The Supreme Court ruled that Service Tax to be payable on activities of allotment/disposal of land or any movable or immovable property by Market Community.
The respective appellants are the Krishi Upaj Mandi Samiti located in different parts of State of Rajasthan. The respective appellants are established under the provisions of the Rajasthan Agricultural Produce Markets Act, 1961. The respective appellants regulate sale of agricultural produce in the notified markets. They charge “market fee” for issuing licenses to traders, agents, factory /storage, company or other buyers of other agricultural produce. The appellants also rent 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.
Show cause notice was issued by the concerned jurisdictional authorities. 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. Accordingly, the Service Tax demands were confirmed.
Advocate Prakul Khurana and Advocate Divyasha Mathur, appearing on behalf of the appellants respective Market Committees contended that as the activity of allotment of 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 Section 9 of the Act, 1961 and, therefore, the Market Committees are exempted from payment of service tax on such services as per Circular No.89/7/2006 dated 18.12.2006.
They argued that under Section 9(2) (xvii) of the Act, 1961, it is the duty cast upon the respective Market Committees for allotment/disposal of land or any movable or immovable property for the purpose of effectively carrying out its duties.
Counsel appearing on behalf of the Revenue, contended that Section 9 of the Act, 1961 is an enabling provision and there is no mandatory duty cast upon the Market Committees for allotment/renting/leasing of the shop/land/platform.
The counsel argued that even under Section 9(2), the words used are “market committee may”. Therefore it cannot be said that it is a mandatory statutory duty cast upon the Market Committee to allot/lease/rent the shop/land.
The counsel urged that the activities of renting/leasing by the Market Committees to the traders cannot be said to be a statutory activity and therefore the market committee is/are not entitled to claim any exemption under the 2006 circular.
The division bench of Justice M.R. Shah and Justice B.V. Nagarathna noted that in so far as sub-section (1) of Section 9 is concerned, the word used is “shall”. Therefore, wherever the legislature intended that the particular activity is a mandatory statutory, the legislature has used the word “shall”. Therefore, when under sub-section (2) of Section 9, the word used is “may”, the activities mentioned in Section 9(2)(xvii) cannot be said to be mandatory statutory duty and/or activity. Under Section 9(2), it is not a mandatory statutory duty cast upon the Market Committees to allot/lease/rent the shop/platform/land/space to the traders.
The court further noted that it is not the case on behalf of the Market Committees that the activity of rent/lease on shop/land/platform as such cannot be said to be service.
The court dismissed the appeals and held that the submission that the Market Committees are exempted from levy of service tax on such service/activity as provided under the 2006 circular, has no substance.
Case title: Krishi Upaj Mandi Samiti, New Mandi Yard, Alwar v/s Commissioner of Central Excise and Service Tax, Alwar
Citation: CIVIL APPEAL NO. 1482 OF 2018