2025 (6) TMI 1432 - AT - Service Tax

Liability of Jharkhand State Agricultural Marketing Board (JSAMB) is liable to pay Service Tax - Renting of Immovable Property services for the period 2008-09 to 2011-12 - rental income received by Krishi Upaj Mandi Samiti - Extended period of limitation - HELD THAT - The JSMAD is a Board established in March 2001 under Section 33A of the Jharkhand Agriculture Produce Market Act 2000. On the other hand the APMC is established in terms of Section 6 of this Act - From the rental agreement it is seen that the lessor is APMC and as per the terms and condition given therein the amount of rent is required to be paid by the lessee to APMC only. Thus the service provider in this case would be by APMC. From the PAN numbers it is seen that APMCs are independent entities so far as the Income Tax statues are concerned. For all purposes the Rent received by the APMC would be treated as their income and not as the income of the Board. Therefore for the purpose of Service Tax the income of the APMC cannot be treated as the income of the Board. The documentary evidence clarify that the lessor is APMC and not JSAMB. The Service Tax is payable by the entity/person who provides the service. In case of Renting of Immovable Property the Service Tax liability is on the person who lets out the premises on lease. In the present case the Revenue has proceeded under the erroneous assumption that the Board is the lessor and the beneficiary of the rent received. From the documents there is no iota of doubt that the Board is neither the owner nor is the lessor nor is the rent being received by them. The Supreme Court judgement relied upon by the Revenue in KRISHI UPAJ MANDI SAMITI NEW MANDI YARD ALWAR VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX ALWAR 2022 (2) TMI 1113 - SUPREME COURT pertains to the Rental Income received by the Krishi Upaj Mandi Samiti which is the Hindi name for Agricultural Product Market Committee APMC . As per this decision the APMC is liable to pay the Service Tax. The issue of the Board monitoring the working of the APMC being liable to pay the Service Tax was not the issue. Therefore the case law is of no help to the Revenue. Extended period of limitation - HELD THAT - The Show Cause Notice has been issued to the appellant which should not have been issued in the first place. Therefore holding that no case of suppression has been made out against the appellant the confirmed demand on extended period set aside as time barred. Conclusion - i) The demand for Service Tax against the Board was set aside on merits as the Board was not the lessor or service provider. ii) The extended period demand and penalty were set aside as barred by limitation and absence of suppression. The appeal is allowed on merits and on account of time bar.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal are:

1. Whether the Jharkhand State Agricultural Marketing Board (JSAMB) is liable to pay Service Tax under the category of "Renting of Immovable Property" services for the period 2008-09 to 2011-12, given that the Board was alleged to be collecting rent from leased premises.

2. Whether the Agricultural Produce Market Committees (APMCs), which are functioning under the Board but are independent entities, are the actual lessors and service providers liable to pay Service Tax instead of the Board.

3. Whether the Board, being a government constituted body performing sovereign functions, is exempt from Service Tax liability on the rental income.

4. Whether the demand raised by the Revenue is sustainable on merits and whether the extended period demand is barred by limitation.

Issue-wise Detailed Analysis

Issue 1 and 2: Identification of the Service Provider and Liability for Service Tax on Renting of Immovable Property

Legal Framework and Precedents: Service Tax under the Finance Act, 1994, applies to "Renting of Immovable Property" services where the person letting out the premises is liable to pay tax. The Supreme Court decision in the case of Krishi Upaj Mandi Samiti vs. Commissioner of Central Excise & Service Tax, Alwar (2022) clarified that only consideration received for sovereign functions is exempt from Service Tax, and rental income received by Agricultural Produce Market Committees (APMCs) is taxable.

Court's Interpretation and Reasoning: The Tribunal carefully examined the organizational structure and the contractual arrangements between the parties. JSAMB is a Board constituted under Section 33A of the Jharkhand Agriculture Produce Market Act, 2000, whereas APMCs are established under Section 6 of the same Act. The Tribunal scrutinized the rental agreements submitted, which clearly identified the lessor as the respective APMCs, not the Board.

The Tribunal also considered the affidavit of the Secretary of JSAMB, which explicitly stated that the Board does not collect rent; instead, the rent is collected by the individual APMCs and credited to their own accounts. Further, the Tribunal reviewed PAN card copies issued to the APMCs, establishing their independent legal and financial identity, including separate income tax registration.

Key Evidence and Findings: The rental agreements, affidavit, and PAN cards collectively demonstrated that the APMCs are the actual lessors and recipients of rental income. The Board merely oversees the operations of the APMCs but does not receive or control rental income.

Application of Law to Facts: Since Service Tax liability on renting immovable property services lies with the person letting out the premises, the APMCs, as lessors, are liable to pay Service Tax, not the Board. The Revenue's assumption that the Board was the ultimate beneficiary and lessor was found to be erroneous.

Treatment of Competing Arguments: The Revenue argued that since the Board controls and directs the APMCs, it should be held liable. They relied on the Supreme Court ruling that rental income of Krishi Upaj Mandi Samiti (APMC) is taxable. However, the Tribunal distinguished that case as it pertained to the APMC itself, not the Board overseeing it. The Board's role as a supervisory entity was insufficient to impose Service Tax liability on it.

Conclusion: The Tribunal concluded that the APMCs, not the Board, are the service providers liable for Service Tax on rental income. The demand against the Board was unsustainable on merits.

Issue 3: Exemption Claim Based on Sovereign Functions

Legal Framework and Precedents: The Supreme Court has held that only services rendered in the exercise of sovereign functions are exempt from Service Tax. Renting of immovable property is not a sovereign function.

Court's Interpretation and Reasoning: The Board claimed exemption on the ground that it performs sovereign functions and therefore is not liable to pay Service Tax. The Tribunal observed that the Board's sovereign functions do not extend to renting out premises, which is a commercial activity. However, since the Board is not the lessor, the question of exemption becomes moot.

Key Evidence and Findings: The Board's affidavit and submissions clarified that it does not collect rent or provide rental services, which are performed by the APMCs.

Application of Law to Facts: Exemption for sovereign functions cannot be extended to the Board for rental income it does not receive or services it does not provide.

Treatment of Competing Arguments: The Revenue's reliance on the Supreme Court decision to deny exemption was based on the APMC's rental income, not the Board's. The Tribunal found no basis to hold the Board liable or deny exemption on this ground.

Conclusion: The Board's sovereign function exemption claim is irrelevant since it is not the service provider for renting immovable property.

Issue 4: Sustainability of Demand and Time Bar on Extended Period Demand

Legal Framework: Service Tax demands raised beyond the prescribed limitation period are liable to be set aside unless suppression or fraud is established under Section 78 of the Finance Act, 1994.

Court's Interpretation and Reasoning: The Tribunal noted that the Show Cause Notice was issued to the Board erroneously, as it was not the service provider. There was no evidence of suppression or intent to evade Service Tax on the Board's part. The Board had a bona fide belief that it was not liable.

Key Evidence and Findings: The affidavit and documentary evidence indicated transparency and no concealment by the Board.

Application of Law to Facts: Since no suppression was found, the extended period demand was barred by limitation and liable to be set aside.

Treatment of Competing Arguments: The Revenue's penalty imposition under Section 78 was not justified in absence of suppression or evasion.

Conclusion: The extended period demand and penalty were set aside as time barred and without merit.

Significant Holdings

"The Service Tax is payable by the entity/person who provides the service. In case of 'Renting of Immovable Property', the Service Tax liability is on the person who lets out the premises on lease."

"The Revenue has proceeded under the erroneous assumption that the Board is the lessor and the beneficiary of the rent received. From the above documents, there is no iota of doubt that the Board is neither the owner, nor is the lessor, nor is the rent being received by them."

"The Supreme Court judgement relied upon by the Revenue, pertains to the Rental Income received by the Krishi Upaj Mandi Samiti which is the Hindi name for Agricultural Product Market Committee [APMC]. As per this decision, the APMC is liable to pay the Service Tax. The issue of the Board monitoring the working of the APMC, being liable to pay the Service Tax was not the issue. Therefore, the case law is of no help to the Revenue."

"No case of suppression has been made out against the appellant, we set aside the confirmed demand on extended period as time barred."

The Tribunal established the core principle that the liability for Service Tax on renting immovable property services lies with the actual lessor who receives the rent, and supervisory control by a government Board does not impose such liability.

Final determinations:

- The demand for Service Tax against the Board was set aside on merits as the Board was not the lessor or service provider.

- The extended period demand and penalty were set aside as barred by limitation and absence of suppression.

- The appeal was allowed with consequential relief.