By TIOL News Service

NEW DELHI , JUNE 16, 2017: THE appellants (65 in all) are established by the Rajasthan State Government under the provisions of The Rajasthan Agricultural Produce Markets Act, 1961. The Act is for establishment of regulated market for purchase and sale of agricultural produce and to protect the agriculturists from being exploited by the middlemen and to enable them to secure fair return of their produce. The State Government constituted the various market committees, in notified market areas to carry out the functions as envisaged in the said Act and the Rajasthan Agricultural Produce Market Rules, 1961.

The appellants regulate sale of agricultural produce in the notified markets. They charged "market fee" for issuing licence to traders, agents, factory/cold storage owners or other buyers of other agricultural produce. They also let out land and shops to traders and collected "allotment fee/lease" amount for such land/shop.

Revenue entertained a view that the appellants are liable to service tax on these receipts.

The adjudicating authority held that the appellants are not liable to pay service tax on "market fees" or "mandishulk" collected by them. However, the appellants were held to be liable for service tax under the category of "renting of immovable property" in respect of renting of land/shops for a consideration.

The appellants are in appeal before the CESTAT and inter alia submit that SCNs issued after 1.7.2012 invoking obsolete provisions of law that existed prior to the said date are invalid in law; that they are performing statutory functions under the Act and, therefore, not liable to service tax as clarified by the CBEC vide its Circular dated 18.12.2006; that the allotment fee for giving out the land and shop is in the nature of compulsory levy in terms of Section 9(2)(xiii) of the Act; for the period from 1.7.2012, there is no service tax liability on the appellant in terms of Section 66(D)(d) of the FA, 1994; no allegation of fraud, suppression can be alleged as appellants are government body and no malafide act is involved; that the scope of tax liability under renting of immovable property has been a subject matter of serious dispute and on this ground too the extended period cannot be invoked; if taxable, benefit of threshold exemption should be granted.

The AR justified the demand.

The CESTAT observed -

Validity of SCNs

++ We note that notification no. 20/2012-ST dated 5.6.2012 is very clear. It states that Section 65 of the Act shall not apply with effect from 1.7.2012 except as respects things done or omitted to be done before the said Section 65 so ceases to apply. Accordingly, in view of this clear saving provision, we find no infirmity in the demands raised after 1.7.2012 for periods prior to that date. Regarding invoking old provisions of Act for periods post 1.7.2012, we note that it is well settled legal principle that mention of incorrect section/Rule will not make the proceedings invalid. The scope of demand along with applicable facts are brought out in the notice. Not mentioning the changed Section by itself will not be fatal to the proceedings.

Taxability of "allotment fee/lease"

+ Allotment of land/shops to the traders is not in terms of the Rajasthan Agricultural Produce Markets Act, 1961 or the rules made thereunder. In fact, in the written submissions, made by …the appellants in Appeal No.ST/50069 of 2017 and ST/51936/2016, it is specifically mentioned that the allotments of land and shops were made by the appellants in terms of the Immovable Property Allotment Rules, 2005 and the fees are received for such allotments .

+ The agreement clearly mentions that the allotment is made for a consideration of allotment fee/lease amount. The terms of the agreement/allotment letter clearly indicated the arrangement for renting of immovable property for a consideration. The fact that the allottee uses the shop/premises for commercial purpose is not in dispute. As such, we find the claim of the appellant that the allotment of shop or land to the traders cannot be considered as "renting of immovable property" is not tenable.

+ We also do not agree with the submission of the appellant that such renting out of shop/land is a mandatory/sovereign function carried out by the appellant. There is no support for such assertion. As such, we find that the appellant are liable to service tax on the considerations received by them for renting out the shop/land to traders and others for activities of furtherance of commerce.

+ However, we note that with the introduction of Negative List Regime of Taxation w.e.f. 1.7.2012, the appellants' services were excluded from the tax liability. Accordingly, we hold that the appellants are not liable to service tax on renting of immovable property used for storage of agricultural produce in the market area.

+ On harmonious construction of all material facts on record, we find that the appellants are not liable to service tax on shops/sheds/platforms/land leased out in the notified market area for traders for temporary storage of agricultural produce traded in the market. In respect of shops, premises, buildings, etc. rented/leased out for any other commercial purpose other than with reference to agricultural produce (like bank, general shop etc.), the same shall not be covered by the negative list and the appellants shall be liable to service tax.

Limitation:

++ Admittedly, the appellants are a Government Organisation; their functions are regulated by the said enactment and the rules. …We are not convinced with the findings as there is no evidence of the appellants' malafide act to evade service tax liability by resorting to conduct, which will attract any of the serious allegations listed in the proviso to Section 73(1) of the Act.

++ The tax entry "renting of immovable property service" itself was subject matter of serious litigation in various judicial forums. The decision of the Delhi High Court (in Home Solutions Retail Ltd. Vs. Union of India = 2010-TIOL-818-HC-DEL-ST led to legislative changes including retrospective amendment of the legal provisions in the Finance Act, 1994. In fact, for non-payment of service tax under this tax entry, special provision was made under Section 80(2) to waive the penalties.

++ Considering these backgrounds and the status of the appellant as a Government Organisation, we find that the ingredients for invoking demand for extended period are not present in the present case. Accordingly, the demands raised shall be restricted to normal period only . On the same reasons, we hold that penalties imposed on the appellants are also liable to be set aside.

Conclusion:

(I) The appellants are liable to pay service tax under the category of "renting of immovable property service" for the period upto 30.06.2012.

(II) For the period from 1.7.2012 (Negative List Regime), the appellants are not liable to pay service tax under the said tax entry in respect of shed/shop/premises leased out to the traders/others for storage of agricultural produce in the marketing area. The Negative List will not cover the activities of renting of immovable property for other than agricultural produce.

(III) The demands, wherever raised invoking extended period, shall be restricted to the normal period. Penalties imposed on the appellants are set aside.

(IV) The threshold exemption available to the small-scale service provider in terms of the applicable notifications during the relevant year shall be extended to the appellant on verification of their turnover.

(See 2017-TIOL-2049-CESTAT-DEL)