members of the Board shall be entitled to draw such compensatory allowance as may be prescribed, for the purpose of meeting the personal expenditure incurred in attending the meetings of the Board or any Committee thereof or when appointed in connection with the work undertaken by or for the Board. 13. Functions. - The functions of the Board shall be,- (i) generally, to promote and assist in the rapid and orderly establishment, growth and development of industries and to provide industrial infrastructural facilities and amenity in industrial areas, and (ii) in particular, and without prejudice to the generality of clause (i), to, - (a) develop industrial areas declared by the State Government and make them available for undertakings to establish themselves; (b) establish, maintain, develop, and manage industrial estates within industrial areas; (c) undertake such schemes or programmes of wor....
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....y issue to the Board such directions of a general nature as it may think necessary or expedient for the purpose of carrying out the purposes of this Act, and the Board shall be bound to follow and act upon such directions. 18. Application of Board's assets. - All property, fund and other assets vesting in the Board shall be held and applied by it, subject to provisions and for the purposes of this Act. 19. Board's fund. - The Board shall have and maintain its own fund, to which shall be credited, - (a) all moneys received by the Board from the State Government by way of grants, loans, advances or otherwise; (b) all fees, costs, deposits and charges received by the Board under this Act; (c) all moneys received by the Board from the disposal of lands, buildings and other properties movable and immovable, and from other transactions; (d) all moneys received by the Board by way of rents or in any other manner or from any other source. 24. Accounts and Audit.- (1) The Board shall maintain books of account and other books in relation to its business and transactions in such form, and in such manner, as may be prescribed. ....
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....ashtra Industrial Development Corporation (MIDC) cited supra, the Hon'ble Bombay High Court has categorically held that no service tax could be demanded on the charges collected by the MIDC, in terms of MID Act, 1961 towards maintenance of industrial areas as the same is in the nature of statutory function performed in terms of the statute. It is pertinent to quote the relevant findings of the Bombay High court, in paras 5, 6, 7: - 5.We have given careful consideration to the submissions. Firstly, it will be necessary to note what is set out in the circular dated 18th December, 2006 bearing No. 89/7/2006. Clauses 2 and 3 of the said circular read thus : "2. The issue has been examined. The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government Treasury. Such activity is purely in public interest and it is undertaken as mandatory and statu....
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....arrying out the purposes of the Act by setting up the Corporation as one of the limbs or agencies of the Government. The powers and functions of the Corporation show in no uncertain terms that these are all in aid of the principal and predominant purpose of establishment, growth and establishment of industries. The Corporation is established for that purpose. When the Government is satisfied that the Corporation has substantially achieved the purpose for which the Corporation is established, the Corporation will be dissolved because the raison d'etre is gone. We, therefore, hold that the Act is a valid piece of legislation. 16. The petitioners contended that the Corporation was a trading one. The reasons given were that the Corporation could sell property, namely, transfer land; that the Corporation had borrowing powers; and that the Corporation was entitled to moneys by way of rents and profits. Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits. These features of transfer of land or borrowing of moneys or receipt of rents and profits will by themselves neither be the i....
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.... before Appellate Tribunal. Not only that MIDC was driven to prefer Appeals before the Appellate Tribunal, these groups of Appeals were preferred by the Revenue. Needless to add that MIDC was required to incur huge expenditure on litigation. All this could have been avoided by the Appellant. When the maintenance of industrial area itself is held to be statutory function, then the main function of acquisition of law, development of such land into industrial area and allotment of such land on lease-cum-sale basis by the appellant would certainly be a statutory function and does not attract levy of service tax. On the same analogy, we hold that other functions being incidental cannot be brought into tax net. 7.5. Further we find that in order to counter the decision of the Bombay High Court, the learned special counsel for the Revenue relied upon the decision of the Allahabad High Court in the case of Greater Noida Industrial Development Authority wherein the Allahabad High Court held that if the sovereign / public authority provides a service, which is not in the nature of statutory activity and the same is undertaken for a consideration (not statutory fee), then in such ....
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.... Agricultural Produce Market Committee Vs. Ashok Hari Kuni [AIR 2000 SC 3116] (paras 22, 31-33)] to submit that activities carried out by KIADB are not sovereign functions. After going through the said judgments, we are of the view that these judgments are not applicable in the facts and circumstances of the present case as the said judgments were rendered in the context of immunity of the State from being sued for a tort claim. It was held that the state cannot take the defence of carrying out sovereign functions to claim immunity from an action in tort. These cases do not speak of the power of 'eminent domain' being a sovereign power. The submissions of the learned counsel for the appellant that KIADB is a creature of the statute to exercise the power of 'eminent domain' and the eminent domain is a sovereign function has been contested by the learned special counsel for the Revenue. As per the learned special counsel, the eminent domain so far as the land to be acquired for KIADB purposes remains only with the State Government. We do not agree with the submission of the learned special counsel. It is not correct to say that only State Government has the power of acquisition under....
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..... The appellant is a statutory body created by an Act of Parliament. They administer three schemes as mentioned hereinabove. The legal status and scope of functions of the appellant are captured in the narrative of the Hon'ble Supreme Court in the judgment dated 18-1-2012 in Civil Appeal No. 655/2012 in the case of Regional Provident Fund Commissioner v. The Hoogly Mills Company Ltd. and Ors., reported in (2012) 2 SCC 489. The Hon'ble Supreme Court examined provisions of EPM & MP Act, 1952 and role of the appellant and observed as below : "22. From the aforesaid discussion it is clear that this case calls for interpretation of certain statutory provisions. It is not disputed, and possibly cannot be disputed, that the Act is a social welfare legislation. The Act is one of the earliest Acts after the Constitution came into existence. Prior to its enactment, the requirement of having a suitable legislation for compulsory institutional and contributory provident fund in industrial undertakings was discussed several times at various tripartite meetings in which representatives of the Central and State Governments and employees and workers took part. Initially a non-official Bil....
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....ch includes a living wage and decent standard of life. The said Act obviously seeks to promote those goals. Therefore, interpretation of the said Act must not only be liberal but it must be informed by the values of Directive Principles. Therefore, an awareness of the social perspective of the Act must guide the interpretative process of the legislative device. 27. Keeping those broad principles in mind, if we look at the Objects and Reasons in respect of the relevant Section it will be easier for this court to appreciate the statutory intent. The opening words of Section 14B are, "where an employer makes a default in the payment of contribution to the fund". This was incorporated by way of an amendment, vide Amending Act 37 of 1953. In this connection, the excerpts from the Statement of Objects and Reasons of Act 37 of 1953 are very pertinent. Relevant excerpts are :- "There are also certain administrative difficulties to be set right. There is no provision for inspection of exempted factories; nor is there any provision for the recovery of dues from such factories. An employer can delay payment of provident fund dues without any additional fina....
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....on is born, but why it is created. There are various factors which will suggest a body could be "a public authority" these are (a) it is linked to the Government or its function could be described as governmental, (b) it provides a public service, (c) the State regulates, supervises and controls us performance, (d) it is subject to judicial review or is publicly accountable for its action, (e) performs charitable objectives, (f) vested with statutory powers, with powers to enforce its order by punitive consequences, (g) the legislature specifically intended by an Act to cover its functions and responsibilities. In general, without any possible dispute, it can be stated that a public authority is one which has a legal mandate to govern, or administer a part some aspect of public life. 12. The Hon'ble Supreme Court in Balmer Lawrie & Co. Ltd. v. ParthaSarathi Sen Roy reported in (2013) 8 SCC 345 examined the scope of terms "State"/ "other authorities" under Article 12 of the Constitution. The observations of the Apex Court are : "21.A public authority is a body which has public or statutory duties to perform, and which performs such duties and carries out its transa....
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....e tax liability, in Union of India v. Kerala State Insurance Department reported in 2016 (43) S.T.R. 173 (Ker.). The Hon'ble High Court held as below : "4. Rule 22A of Part-I KSR provides that any person who enters Government service on or after 19th August, 1976 and has not crossed the age of 50 years shall, within a period of one year from the date of such entry in service, subscribe to a policy in the official branch of the State Life Insurance at such rate as may be determined by the Government from time-to-time and shall continue to subscribe till he ceases to be in Government service. The period of one year has now been reduced to one month by G.O(P). 229/12/Fin, dated 19-4-2012. Rule 22B also provides that such employee shall enroll as a member of General Insurance Scheme. Though, at the relevant point of time, taxable service included insurance service as well, the Central Board of Customs and Excise issued Circular No. 89/7/2006-Service Tax, dated 18-12-2006 and the relevant part of this circular reads thus : "A number of sovereign/public authorities (i.e., an agency constituted/set up by government) Perform certain functions/duties, which are statutory i....
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....ot in the nature of service to any particular individual for any consideration. On this basis, it is clarified that such activities performed under the provisions of law do not constitute taxable service and that no Service Tax is leviable on such activities. 6.As we have already seen, the respondent department is providing personal insurance and group insurance in pursuance of the statutory mandate as contained in Rules 22A and 22B of Part-I KSR. In other words, the insurance provided is a mandatory statutory function discharged by a State Government Department. Such an activity is not a taxable service for the purpose of Service Tax in the light of the Circular issued by the Central Board of Customs and Excise referred to above. This, therefore, means that the view taken by the learned single judge does not merit interference". 16.The Hon'ble Supreme Court in Calcutta Municipal Corporation v. Shrey Mercantile (P) Ltd. reported in (2005) 4 SCC 245 examined the meaning and scope of terms "Fee" and "tax". It was held that :- "14. According to Words and Phrases, Permanent Edn., Vol. 41, p. 230, a charge or fee, if levied for the purpose of raising revenue u....
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....ompulsorily mandated by law to contribute to the fund and also pay the administrative charges/inspection charges, etc., in terms of the EPMF & MP Act. The employees who ultimately benefit, have not paid any consideration to the appellant. They only contributed their part of fund, through the employer, to the appellant. The contribution to the fund is not the subject matter of disputed tax liability. The other charges like administrative charges, inspection charges paid by the employers, are being subjected to service tax. We find that in the absence of a service provider and service recipient relation between the appellant and the employers, no service tax liability can arise in the transaction. 20.Having examined the impugned orders, the submissions made by both the parties before us, closely, we find that the appellants are not liable to pay service tax on their statutory activities performed in terms of EPMF & MP Act, 1952. The appellants are not providing any taxable service to the employers covered by the said Act. The relationship and transaction between the employers and the appellant is in discharge of statutory and compulsory obligations, coercively enforceable by....