Madurai Corporation vs. The Commissioner Of Central

Held

The Court held that the demands for service tax raised by the respondents are within the limitation period. Adopting the reasoning from the Chhattisgarh High Court decision in Pawan Engineering Works vs. Commissioner of Customs, Central Excise & S.T, Raipur (2019 (31) GSTL 10), the Court found that the non-registration of the local bodies amounted to suppression of facts, justifying the invocation of the extended period of five years under the proviso to Section 73(1) of the Finance Act, 1994. Regarding the imposition of penalty, the Court agreed with the petitioners' contention that penalty ought not to be levied on local bodies. Citing the consistent view of various CESTAT benches, the Court reasoned that government bodies cannot be imputed with the intent to commit fraud or collusion, as they provide public services without profit motive and the collected amounts are spent for public welfare. Therefore, levying penalty on local bodies was not warranted and the same was set aside. The Court directed that the petitioners are liable to pay service tax as demanded along with interest, and the demands are within time, but the imposition of penalty is set aside.

Facts

Several writ petitions were filed by various local bodies (Corporations/Municipalities) challenging adjudication orders levying service tax, interest, and penalty, or recovery measures. The local bodies had provided services such as "renting of immovable property service" and "mandap keeper service" but failed to register and pay service tax initially. This led to the initiation of proceedings and the passing of the impugned orders. The petitioners questioned these orders, arguing that the demands were time-barred and that penalties should not be levied on them. The tax period in dispute is not explicitly stated for all cases but implied to be from 01.07.2007 onwards in some instances.

Key Issues

1. Whether the demands for service tax raised by the revenue are within the prescribed limitation period, particularly concerning the extended period of five years under Section 73(1) of the Finance Act, 1994? (Question of law) 2. Whether penalty can be imposed on local bodies for non-payment of service tax? (Question of law) Petitioner's arguments: The petitioners contended that the extended period of five years for demand under Section 73(1) of the Finance Act, 1994, cannot be invoked against them as they do not fall under the specific clauses (a) to (e) of the proviso. They argued that as local bodies discharging statutory obligations for public service without profit motive, they cannot be imputed with intent to commit fraud or collusion, and therefore, penalty should not be levied. Revenue's arguments: The revenue argued that the non-registration of the local bodies amounts to suppression of facts, which squarely brings the case within the purview of sub-Clause (d) of the proviso to Section 73(1) of the Finance Act, 1994, thus justifying the invocation of the extended period of five years. They also contended that the petitioners are liable to pay service tax with effect from 01.07.2007 onwards.