Allowed

The Commissioner v. The Joint commissioner of central Excise

Madras HC12 Sept 2024WP/4413/2022

Case brief

AI extract

What is this about?

Municipality challenged Orders-in-Original demanding service tax. The Court held the issue covered by its earlier decision dropping such demands on municipalities as without jurisdiction, since services of local authorities fall in the negative list under the Finance Act, and allowed both writ petitions.

What did the court decide?

Both writ petitions allowed; Orders-in-Original dated 09.10.2015 and 30.04.2013 quashed; no costs; connected WMPs closed.

The Commissioner Vs The Joint commissioner of… — Municipal and Town Planning | Madras HC (2024)

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W.P.Nos.4413 and 4416 of 2022

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED : 12.09.2024

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CORAM :

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THE HONOURABLE MR.JUSTICE C.SARAVANAN

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W.P.Nos.4413 and 4416 of 2022

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and

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W.M.P.Nos.4549, 4552 and 4554 of 2022

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The Commissioner, Tiruchengode Municipality, Tiruchengode, Namakkal District. ... Petitioner in both W.Ps

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Vs.

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1.The Joint Commissioner of Central Excise,

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Salem, No.1, Foulkes Compound, Anai Road, Salem – 636 001. ... Respondent

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in W.P.No.4413 of 2022

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2.The Additional Commissioner of Central Excise, Salem, No.1, Foulkes Compound, Anai Road, Salem – 636 001. ... Respondent in W.P.No.4416 of 2022

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Prayer in W.P.No.4413 of 2022: Writ Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari, to call for the records of the respondent in Order-in-Original dated 09.10.2015 on the file of the respondent in Order-in-Original Sl.No.33/2015-ST(JC) dated 09.10.2015 and quash the same.

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W.P.Nos.4413 and 4416 of 2022

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Prayer in W.P.No.4416 of 2022: Writ Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari, to call for the records of the respondent in Order-in-Original dated 30.04.2013 on the file of the respondent in Order-in-Original Sl.No.19/2013-ST(ADC) dated 30.04.2013.

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For Petitioner : Mr.P.Srinivas (In both W.Ps) For Respondents : Mr.R.P.Pragadish (In both W.Ps) Central Government Counsel

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COMMON ORDER

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By this common, both the writ petitions are being disposed of.

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Heard the learned counsel for the petitioner and the learned Central Government Counsel for the respondents.

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The issue as on date is covered against the respondents in terms of the order passed by this Court in Cuddalore Municipality and another Vs. The Joint Commissioner of GST & Central Excise, Tiruchirappalli and another,

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in W.P.Nos.8900, 3969 & 12489 of 2018 and 31799 of 2017 dated 22.03.2021.

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W.P.Nos.4413 and 4416 of 2022

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By the aforesaid order dated 22.03.2021, the demand of service tax on

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municipalities has been dropped as without jurisdiction. Relevant portion of the order reads as under:-

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“45. The definition of “Service” as in Section 65B(44) of the Finance Act, 1944 is very wide. Thus, any activity carried out by any person for another for valuable consideration is service. It includes “declared service” as defined in Section 65B(22) of the Finance Act, 1944 read with 66E of the Act. The definition excluded few categories of activities as service. They are as follows:-

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(a) an activity which constitutes merely,-

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(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

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(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or

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(iii) a transaction in money or actionable claim;

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(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

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(c) fees taken in any Court or tribunal established under any law for the time being in force.

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46. Barring the above exception, certain services were exempted under Mega Exemption Notification No.25/2012-ST dated 20.06.2012 issued under Section 93(1) of the Finance

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Act, 1944. Certain activities were listed in the negative list. Those services are not liable to tax as Service tax is payable on the value of all services provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed under Section 66B of the Finance Act, 1994.

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47. Under Section 66B of the Finance Act, 1994 no tax was payable for the services specified in the negative list. The expression “negative list” is defined in Section 66B(34) of the Finance Act, 1994 as those services specified in Section 66D of the Act.

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48. Most services provided by the Central or State Government or local authorities are in the negative. Section 66D of the Finance Act, 1994 gives list of 17 service which were grouped under the “negative list”. Sl.No.1 to Section 66D which is relevant for the present dispute includes all service provided by Government or a local authority excluding the following:-

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i. services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;

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ii. services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

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iii. transport of goods or passengers; or

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iv. [Support Service]*, other than services covered under clauses (i) to (iii) above, provided to business entities;

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Note :

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* Substituted with Any service vide Finance Act, 2015 (20 of 2015), dated 14.05.2015.

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49. In its publication dated 20.6.2012, titled the Taxation of Service, An Education Guide, the Central Board of Indirect Tax clarified as follows:-

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2.4.5 Are Government and local authorities also liable to pay tax?

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Yes. However, most of the services provided by the Government or local authorities are in the negative list.

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2.4.6 What is the rationale behind taxing certain activities of the Government or local authorities?

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Only those activities of Government or local authorities are taxed where similar or substitutable services are provided by private entities. The rationale is as follows-

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to provide a level playing field to private entities in these areas as exemption to Government in such activities would lead to competitive inequities; and

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to avoid break in Cenvat chain as the support services provided by Government are normally in the nature of intermediary services.

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2.4.8 What is a local authority?

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Local authority is defined in clause (31) of section 65B and means the following :-

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A Panchayat as referred to in clause (d) of article 243 of the Constitution

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A Municipality as referred to in clause (e) of article 243P of the Constitution

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A Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund

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A Cantonment Board as defined in section 3 of the Cantonments Act, 2006

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A regional council or a district council constituted under the Sixth Schedule to the Constitution

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A development board constituted under article 371 of the Constitution, or

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A regional council constituted under article 371A of the Constitution.

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2.4.9 Are all local bodies constituted by a State or Central Law local authorities?

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No. The definition of 'local authority' is very specific as explained in point no 2.4.8 above and only those bodies which fall in the definition comprise 'local authorities'. It would not include other bodies which are merely described as a local body by virtue of a local law.

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However it may be noted that services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution are specifically exempt under the mega exemption 'Governmental authority' has been defined in the said mega exemption as a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution. Thus some of these local bodies may comprise governmental authorities.

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2.4.10. Would various entities like a statutory body, corporation or an authority constituted under an Act passed by the Parliament or any of the State Legislatures be 'Government' or “local authority”?

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A statutory body, corporation or an authority created by the Parliament or a State Legislature is neither 'Government' nor a 'local authority' as would be evident from the meaning of these terms explained in point nos. 2.4.7 and 2.4.8 above respectively. Such statutory body, corporation or an authority are normally created by the Parliament or a State Legislature in exercise of the powers conferred under article 53(3)(b) and article 154(2)(b) of the Constitution respectively. It is a settled position of law Government (Agarwal v. Hindustan Steel - AIR 1970 Supreme Court 1150) that the manpower of

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such statutory authorities or bodies do not become officers subordinate to the President under article 53(1) of the Constitution and similarly to the Governor under article 154 (1). Such a statutory body, corporation or an authority as a juristic entity is separate from the state and cannot be regarded as Central or State Government and also do not fall in the definition of 'local authority'.

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Thus regulatory bodies and other autonomous entities which attain their entity under an act would not comprise either government or local authority.

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2.4.11 Would services provided by one department of the Government to another Department of the Government be taxable?

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If services are provided by one department of the Central Government to another department of the Central Government or by a department of a State Government to another department of the same State Government then such service would not be taxable as it would amount to self-service. To be taxable a service has to be provided to another person.

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On the other hand if a service is provided by a Central Government department to a State Government department or vice versa or a by a State to another State Government or by a Government to an autonomous body, the same would be taxable if such service does not fall in the negative list. It is another matter that most of the services provided by the Government are in the

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negative list. For details please refer to point no. 4.1 of this Guide.

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2.4.12 Would taxable services provided by Government or local authorities still be liable to tax if they are covered under any other head of the negative list or are otherwise exempted?

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No. For example, transport services provided by Government to passengers by way of a stage carriage would not be taxable as transport of passengers by stage carriage has separately been specified in the negative list of services. The specified services provided by the Government or local authorities

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50. In Para 4.1 of the Education Guide, it was specifically explained that most of the services provided by Government and Local Authority are in the negative list and were outside the ambit of the service tax. Para 4.1 of Guidance Note 4 - Negative List of Services is reproduced below:

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Guidance Note 4 - Negative List of Services

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In terms of Section 66B of the Act, service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the negative list. The services specified in the negative list therefore go out of the ambit of chargeability of service tax. The negative list of service is specified in the Act itself in Section 66 D. For sake of ease of reference the negative list of services is given in Exhibit A1. In all, there are seventeen heads of services that have been specified in the negative list. The scope and ambit of these is explained in paras below.

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W.P.Nos.4413 and 4416 of 2022

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4.1 Services provided by Government or local authority

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4.1.1 Are all services provided by Government or local authority covered in the negative list?

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No. Most services provided by the Central or State Government or local authorities are in the negative list except the following :

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(a) services provided by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services carried out on payment of commission on non government business;

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(b) services in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport;

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(c) transport of goods and/or passengers;

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(d) support services, other than those covered by clauses (a) to (c) above, to business entities.

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4.1.2 Would the taxable services provided by the Government be charged to tax if they are otherwise exempt or specified elsewhere in the negative list?

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No. If the services provided by the government or local authorities that have been excluded from the negative list entry are otherwise specified in the negative list then such services would also not be taxable.

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51. Only Support services provided by the government or local authorities that have been excluded from the negative list entry are in the negative list. Otherwise, all service of

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W.P.Nos.4413 and 4416 of 2022

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government and local authorities are not taxable. Support services was defined in Section 65B of the Act as 'infrastructural, operational, administrative, logistic marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of movable or immovable property, security, testing and analysis'.

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52. Services which are provided by government in terms of their sovereign right to business entities, and which are not substitutable in any manner by any private entity, are not support services.

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53. In fact, in the Education Guide, list of activities such as grant of mining or licensing rights or audit of government entities established by a special law, which are required to be audited by CAG under Section 18 of the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971 and therefore such services are performed by CAG under the statue and cannot be performed by the business entity themselves and thus do not constitute support services.

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54. If the activity carried out by the Petitioner Municipalities are categorised as “Support Service”, it cannot be held that there was a provision of taxable service and such service was liable to tax under Section 66B of the Finance Act, 1994 as in force with effect from 01.07.2012.

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55. However, for such support services, service tax was payable by the recipient of such service in terms of Rule 2(1)(d)(E) of the Service Tax Rules, 1994 as amended by notification No.36/2012-ST dated 20.6.2012 with effect from 1.17.2012.

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56. For support service provided, the recipient was liable to pay tax on reverse charge basis under Rule 2(1)(d)(E) of the Service Tax Rules, 1994 as amended by notification No.36/2012-ST dated 20.06.2012 as in force from 01.07.2012.

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57. Therefore, the Petitioner Municipalities can be held liable to pay service tax only for service specified in SubClauses in (i), (ii) and (iii) of Clause (a) of Section 66D of the Finance Act, 1994.

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58. As far as renting of immoveable property is concerned, though under Rule 2(1)(d)(E) of the Service Tax Rules, 1994, service tax is payable by the service provider, it has to be held that if such services are provided by a Government or Local Authority, they are exempted under Section 65D(1)(a) of the Finance Act,1994 as amended and as in force from 01.07.2012. Only ancillary service provided by a third party towards renting of immoveable property of a nongovernmental or local body will be liable to pay service tax like any other service provider. Therefore, service tax is payable by the service provider himself.

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59. That apart, it is seen that some of the services provided are also exempted under the Mega Exemption Notification No.25/2012-ST dated 20.06.2012 vide Sl.Nos.38 and 39. They are reproduced below:-

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38. Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets;

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39. Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution.

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60. Thus, there is no jurisdiction in the impugned Show Cause Notices / Orders-in-Originals issued by the respondent.

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In the light of the above discussion, demand proposed in the impugned S.C.N.No.04/2018 (ST) in C.No.V/ST/15/2/2018-ST. Adjn. Dated 07.03.2018 and demand confirmed in Order-inoriginal No.3/2017-ST in C.No.IV/09/04/2017-ST. Adjn. (RO OC No.100/2016) dated 24.03.2017 and Order-in-Original No.5/2018-ST in C.No.V/ST/15/21/2018-ST.Adj. dated 06.04.2018 are liable to be quashed and are accordingly quashed.

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61. In the result,

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i. W.P.No.3969 of 2018 as mentioned above is dismissed as infructuous.

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ii. W.P.No.8900 of 2018, W.P.No.31799 of 2017 and W.P.No.12489 of 2007 are allowed.

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iii. No. Cost. Consequently, connected Miscellaneous Petitions are closed.”

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It appears that the Department has also not challenged the aforesaid order and in any event no stay has been obtained from the Division Bench of this Court.

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In view of the above, these Writ Petitions are allowed. No costs. Connected Writ Miscellaneous Petitions are closed.

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12.09.2024

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Index : Yes/No

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Index : Yes/No Internet : Yes/No Speaking Order/Non-Speaking Order Neutral Citation : Yes/No

arb

C.SARAVANAN, J.

arb

1.The Joint Commissioner of Central Excise, Salem, No.1, Foulkes Compound, Anai Road, Salem – 636 001.

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2.The Additional Commissioner of Central Excise, Salem, No.1, Foulkes Compound, Anai Road, Salem – 636 001.

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W.P.Nos.4413 and 4416 of 2022

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and W.M.P.Nos.4549, 4552 and 4554 of 2022

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W.P.Nos.4413 and 4416 of 2022

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12.09.2024

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The Commissioner v. The Joint commissioner of central Excise

Case brief

What is this about?

What did the court decide?

The Commissioner v. The Joint commissioner of central Excise

Case brief

What is this about?

What did the court decide?

What the court decided

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