Service Tax: Exemption Notification Should Not Be Liberally Construed; Assessee Has To Show That He Comes Within Its Purview: SC: Krishi Upaj Mandi Samiti New Mandi Vs Commissioner Of Central Excise

JUDGEMENT SUMMARY:
Krishi Upaj Mandi Samiti, New Mandi Yard vs Commissioner of Central Excise and Service Tax

DATE OF JUDGEMENT:
23rd February 2022

JUDGES:
M.R. Shah, J.
B.V. Nagarathna, J

PARTIES:
Krishi Upaj Mandi Samiti, New Mandi Yard, Alwar (Appellant)
Commissioner of Central Excise and Service Tax, Alwar (Respondent)

SUBJECT

The Supreme Court examined the liability of the Appellant to pay service tax for the services rendered by them. The two-judge bench held that the exemption notification relating to the exception/exemption in a statute should not be liberally construed and the assessee has to show that he comes within its purview. If the conditions laid down in the notification is not fulfilled wholly, the party will not be entitled to the benefit of the notification.

AN OVERVIEW

1. The Appellant-Krishi Upaj Mandi Samiti was established under the provisions of the Rajasthan Agricultural Produce Markets Act (RAPM Act) and was situated at different parts of Rajasthan.

2. The following were the duties of the Appellant:

a. To regulate the sale of agricultural produce in the notified markets.

b. To charge market fee for issuing license to traders, agents, factory /storage, company or other buyers of other agricultural produce.

c. To rent out the land and shops to traders and collect allotment lease amount from them.

3. The Appellants had relied on two grounds to support its exemption from paying service tax:

a. Its activities were statutory in nature as they were mandated by Section 9 of the RAPM Act.

b. Circular that was dated December of 2006 had exempted Market Committees from paying service tax.

4. The concerned jurisdictional authorities had held that the Appellant was liable to pay service tax for the immovable property that were rented and not for market fee or mandi shulk collected by them. Penalties were also imposed on the Samiti.

5. The Appellant had appeal to Customs, Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi (CESTAT) who passed the following orders:

a. For a period up to June of 2012, the Appellant was liable to pay service tax for the renting.

b. For a period up to July 2012, the Appellant was not liable to pay service tax for properties that were used forstoring agricultural produce in the marketing area.

c. The invoked demand was restricted to the normal period and penalties imposed to extended period were set aside.

d. The threshold of exemption was available to the small-scale service provider in terms of the applicable notifications during the relevant years. It was extended to the appellant for the verification of the turnover.

IMPORTANT PROVISIONS

Rajasthan Agricultural Produce Markets Act 1961:

Section 9- Outlines powers and duties of the market committee

Finance Act 1994:

Section 76- Outlines penalty for the failure to collect or pay service tax

Section 77-Outlines penalty for failure to furnish prescribed return

Section 78-Outlines the penalty for suppressing values of taxable services

ISSUES

1. Whether the activities provided by a sovereign/public authority required to be provided under a statute could be considered as 'provision of service' for the purpose of levy of service tax?
2. Whether a construction favourable to the assessee could be adopted?

ANALYSIS OF THE JUDGMENT

1. It was settled law that the exemption notification was not to be liberally construed and the beneficiary had to fall within the ambit of the exemption and fulfil the conditions thereof. If any one of the conditions were not met, the issue of application of the notification would not arise at all by implication.
2. The Supreme Court had held that the notification of exemption was to be read in entirety. The provision relating to the exception/exemption in a statute should be construed strictly and the Court should not ignore the conditions prescribed in an exemption notification. The Statutory provisions providing for exemption were to be interpreted in light of the words employed in them without any addition or subtraction. It was laid that the plain language of the provision was supposed to be preferred- where a defined meaning could be determined.
3. The activities which were performed by the sovereign/public authorities under the provision of law were statutory obligations by nature and were required to be fulfilled in accordance with law. These activities were purely in public interest and were undertaken as mandatory and statutory function. The fees collected during the performance of the activities were compulsory levy by nature as provided by the provision of the relevant statute and were to be deposited into the Government treasury. Therefore, tax was not levied on these activities.
4. The distinction between a charging provision in a taxing statute and an exemption notification was pointed out by the Court. The Circular that was relied upon by the Appellant had clear and unambiguous language used in it and defined meaning was determined from it. It had provided that the fees collected from the activities of the public authorities which were performed as statutory obligations were to be deposited into the Government Treasury and would not be subjected to tax. So, the activities of the Public authorities which were not statutory activity and fell within the ambit of taxable service would be liable for the payment of service tax.
5. The principle of adoption of construction favourable to the assessee in the event of ambiguity in a provision in a fiscal statute was not applicable to construction of an exemption notification when the notification was clear and unambiguous. The assessee had to show that he came within the purview of the notification. The eligibility clause of exemption notification was given effect according to its plain language without any deviation, its scope was not expanded.
6. Section 9 of the RAPM Act was an enabling provision and it had not casted mandatory duty upon the Appellant to allot/rent/lease the shop/land/platform. The word ‘may’ was used in the subsection 2 of the said section. The collected fees were used by the market committee rather than being deposited in the Government Treasury. Therefore, it could not be inferred that the activities of renting/leasing by the Market Committees to the traders were statutory activities.
7. Rule 45 of Rajasthan Agricultural Produce Markets Rules had provided that the fee collected by the Appellant would be deposited with the Government Treasury and the same would not go the Government. The Rule had provided that the fee was credited to the fund called the Market Committee Fund. This money was to be credited once a week in full into Government Treasury or sub-treasury, or a bank duly approved by the Director and would not be withdrawn except in accordance with the Rules.
8. The activities of Agricultural Produce Market Committees were placed in the Negative List. It indicated that the Revenue did not have intention to exempt the activities of the Appellant from levy of service tax.

CONCLUSION

The findings of the Apex Court were that neither the activity of the Appellant was mandatory statutory activity nor was the fee collected had the characteristics of the statutory levy. The appeals were dismissed and no costs for the order were incurred. The Court had held that duty was vested in the assessee to prove that they came within the purview of the exemption notification.

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