Supreme Court: In the instant appeals, the Market Committees located in Rajasthan raised their grievance over the decision of CESTAT that respective Market Committees are liable to pay service tax under the category of ‘renting of immovable property service’ for the period upto 30.06.2012. The Division Bench of M.R. Shah* and B.V. Nagarathna, JJ., while observing 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 defined meaning; dismissed the appeals and held 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 was to exempt such activities of the Market Committees from levy of service tax, then there was no necessity to place such activity of the Market Committees in the Negative List. Therefore, it can be safely said that that, the Market Committees were not exempted from payment of service tax on such activities.
Facts: Krishi Upaj Mandi Samitis (Agricultural Produce Market Committees) were established in Rajasthan under the provisions of Rajasthan Agricultural Produce Markets Act, 1961. The committees regulate sale of agricultural produce in the notified markets. They charged “market fee” for issuing license to traders, agents, factory/storage, company or other buyers of other agricultural produce. They also rented out the land and shops to traders and collect allotment fee/lease amount for such land/shop.
The Revenue 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. The same was challenged by the appellants. However CESTAT noted that with the introduction of Negative List Regime of taxation w.e.f. 01.07.2012, the services in question were excluded from the tax liability and therefore the appellant(s) being an Agricultural Produce Market Committee was/were excluded from tax liability on and after 01.07.2012; i.e. Market Committees are not liable to service tax for the period after 01.07.2012, however CESTAT held that Market Committees are liable to pay service tax under the category of “renting of immovable property service” for the period upto 30.06.2012.
The grievance of the appellants was centered around Circular No.89/7/2006 dated 18.12.2006. As per the Circular, 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. Paragraph 3 of the Circular, specifically clarifies 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.
Contentions: The counsels for the appellants Prakul Khurana and Ms. Divyasha Mathur, submitted before the Court that the activity of allotting shops/premises/spaces to traders and brokers by the respective Market Committees for the purpose of storage and/or marketing of agricultural produce is in the nature of a statutory activity as mandated under S. 9 of Rajasthan Agricultural Produce Markets Act, 1961 and, therefore, the Market Committees are exempted from payment of service tax on such services as per Circular. They further contended that the fees collected by the respective Market Committees on renting/leasing the land/shop will be deposited in the Market Committee Fund and the same shall be ultimately used for the betterment of the market area, thus when the Market Committees are the public authorities under the 1961 Act and when they perform the statutory duty / function of allotment/renting/leasing of land/shop, then such Market Committees are entitled to the exemption provided under the 2006 Circular.
The counsel for the respondent, Nisha Bagchi submitted before the Court that the activities of allotment/renting/leasing of the shop/shed/platform/land cannot be said to be a mandatory statutory activity and therefore, the Market Committees are not exempted from service tax as per 2006 Circular. She further argued that as per the language used in the legislation, S. 9 of the 1961 Act, is an enabling provision and does not cast a mandatory duty over the Market committees to allot/rent/lease the shop/land/platform. Therefore the activities of renting/leasing by the Market Committees to the traders cannot be said to be a statutory activity, hence the market committees are not entitled to claim any exemption under the 2006 circular. The respondents further contended that exemption notification should be strictly construed and given meaning according to legislative intent and that 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.
Observation: Perusing the 2006 Circular, the Court noted that language used is clear and unambiguous. Applying the principles of interpretation of statutes, the Court observed that, “It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. 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”.
The Court observed that the contention of the appellants stating 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 under S. 9 hence the entitlement to exemption, holds no substance.
After carefully perusing the words used in S. 9, the Court stated that the activity cannot be said to be a mandatory statutory activity as contended by appellants since the fee collected is not deposited into the Government Treasury; it will go to the Market Committee Fund and will be used by the market committees. Thus such a fee collected cannot have the characteristics of the statutory levy/statutory fee. Thus, under the1961 Act, it cannot be said to be a mandatory statutory obligation of the Market Committees to provide shop/land/platform on rent/lease. “If the statute mandates that the Market Committees have to provide the land/shop/platform/space on rent/lease then and then only it can be said to be a mandatory statutory obligation otherwise it is only a discretionary function. If it is discretionary function, then, it cannot be said to be a mandatory statutory obligation/statutory activity. Hence, no exemption to pay service tax can be claimed”.
[Krishi Upaj Mandi Samiti v. Commissioner of Central Excise and Service Tax, 2022 SCC OnLine SC 224, decided on 23-02-2022]
*Judgment by: Justice MR Shah
Sucheta Sarkar, Editorial Assistant has put this report together