ST - Leasing of land by Corporation on own account to pvt individuals on commercial consideration cannot be said to be sovereign function at all as normally understood - land given on lease is amenable to ST under Renting of Immovable property w.e.f 1.7.2010 - Pre-deposit ordered of Rs185 cr: CESTAT
By TIOL News Service
MUMBAI, SEPTEMBER 22, 2014: THE Commissioner of Service Tax-I, Mumbai confirmed a service tax demand of Rs.536,31,86,244/- alongwith interest thereon by classifying the service rendered by the appellant MIDC under the category of "Renting of Immovable Property" for the period 1.6.2007 to 31.3.2012. Penalties were also imposed.
Before the CESTAT the appellant submitted that they had been created under the Maharashtra Industrial Development Act, 1961 inter alia for securing orderly establishment of industrial areas and industrial estates in the State of Maharashtra and thus the activities undertaken is a sovereign function undertaken on behalf of the Government of Maharashtra. Reference is also made to the Resolution No. IDC 1079/1966/IND.14 dated 11.9.1986 wherein Clause (x) thereof it is stated that legal relationship between Maharashtra Industrial Development Corporation and the Government shall be that of an agent of the Government inasmuch as the appellant is acting as an agent of the State of Maharashtra.
Reliance is also placed on the decision of the apex court in the case of Haryana State Industrial Development Corporation vs Hari Om Enterprises (2009) 16 SCC 208 (SC) and the decision of the Tribunal in Electrical Inspectorate, Government of Karnataka vs CST - 2007-TIOL-2175-CESTAT-BANG. It is further submitted that in appellant's own case, the Tribunal vide a series of orders dated 12.7.2012 - 2012-TIOL-1290-CESTAT-MUM, 2.9.2013 and 26.5.2013 had granted stay in respect of certain activities undertaken by the appellant such as maintenance of public utility services including roads, supply of water, street light, drainage etc. and held that since the appellant is a public authority they are not liable to service tax.
The AR submitted that the activity undertaken by the appellant is nothing but leasing of land&would amount to 'Renting of immovable property' and hence liable to service tax. Reference is made to the decision in CIDCO - 2014-TIOL-1368-CESTAT-MUM where in an identical set of facts, this Tribunal had taken a prima facie view that service tax is payable on the lease premium and lease rent and accordingly directed pre-deposit of the service tax demanded for the normal period and, therefore, the appellant should be put to terms.
The Bench observed -
++ From the provisions of the MIDC Act it is clear that the Corporation has its own identity apart from that of Maharashtra Government and operates independently of the Government. The receipts of the corporation are credited to its own fund and do not go the consolidated fund of the State. If that be so, the activities undertaken by it cannot be construed as functions of the State. The leasing of land by the Corporation on its own account to private individuals on commercial consideration cannot be said to be a sovereign function at all as normally understood. Sovereign functions are those of the nature of conduct of external affairs, defence, maintenance of law and justice, currency, coinage and taxation, undertaken for the benefit of public at large and both the income and expenditure in respect of these activities get credited to / expended from the consolidated fund of the State. In the present case none of these conditions get satisfied and, therefore, we are of the prima facie view that the functions undertaken by the Corporation are not sovereign functions.
++ The appellant is undertaking lease of land in two stages. In the first stage an agreement to lease the land to eligible applicants on payment of premium is entered into subject to construction of commercial buildings on the land and once the construction is completed, a lease agreement is entered into on payment of lease rental. The facts involved are identical to the one considered by this Tribunal in the case of CIDCO Ltd (cited supra)… In the said decision, the Tribunal further noted that as per the definition of taxable service in Section 65 (105)(zzzz) of the Finance Act, 1994, if vacant land is given on lease or licence for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce, the said activity would be leviable to service tax under renting of immovable property with effect from 1.7.2010. Therefore, in the present case also, the activity undertaken by the appellant would be amenable to service tax with effect from 1.7.2010, if not earlier.
Noting that the appellant is a Government Corporation and prima facie allegation of suppression and mis-statement of facts would not arise, the Bench directed the appellant to make a pre-deposit of Rs.185 crores (which is the service tax demand for the normal period of limitation) within a period of 12 weeks and report compliance.
(See 2014-TIOL-1809-CESTAT-MUM)
