Krishi Upaj Mandi Samiti liable to service tax on renting of immovable property prior to Negative List Regime. These activities are not their mandatory/statutory duty – SC
ABCAUS Case Law Citation
ABCAUS 3585 (2022) (02) SC
In the instant case a Civil Appeal was filed by the Krishi Upaj Mandi Samiti (Agricultural Produce Market Committees) against the order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
The respective appellants are established under the provisions of the Rajasthan Agricultural Produce Markets Act,1961 (hereinafter referred to as “Act, 1961”). The State Government constituted various Market Committees in the notified market areas to carry out the functions as envisaged in the 1961 Act and Rules made hereunder.
The respective committees regulate sale of agricultural produce in the notified markets and charge “market fee” for issuing license to traders, agents, factory/storage, company or other buyers of other agricultural produce.
The said committees also rent out the land and shops to traders and collect allotment fee/lease amount for such land/shop.
That the Revenue was of the view that the committees were liable to pay the service tax on the services rendered by them by renting/leasing the lands/shops.
Service Tax Authorities held that the committees were not liable to pay the service tax on “market fee” or “mandi shulk” collected by them. However, they were liable for service tax under the category of “renting of immovable property” in respect of renting of land(s)/shop(s) for a consideration.
Accordingly, the Service Tax demands were confirmed and penalties under Sections 76, 77 and 78 of the Finance Act, 1994 were also imposed on them.
The CESTAT held that from 1.7.2012 (Negative List Regime), the Committees were not liable to service tax on renting of immovable property used for storage of agricultural produce in the market area. However, the committees were held to be liable to pay service tax under the category of “renting of immovable property service” for the period upto 30.06.2012.
The Hon’ble Supreme Court observed that Market Committees were claiming exemption under the 2006 circular which provided that only such activities performed by the sovereign/public authorities under the provisions of law being mandatory and statutory functions and the fee collected for performing such activities is in the nature of a compulsory levy as per the provisions of the relevant statute and it is deposited into the Government Treasury, no service tax is leviable on such activities. It was specifically clarified that if such authority performs a service, which is not in the nature of a statutory activity and the same is undertaken for consideration, then in such cases, service tax would be leviable, if the activity undertaken falls within the ambit of a taxable service.
The Hon’ble Supreme Court stated that exemption notification should be strictly construed and given a meaning according to legislative intendment. The Statutory provisions providing for exemption have to be interpreted in light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions.
The Hon’ble Supreme Court opined that the language used in the 2006 circular is clear, unambiguous and is capable of determining a defined meaning.
The case of the committees was that the activity of rent/lease/allotment of shop/land/platform/space is a statutory activity and the Market Committees are performing their statutory duties cast upon them under Section 9 of the Act, 1961 and therefore they are exempted from payment of service tax on such activities.
However, the Hon’ble Supreme Court pointed out that wherever the legislature intended that the particular activity is a mandatory statutory, the legislature has used the word “shall”. However, the section 9(2) uses the words “market committee may”. Therefore, the activities mentioned in Section 9(2)(xvii) cannot be said to be mandatory statutory duty and/or activity. Under Section 9(2), it is not a mandatory statutory duty cast upon the Market Committees to allot/lease/rent the shop/platform/land /space to the traders.
Further, Hon’ble Supreme Court observed that Rule 45 related to Market Committee Fund does not provide that on deposit of the money received by the Market Committees into the Government Treasury/sub-treasury or a bank duly approved, it ceases to be the Market Committee Fund. It will continue to be the Market Committee Fund. Even it is the case on behalf of the appellants that the fees collected, which will be deposited in the Market Committee Fund will be utilized by the Market Committee for expanding/benefit of the Market Committee etc.
The Hon’ble Supreme Court pointed out that if the intention of the Revenue was to exempt such activities of the Market Committees from levy of service tax, in that case, there was no necessity for the Revenue subsequently to place such activity of the Market Committees in the Negative List.
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