By TIOL News Service

MUMBAI, DEC 26, 2017: AFTER the formation of Maharashtra State on May 1, 1960, the Government of Maharashtra constituted a "Board of Industrial Development" (BID) on October 1, 1960.

The BID framed the legislation and it was introduced before the State legislature and passed in the form of "Maharashtra Industrial Development Act" which gave birth to MIDC, as a separate corporation on August 1, 1962.

The MIDC has been declared as an agent of the State Government for carrying out the activities within the framework of the MID Act and the MID Rules. These activities can be divided under following 3 broad categories.

++ Acquisition and disposal of land.

++ Provision of infrastructure facilities.

++ Providing of services.

In short, MIDC sets up an industrial estate, the plots are given on lease and the MIDC provides amenities including roads, water, drainage, street light etc. and collects a fee fixed by the Government of Maharashtra.

It is the case of the Revenue that the appellant was providing 'Maintenance and Repair service' to the lessees and collecting fee for the same which is taxable under the Finance Act, 1994.

Incidentally, MIDC is already registered under the category of "renting of immovable property" and for services covered by such category, MIDC is admittedly paying service tax.

In these set of facts, periodical SCNs were issued and the same were adjudicated - demands were confirmed along with interest and penalties u/s 77 &78 of the FA, 1994 were also imposed.

As the Commissioner (Appeals) upheld these orders, appeals came to be filed before the CESTAT.

Aggrieved by those orders, appeals were filed before the CESTAT.

In one of the matters, Stay was granted by the Bench on the strength of the Board Circular 89/7/2006 dated 18.12.2006. We reported this order as 2012-TIOL-1290-CESTAT-MUM .

On 4 September 2014, the CESTAT while allowing all the five appeals of the assessee held thus -

++ CBEC Circular No. 89/7/2006 dated 18.12.2006 clarifies that the activities performed by sovereign/public authority under the provisions of law are in nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by MIDC for providing infrastructural facilities like roads, water, drainage, street light, etc. is in nature of compulsory/statutory levy as per the provisions of relevant statute and it is deposited into the Govt. treasury. Such activity is undertaken as mandatory and statutory functions. These are not in nature of service to any particular individual or for any considerations. Performing of such activity by a statutory/public authority under the provisions of law does not come under the taxable service and, therefore, no service tax is leviable on such activity.

++ We further find that Section 97 of the Finance Act, 1994 and the Notification No. 24/2009-ST dated 27.7.2009 exempts the services of maintenance and repairs of roads. Therefore, the appellant are not required to pay service tax on their activity as discussed above. The appellant are executing their work which is statutory in nature.

++ In Appeal No. ST/85267/14- demand is for two periods, one from 1.10.2011 to 30.06.2012 and the second is from 01.7.2012 to 30.09.2012 when the negative list came into effect but the SCN has been issued on the basis of definition of Management, Maintenance and Repair service as stood prior to 01.07.2012. Therefore, as post 01.07.2012 the provisions are not existing the demands for the period post 01.07.2012 are not maintainable.

We reported this order as 2014-TIOL-2022-CESTAT-MUM .

Aggrieved, the CCE, Nashik has filed appeals before the Bombay High Court.

Adverting to clause 2 of the Board Circular 89/07/2006 , it is emphasised by the counsel for the Revenue that the same will apply only when fees are collected in the nature of compulsory levy for performing statutory obligations which are required to be performed in accordance with law. Inasmuch as since the service which is the subject matter of the demand rendered by MIDC to the allottees of the plots is not a statutory service, it will be squarely covered by clause 64 of Section 65 and chargeable to tax.

The respondent assessee relied upon the apex court decisions in Ramtanu Cooperative Housing Society and Anr. Vs. State of Maharashtra and Ors. AIR 1970 SC 1771 as well as the Managing Director, Haryana State Industrial Development Corporation and Ors. Vs. Hari Om Enterprises and Anr. AIR 2009 SC 218 to submit that MIDC is a wing of the State Government which performs sovereign functions and hence, no interference is called for in the Tribunal order.

The High Court extracted clauses 2 & 3 of the Board Circular (supra) and by relying on the cited apex court judgements inter alia observed –

++ The functions of MID have been enlisted in Section 14 which reads thus :-

"14. The functions of the Corporation shall be

(i) generally to promote and assist in the rapid and orderly establishment, growth and development of industries in the State of Maharashtra, and

(ii) in particular, and without prejudice to the generality of clause (i), to -

(a) establish and manage industrial estates at places selected by the State Government;

(b) …;

(d) ..."

++ Clause (a) of Section 2 of MID Act defines amenity which reads thus :

"2(a) "amenity" includes road, supply of water or electricity, street lighting, drainage, sewerage, conservancy and such other convenience as the State Government may, by notification in the Official Gazette specify to be an amenity for the purpose of this Act."

++ The role of MIDC is not limited only to establishing industrial estates and allotting the plots or buildings or factory sheds to industrial undertakings. The function and obligation of the MIDC is also to manage and maintain the said industrial estates as provided in Section 14. Therefore, it is the statutory obligation of the MIDC to provide amenities as defined in clause (a) of Section 2 of the MID Act to the industrial estates established by it. Thus, it is the statutory obligation of MIDC to provide and maintain amenities in its Industrial estates such as roads, water supply, street lighting, drainage, etc. Thus, we find that the activities for which the demand was made are part of the statutory functions of the MIDC under MID Act.

++ As stated earlier, the demand is in respect of service charges collected from plot holders for providing them various facilities including maintenance, management and repairs. As provided in the circular dated 18th December, 2006, for providing amenities to the plot holders, the service fees or service charges collected by MIDC are obviously in the nature of compulsory levy which is used by MIDC in discharging statutory obligations under Section 14. We find that even in the Order-in-Original, there is no finding of fact recorded that the service rendered for which service tax was sought to be levied was not in the nature of statutory obligation.

Concluding that there is no error in the view taken by the Appellate Tribunal, the Revenue appeals were dismissed.

Nonetheless, the High Court also viewed that the Revenue ought not to have compelled MIDC to prefer Appeals before Appellate Tribunal and so also by filing appeals before the High Court against the order of the Tribunal, MIDC was required to incur huge expenditure on litigation and which could have been avoided by the Appellant (Revenue).

The High Court, therefore, saddled the Appellant (Revenue) with costs of Rs.10,000/- in each of the five Appeals to be paid to MIDC within a period of one month.

(See 2017-TIOL-2629-HC-MUM-ST)