By TIOL News Service    

MUMBAI, SEPT 06, 2017: THIS is a Revenue appeal.

The respondent Mormugao Municipal Council (MMC), apart from collecting rent from the shops in market, also collects Sopo charges (occupation fee) from various persons for use of the vacant land in the municipal area.

The jurisdictional authorities had demanded service tax on these charges and in adjudication the Additional Commissioner had confirmed the allegations leveled in the SCN.

However, Commissioner (Appeals) while setting aside the service tax demand on Sopo charges also held that the demand is hit by time bar. Benefit of section 80 in the matter of imposition of penalty was also extended.

Aggrieved, an appeal has been filed before the CESTAT by the CCE, Goa.

The AR argued that Sopo charges is nothing but a consideration collected for using the MMC premises for commercial activity and the Commissioner (Appeals) had wrongly held that vacant land is not covered under the Renting of Immovable Property service. It is also submitted that MMC could not have held a bonafide belief for non-payment of tax since the issue was clarified to the Chief officer MMC by the department and he was requested to start paying service w.e.f. 01.07.2007.

In the cross objection filed, the respondent submitted that markets are developed in discharge of constitutional responsibility under Article 243W of the Constitution of India and the 12th schedule thereunder; that MMC is not engaged in trade or commerce and the shops rent out are not in the course of furtherance of business or commerce but are statutory responsibility under the Goa Municipality Act; that merely allowing use of land does not amount to provision of service. Reliance is also placed on the CBEC Circular no. 96/7/2007-ST dated 23.08.2007 wherein it is clarified that the activity performed by the public authority under the provisions of any statute(viz. statutory functions) did not attract service tax.

During the hearing the appellant also mentioned that tax is demanded on amounts which have been collected as arrears of rent and that service tax is not liable on premises rented to government offices or charitable institution or which are used for residential purposes as renting covers only renting for commercial purposes.

The Bench observed that the Cross objection did not raise the issue relating to levy of service tax on premises rented out to government offices, institution or residential use and, therefore, it was not open to the respondent to agitate these grounds before it.

On merits:

In the matter of demand of service tax on Sopo charges collected for using vacant land and open place by farmer, hawker, and floating small retailers on daily basis, the CESTAT observed that the Commissioner(A) had concluded that renting of vacant land is not covered under renting of immovable property service and for that purpose he has relied on the decision of New Okhla Industrial Development Authority - 2014-TIOL-67-CESTAT-DEL.

Noting that the Revenue had in the grounds of appeal not cited any decision to counter the said Tribunal decision, the Bench held that there was no reason to interfere with the impugned order insofar as the demand of service tax on Sopo charges for use of vacant land is concerned.

Limitation:

+ SCN covers the period 01.06.2007 to 31.10.2008.

+ Revenue had vide letter dated 08.09.2008 written to Chief officer of the respondent requesting them to obtain service tax registration and to pay service tax on rental income received by them from 01.06.2007. They were again informed by 19.11.2008.

+ Thereafter on 01.12.2008 show-cause notice was issued invoking the extended period.

+ Once revenue had on 08.09.2008 informed respondent that they were liable to pay service tax on the rental income the case of bonafide for non-payment of service tax thereafter does not survive.

+ Thus for the period prior to that the appellants can claim a bonafide belief that they are not liable to pay service tax.

+ Moreover, the issue regarding liability of service tax on the rental income was subject matter of numerous disputes in various courts. In these circumstances, we cannot fault with the respondent bonafide belief that there was no liability to service tax on Renting of Immovable Property Service.

Statutory function?

In the Cross objection, respondent sought to challenge the levy of service tax on shops rented out by MMC under the pretext that the said shops are part of the market developed by MMC as their constitutional responsibility envisaged in Article 243W of the Constitution of India read with the twelfth schedule, particularly entry 12 & 17 therein.

The Bench extracted the Twelfth Schedule, entry 12 & 17 of which reads -

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

17. Public amenities including street lighting, parking lots, bus stops and public conveniences.

After examining the contentions made, the CESTAT observed -

"10. On perusal of entry 12 and 17 clearly shows that or has been mentioned thereunder is provisions of urban amenities and facilities, such as parks, gardens, playgrounds. The market cannot be considered to be similar in nature and therefore provision of markets cannot be considered to be the responsibility under Sr. No. 12 of the 12th schedule. Similarly sr. No. 17 relates to street lighting, parking lots, bus stops and public convenience. These amenities do not include market by any stretch of imagination. Thus to state that construction of market is a constitutional responsibility cast upon the MMC is misplaced. We do not find force in the argument made by the respondent…"

In fine, the revenue appeal was dismissed and so also the Cross objections filed.

(See 2017-TIOL-3229-CESTAT-MUM)