The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has dismissed the Revenue’s appeal against an order granting partial relief to the Municipal Council holding that the department had failed to identify any error in the adjudicating authority’s calculations or findings concerning exempt services, negative-list activities and receipts relating to the post-GST period.

The bench of  Dr. Rachna Gupta (Officiating President) and P.V. Subba Rao (Technical Member) has observed that it had no reason to doubt either the records presented by the Council or the Commissioner’s examination of those records.

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The proceedings arose from receipts earned by the Municipal Council from several sources, including rental income from municipal properties, fees and user charges, charges for birth, death and marriage certificates, and the sale of scrap.

According to the order, the Council had not provided details of rental income from municipal properties. A show cause notice dated November 11, 2019, was subsequently issued proposing a service tax demand of ₹5,64,99,657, together with interest and penalties.

After considering the Council’s reply and the figures it furnished, the Commissioner, CGST and Central Excise, Jodhpur, passed an adjudication order on March 13, 2020, confirming part of the proposed demand and dropping the remaining portions.

The Commissioner confirmed ₹1,93,44,081 under Section 73(2) of the Finance Act, 1994, with interest under Section 75. The order also directed appropriation of ₹10,74,596 already deposited and imposed penalties.

However, the Commissioner dropped a demand of ₹1,43,70,997 relating to services covered under the negative list and another demand of ₹2,27,84,579 relating to July 2017 to March 2018, after the introduction of GST. The Tribunal also recorded that the adjudication had excluded services qualifying for exemption.

Following a review by the Committee of Chief Commissioners, the department challenged the relief granted by the Commissioner.

Its principal objection was that the nature and taxability of the Council’s activities could not be determined merely from the descriptions of income heads supplied by the Council.

The department argued that the adjudicating authority should have examined ledger accounts, bills, receipts and other documents evidencing individual transactions before concluding that particular receipts related to negative-list services, exempt activities or the post-GST period.

It also questioned whether exemption under Notification No. 25/2012-ST dated June 20, 2012, could be accepted without examining supporting transaction records.

On this basis, the Revenue sought remand for fresh adjudication to determine the precise nature of the services and the corresponding service tax liability.

The central issue was whether the partial dropping of a service tax demand could be disturbed on the Revenue’s general allegation of inadequate documentary verification when its appeal did not demonstrate an error in the Commissioner’s calculations or conclusions.

The dispute therefore concerned the grounds for reopening the adjudication, rather than a general determination that all activities undertaken by a municipal body are outside the service tax framework.

It accepted the Commissioner’s findings that certain services fell within the negative list, qualified for exemption or had been rendered after the introduction of GST.

The Bench further noted that the Commissioner had calculated the liability and that nothing in the appeal, including its grounds, established that those calculations were erroneous.

Consequently, the Tribunal declined to send the matter back for fresh adjudication. It dismissed the Revenue’s appeal and upheld the Commissioner’s order.

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