TMI Blog2020 (6) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... eful reading of the aforesaid provisions of KIADAct and KIADB Regulations would clearly go to show that the appellant is a State undertaking and creature of a statute to exercise the power of eminent domain . The appellant is engaged in discharging statutory functions under an act of Legislature viz. KIAD Act, 1966. It is a statutory body performing statutory functions and exercising statutory powers. Once carrying out the objectives of the Act, then it cannot be treated as a service provider under the Finance Act, 1994 - there is no service provider-client relationship so as to warrant the levy of service tax under the provisions of Finance Act, 1994. Appellant has undertaken various activities and functions in the State of Karnataka as per the directions of the State Government given from time to time under the provisions of the Act and hence their activities cannot be considered as taxable service and no service tax can be levied for these activities. The issue whether the statutory authority performing statutory functions as provided under a statute is liable to service tax or not has been considered and decided by catena of judgments rendered by various courts. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... housand Only) under Section 77 of the Act, for failure to furnish the prescribed return and failure to obtain registration. (iv). imposed a penalty of ₹ 1295,14,21,404/- (Rupees One Thousand Two Hundred and Ninety Five Crores Fourteen Lakh Twenty One Thousand Four Hundred and Four only), under Section 78 of the Finance Act 1994 for suppressing the facts and contravention of the provision of the Act/Rule with intent to evade payment of Service Tax, which shall be reduced to 25% of the service tax confirmed, provided the entire amount of service tax along with interest and reduced penalty are paid within THIRTY days of the receipt of this order. Further the break-up of service tax demand is as follows:- Head Period Service Tax (Rs.) Renting of immovable property 2007-08 to 2009-10 692,47,57,800 Construction of residential complex 2005-06 to 2009-10 4,27,67,609 Construction of commercial complex 2005-06 to 2009-10 572,70,34,553 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is KIAD Act, 1966. Appellant was formed and established under the provisions of Section 5 of the said KIAD Act and performs various statutory / sovereign functions assigned to it under provisions of KIAD Act. Revenue entertained the view that the appellants are liable to pay the service tax on various services rendered by them but they have not paid the service tax and not registered under the Finance Act, 1994. On these allegations, a show-cause notice dt. 06/04/2011 was issued to the appellant. Appellant filed elaborate interim reply to the show-cause notice on 24/10/2011 and thereafter filed a further reply dt. 24/11/2011 and all the allegations were rebutted as untenable and the case was contested on merits, limitation, jurisdiction and quantification of demand. In reply to the show-cause notice, the appellant mainly contended that the appellant is a Government undertaking and being a State as defined in Article 12 of the Constitution of India are not liable to pay service tax. Further the appellants are not undertaking any activities for profit motive. It was also contended that the appellant did not provide any construction related service. On the contrary, they engaged var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide amenities and common facilities in the industrial area; In order to support his submission, he relied upon the following decisions: - i. Narayanappa Vs. State of Karnataka [2006(7) SCC 578] ii. Shri Ramtanu Housing Co-operative Society Ltd. Vs. State of Maharashtra [1970(3) SCC 323] 4.2. Learned counsel referred to Entry 42 of the Concurrent List which provides power to make laws for the purpose of acquisition or re-acquisition of property. Further Entry 24 of the List II (State List) provides power to make laws relating to industries. He also submitted that KIAD Act was enacted for the purpose of acquisition of land and forming of industrial areas and the appellant is engaged in the activity of a public purpose viz. development of industrial areas within the State of Karnataka. Learned counsel also took us through various sections of KIAD Act viz. Sections 5, 6, 11, 13, 14, 17, 18, 21, 28(8), 32 and 36 to buttress his argument that the appellant is a Government undertaking engaged in performing the statutory functions and hence are not subject to levy of service tax at all. He further submitted that the issue that no service tax could be levied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Vs. State of Maharashtra [1970(3) SCC 323] ii. City and Industrial Development Corporation Vs. Percival Joseph Pareira [2013 SCC OnLine Bom 408] iii. Percival Joseph Pareira Vs. Special Land Acquisition Officer [2009 SCC OnLine Bom 1720] iv. City and Industrial Development Corporation of Maharashtra Ltd. Vs. ACIT [2011 SCC OnLine Bom 1865] 4.5. Learned counsel further argued that apart from being a sovereign authority, the appellant is a statutory authority under the provisions of law. It, inter alia, includes to promote orderly establishment of industries and to develop industrial areas. These are in the nature of mandatory statutory obligations which are to be fulfilled in accordance with law. For this submission, relied upon the following decisions: - i. Municipal Corporation, Amritsar Vs. Senior Supdt. Of Police [AIR 2004 SC 2912] ii. Bureau of India Standards Vs. CIT (Exemptions) [2013 358 ITR 78 (Del.)] iii. ICAI Vs. DGIT (Exemptions) [2013 358 ITR 91 (Delhi)] iv. Institute of Chartered Accountants in England and Wales Vs. CCE [1999 1 WLR 701] v. Bureau of Energy Efficiency Vs. CST, Delhi [2019 (22) GSTL 25 (Tri. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 578 (Tri. Bang.)] 4.8. He also submitted that the deposits cannot be considered as consideration for services provided and only the consideration charged towards provision of taxable service could be brought to service tax. For this submission, he relied upon the following decisions: - i. Murli Realtors Pvt. Ltd. Vs. CCE [2015(37) STR 618 (Tri. Mumbai)] ii. Samir Rajendra Shah Vs. CCE [2015(37) STR 154 (Tri. Mumbai) iii. Karad Nagar Parishad Vs. CCE ST [2019(20) GSTL 288 (Tri. Mum.)] 4.9. He also submitted that the demand in respect of deposits collected for alleged services were dropped in the show-cause notice pertaining to subsequent periods. Learned counsel also contested the legality of demand of services tax under various heads. But he submitted that if the Tribunal comes to the conclusion that appellant being public / state authority engaged in providing statutory function of the State and are not liable to pay service tax, then in that case, the submissions on various taxable services may not be relevant and the entire demand goes only on that account. In his written submission, which is on record, the learned counsel gave detailed submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x under the head manpower recruitment or supply services , learned counsel submitted that the appellant did not provide any manpower for carrying out acquisition of land. The said activity cannot be subjected to tax under the category of manpower recruitment or supply service. 4.12. Learned counsel also question the quantification and also raised the argument that the appellant being a arm of the State Government, there cannot be any question of having intention to evade payment of taxes and hence extended period cannot be invoked and hence penalty cannot be imposed. 5.1. On the other hand, the learned special counsel appearing for the Revenue reiterated the findings of the impugned order. He also filed written submissions. In the written submissions, he referred to relevant provisions of the KIAD Act relating to the functions and powers of the appellant. He further submitted that a conjoint reading of the provisions of Sections 5, 13, 14, 18 and 19 of the KIAD Act clearly indicates that appellant has its own identity as distinct from the State Government. The receipts of the appellant are credited to its own fund and do not go to the Consolidated Fund of the State. If that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of instrumentalities of State. He then submitted that in the present case, what is sought to be taxed are the services rendered to industrialists and persons intending to start industrial undertakings. He further submitted that service tax is not a direct tax on property as purported by the appellant rather on the services rendered in relation to the property and undoubtedly an indirect tax. Appellant being an instrumentality of the State is not entitled to claim immunity from payment of service tax.He further submitted that the judgment relied upon by the appellant to show that the appellant is instrumentality of the State and is immune from the payment of service tax is not applicable in the facts and circumstances of the case. Learned special counsel also justified the demand of service tax on individual services provided by the appellant. 5.3. He also filed additional submissions wherein the Revenue has denied that the appellants have the power of eminent domain. He further submitted that simply defined eminent domain is the power of the sovereign to take property for public use without the owner s consent, whereas in the present case, the appellant does not have the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the said judgment of the Allahabad High Court has been stayed by the Hon ble Apex Court as reported in 2015(40) STR J231 (SC) and cannot be relied upon by this Tribunal as binding precedent. 7.1. After considering the submissions of both the parties and perusal of the material on record and written submissions of both the parties and the various decisions relied upon by them, we find that the crucial question in the instant case is whether at all the appellant, which is a statutory authority (KIADB) constituted under the KIAD Act for carrying out the purposes, is providing any service as defined in the Service Tax legislation (Finance Act, 1994). If, after analyzing the various provisions of the KIAD Act and the submissions of the parties, we come to the conclusion that there is no service being rendered by the appellant as argued by the learned counsel for the appellant, then the question of levy of service tax would not arise. In order to examine the contentions advanced by learned counsel / learned special counsel for the parties, it is necessary to note the provisions of the KIAD Act, 1966 and the preamble of the said Act, which are reproduced below: - Preamble: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed, for the purpose of meeting the personal expenditure incurred in attending the meetings of the Board or any Committee thereof or when appointed in connection with the work undertaken by or for the Board. 13. Functions. - The functions of the Board shall be,- (i) generally, to promote and assist in the rapid and orderly establishment, growth and development of industries and to provide industrial infrastructural facilities and amenity in industrial areas, and (ii) in particular, and without prejudice to the generality of clause (i), to, - (a) develop industrial areas declared by the State Government and make them available for undertakings to establish themselves; (b) establish, maintain, develop, and manage industrial estates within industrial areas; (c) undertake such schemes or programmes of works, either jointly with other corporate bodies or institutions, or with the Government or local or statutory authorities, or on an agency basis, as it considers necessary or desirable, for the furtherance of the purposes for which the Board is established and for all purposes connected therewith. 14. General powers of the Board. - Subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of this Act. 19. Board s fund. - The Board shall have and maintain its own fund, to which shall be credited, - (a) all moneys received by the Board from the State Government by way of grants, loans, advances or otherwise; (b) all fees, costs, deposits and charges received by the Board under this Act; (c) all moneys received by the Board from the disposal of lands, buildings and other properties movable and immovable, and from other transactions; (d) all moneys received by the Board by way of rents or in any other manner or from any other source. 24. Accounts and Audit.- (1) The Board shall maintain books of account and other books in relation to its business and transactions in such form, and in such manner, as may be prescribed. (2) The accounts of the Board shall be audited by an Auditor appointed by the State Government. (3) As soon as the accounts of the Board are audited, the Board shall send to the State Government, - (a) a copy of the audited accounts, and (b) an annual report of the working of the Board for the financial year concerned giving an account of the activities of the Board and such other particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7: - 5.We have given careful consideration to the submissions. Firstly, it will be necessary to note what is set out in the circular dated 18th December, 2006 bearing No. 89/7/2006. Clauses 2 and 3 of the said circular read thus : 2. The issue has been examined. The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government Treasury. Such activity is purely in public interest and it is undertaken as mandatory and statutory function. These are not in the nature of service to any particular individual for any consideration. Therefore, such an activity performed by a sovereign/public authority under the provisions of law does not constitute provision of Taxable Service to a person and, therefore, no Service Tax is leviable on such activities. 3. However, if such authority performs a service, which is not in the nature of statutory activity and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose for which the Corporation is established, the Corporation will be dissolved because the raison d etre is gone. We, therefore, hold that the Act is a valid piece of legislation. 16. The petitioners contended that the Corporation was a trading one. The reasons given were that the Corporation could sell property, namely, transfer land; that the Corporation had borrowing powers; and that the Corporation was entitled to moneys by way of rents and profits. Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits. These features of transfer of land or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation. Ordinarily, a Corporation is established by shareholders with their capital. The shareholders have their Directors for the regulation and management of the Corporation. Such a Corporation set up by the shareholders carries on business and is intended for making profits. When profits are earned by such a Corporation they are distributed to shareholders by way of dividends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial area and allotment of such land on lease-cum-sale basis by the appellant would certainly be a statutory function and does not attract levy of service tax. On the same analogy, we hold that other functions being incidental cannot be brought into tax net. 7.5. Further we find that in order to counter the decision of the Bombay High Court, the learned special counsel for the Revenue relied upon the decision of the Allahabad High Court in the case of Greater Noida Industrial Development Authority wherein the Allahabad High Court held that if the sovereign / public authority provides a service, which is not in the nature of statutory activity and the same is undertaken for a consideration (not statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined in Finance Act, 1994. This decision of the Allahabad High Court, on which the Revenue has heavily relied upon, has been stayed by the Hon ble Supreme Court as reported in 2015(40) STR J231 (SC). A copy of the Stay order has been produced by the counsel for the appellant. while issuing notice in the petition, the Supreme Court passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state cannot take the defence of carrying out sovereign functions to claim immunity from an action in tort. These cases do not speak of the power of eminent domain being a sovereign power. The submissions of the learned counsel for the appellant that KIADB is a creature of the statute to exercise the power of eminent domain and the eminent domain is a sovereign function has been contested by the learned special counsel for the Revenue. As per the learned special counsel, the eminent domain so far as the land to be acquired for KIADB purposes remains only with the State Government. We do not agree with the submission of the learned special counsel. It is not correct to say that only State Government has the power of acquisition under KIAD Act. In the case of Peerappa Hanmantha Harijanand others Vs. State of Karnataka and anr. [(2015) 10 SCC 469], it was categorically observed that state government acquires land only at the instance of KIADB for the purpose of formation of industrial estate in industrial area. Moreover, Section 28(8) of the KIAD Act, in express terms, states that where the land has been acquired by the Statement Government for KIADB, the State Government aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined provisions of EPM MP Act, 1952 and role of the appellant and observed as below : 22. From the aforesaid discussion it is clear that this case calls for interpretation of certain statutory provisions. It is not disputed, and possibly cannot be disputed, that the Act is a social welfare legislation. The Act is one of the earliest Acts after the Constitution came into existence. Prior to its enactment, the requirement of having a suitable legislation for compulsory institutional and contributory provident fund in industrial undertakings was discussed several times at various tripartite meetings in which representatives of the Central and State Governments and employees and workers took part. Initially a non-official Bill on the subject was introduced in the Central Legislature in 1948 and was withdrawn with the assurance that the Government would consider the introduction of a comprehensive Bill. Finally, the proposed legislation was endorsed by the conference of Provincial Labour Ministers in January, 1952 and later on the same was introduced in 1952. This Court had occasion to expressly hold that the said Act is a beneficial social welfare legislation to ensure ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant Section it will be easier for this court to appreciate the statutory intent. The opening words of Section 14B are, where an employer makes a default in the payment of contribution to the fund . This was incorporated by way of an amendment, vide Amending Act 37 of 1953. In this connection, the excerpts from the Statement of Objects and Reasons of Act 37 of 1953 are very pertinent. Relevant excerpts are :- There are also certain administrative difficulties to be set right. There is no provision for inspection of exempted factories; nor is there any provision for the recovery of dues from such factories. An employer can delay payment of provident fund dues without any additional financial liability. No punishment has been laid down for contravention of some of the provisions of the Act. This Bill seeks primarily to remedy these defects . - S.O.R., Gazette of India, 1953, Extra, Pt.II, Sec.2, p.910. 28. Similarly, in respect of Section 17(1A), clause (a) which makes Section 14B applicable to an exempted establishment also came by way of an amendment, namely, by Act 33 of 1988. Here also if we look at the relevant portion of the Statement of Objects a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequences, (g) the legislature specifically intended by an Act to cover its functions and responsibilities. In general, without any possible dispute, it can be stated that a public authority is one which has a legal mandate to govern, or administer a part some aspect of public life. 12. The Hon ble Supreme Court in Balmer Lawrie Co. Ltd. v. ParthaSarathi Sen Roy reported in (2013) 8 SCC 345 examined the scope of terms State / other authorities under Article 12 of the Constitution. The observations of the Apex Court are : 21.A public authority is a body which has public or statutory duties to perform, and which performs such duties and carries out its transactions for the benefit of the public, and not for private profit. Article 298 of the Constitution provides that the executive power of the Union and the State extends to the carrying on of any business or trade. A public authority is not restricted to the Government and the Legislature alone, and it includes within its ambit, various other instrumentalities of State action. The law may bestow upon such organisation the power of eminent domain. The State in this context, may be granted tax exemption, or given mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinue to subscribe till he ceases to be in Government service. The period of one year has now been reduced to one month by G.O(P). 229/12/Fin, dated 19-4-2012. Rule 22B also provides that such employee shall enroll as a member of General Insurance Scheme. Though, at the relevant point of time, taxable service included insurance service as well, the Central Board of Customs and Excise issued Circular No. 89/7/2006-Service Tax, dated 18-12-2006 and the relevant part of this circular reads thus : A number of sovereign/public authorities (i.e., an agency constituted/set up by government) Perform certain functions/duties, which are statutory in nature. These functions are performed in terms of specific responsibility assigned to them under the law in force. For examples, the Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments; the Regional Transport Officer (RTO) issues fitness certificate to the vehicles; the Directorate of Boilers inspects and issues certificate for boilers; or Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Department. Such an activity is not a taxable service for the purpose of Service Tax in the light of the Circular issued by the Central Board of Customs and Excise referred to above. This, therefore, means that the view taken by the learned single judge does not merit interference . 16.The Hon ble Supreme Court in Calcutta Municipal Corporation v. Shrey Mercantile (P) Ltd. reported in (2005) 4 SCC 245 examined the meaning and scope of terms Fee and tax . It was held that :- 14. According to Words and Phrases, Permanent Edn., Vol. 41, p. 230, a charge or fee, if levied for the purpose of raising revenue under the taxing power is a tax . Similarly, imposition of fees for the primary purpose of regulation and control may be classified as fees as it is in the exercise of police power , but if revenue is the primary purpose and regulation is merely incidental, then the imposition is a tax . A tax is an enforced contribution expected pursuant to a legislative authority for the purpose of raising revenue to be used for public or governmental purposes and not as payment for a special privilege or service rendered by a public officer, in which case it is a fee . Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and service recipient relation between the appellant and the employers, no service tax liability can arise in the transaction. 20.Having examined the impugned orders, the submissions made by both the parties before us, closely, we find that the appellants are not liable to pay service tax on their statutory activities performed in terms of EPMF MP Act, 1952. The appellants are not providing any taxable service to the employers covered by the said Act. The relationship and transaction between the employers and the appellant is in discharge of statutory and compulsory obligations, coercively enforceable by the law. The considerations sought to be taxed are statutorily fixed, mandated fees and charges. No option exists with the appellant or contributor to vary such Fees or charges . As such, we find no taxable element in such transaction. This conclusion is supported by Board s clarification dated 18-12-2006 (supra). The impugned orders are without merits and are not legally sustainable. Accordingly, we set aside the same and allow the appeals filed by the appellant. Further it is seen that the above said case has been upheld by the Apex Court as reported in 2018(18) G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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