New Delhi, February 24, 2022: While finding that the fees which is collected by Krishi Upaj Mandi Samiti (Appellant) is not deposited into the Government Treasury, and rather goes to the Market Committee Fund which is be used by them, the Supreme Court has ruled that such fee cannot have the characteristics of statutory levy and hence, no exemption to pay service tax can be claimed on it.
A Division Bench of Justice M.R. Shah and Justice B.V. Nagarathna observed that the party is not entitled to the benefit of notification, as an exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the relevant policy and the exemption notifications issued in that regard.
Going by the background of the case, the Krishi Upaj Mandi Samiti (Appellants – Agricultural Produce Market Committees) located in different parts of State of Rajasthan, are established under the provisions of the Rajasthan Agricultural Produce Markets Act, 1961. Accordingly, the Appellants 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. In addition, they also rent out the land and shops to traders and collect allotment fee/lease amount for such land/shop.
The Revenue Department was of the view that the appellants are liable to pay the service tax on the services rendered by them by renting/leasing the lands/shops, and hence, issued show cause notice. After adjudication, it was held that the appellants were not liable to pay the service tax on “market fee” or “mandi shulk” collected by them. However, the appellants were held liable for service tax under the category of “renting of immovable property” in respect of renting of land(s)/shop(s) for a consideration. Resultantly, penalties u/s 76, 77 and 78 of the Finance Act, 1994 were also imposed on them.
On appeal, the CESTAT noted that with the introduction of Negative List Regime of taxation w.e.f July 01, 2012, the services in question were excluded from the tax liability and therefore the appellants being an Agricultural Produce Market Committee was/were excluded from tax liability on and after July 01, 2012. Accordingly, the CESTAT held that the appellants are not liable to service tax on renting of immovable property used for storage of agricultural produce in the market area. At the same time, the CESTAT clarified that in respect of shops, premises, buildings, etc. rented/leased out for any other commercial purpose other than with respect to the agricultural produce, the same shall not be covered by the Negative List and the market committee(s) shall be liable to service tax. The CESTAT also set aside the penalties imposed on the appellants.
Not satisfied with the holding of CESTAT that Market Committees are liable to pay service tax under the category of “renting of immovable property service” for the period upto June 30, 2012, present appeals have been filed.
After considering the submissions, the Top Court found that as per CBIC Exemption Circular No.89/7/2006 dated Dec 18, 2006, 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.
The exemption notification should not be liberally construed and beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof, and in case conditions are not fulfilled, the issue of application of the notification does not arise at all by implication, added the Court.
Speaking for the Bench, Justice Shah found that in a taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining a defined meaning, and eligibility clause, it is well settled, in relation to exemption notification must be given effect to as per the language and not to expand its scope deviating from its language.
“It is to be noted that on and after 01.07.2012, such activities carried out by the Agricultural Produce Market Committees is placed in the Negative List. 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. The fact that, on and after 01.07.2012, such activity by the Market Committees is put in the Negative List, it can safely be said that under the 2006 circular, the Market Committees were not exempted from payment of service tax on such activities”, added the Bench.
Accordingly, the Apex Court dismissed the appeal.