A.Jabbar Ali vs. Palakkad Municipality - Kerala High Court, 15 January 2024

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE GOPINATH P. MONDAY, THE 15TH DAY OF JANUARY 2024 / 25TH POUSHA, 1945 WP(C) NO. 25987 OF 2014 PETITIONER: P.M ABDUL RAHMAN 3/551, KURICHAMKULAM, KALLEKKAD P.O., PALAKKAD DISTRICT. BY ADVS. HARISANKAR V. MENON MEERA V.MENON RESPONDENTS: 1 PALAKKAD MUNICIPALITY REPRESENTED BY ITS SECRETARY, PALAKKAD - 678 001. 2 SECRETARY PALAKKAD MUNICIPALITY, PALAKKAD - 678 001. 3 DEPUTY COMMISSIONER OF CENTRAL EXCISE SERVICE TAX PALAKKAD DIVISION II, METTUPPALAYAM STREET, PALAKKAD - 678 001. BY ADVS. SRI.P.S.APPU SHRI.BINOY VASUDEVAN, SC, PALAKKAD MUNICIPALITY SRI.TOJAN J.VATHIKULAM,SC,C.B. EXCISE SRI.T.C.SURESH MENON SMT. SHEELADEVI I (SC, CB OF EXCISE AND CUSTOMS) THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 15.01.2024, ALONG WITH WP(C).15/2015, 35571/2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

W.P.(C) No.25987/2014 and conn.cases -:2:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE GOPINATH P. MONDAY, THE 15TH DAY OF JANUARY 2024 / 25TH POUSHA, 1945 WP(C) NO. 35571 OF 2014 PETITIONER: V.PONNU 33/29, DEVI NAGAR, VADAKKETHARA, PALAKKAD DISTRICT. BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON RESPONDENTS: 1 PALAKKAD MUNICIPALITY PALAKKAD, PIN- 678 001, REPRESENTED BY ITS SECRETARY . 2 SECRETARYPALAKKAD MUNICIPALITY PALAKKAD, PIN- 678 001. 3 DEPUTY COMMISSIONER OF CENTRAL EXCISE SERVICE TAX PALAKKAD DIVISION II, METTUPPALAYAM STREET, PALAKKAD, PIN- 678 001. BY ADVS. SRI.P.S.APPU SRI.BINOY VASUDEVAN SRI.THOMAS MATHEW NELLIMOOTTIL,SC,CB EX SRI.T.C.SURESH MENON SMT.SHEELA DEVI.I., SC, CENTRAL BOARD OF EXCISE amp CUSTOM THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 15.01.2024, ALONG WITH WP(C).25987/2014 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

W.P.(C) No.25987/2014 and conn.cases -:3:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE GOPINATH P. MONDAY, THE 15TH DAY OF JANUARY 2024 / 25TH POUSHA, 1945 WP(C) NO. 15 OF 2015 PETITIONER: A.JABBAR ALI JEEVAS MANZIL, MARUTHA ROAD, PALAKKAD DISTRICT. BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON RESPONDENTS: 1 PALAKKAD MUNICIPALITY PALAKKAD,PIN-678001, REPRESENTED BY ITS SECRETARY. 2 SECRETARY PALAKKAD MUNICIPALITY, PALAKKAD-678 001. 3 DEPUTY COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, PALAKKAD DIVISION II, METTUPPALAYAM STREET, PALAKKAD – 678 001. BY ADVS. SRI.P.S.APPU SHRI.BINOY VASUDEVAN, SC, PALAKKAD MUNICIPALITY SRI.THOMAS MATHEW NELLIMOOTTIL,SC,CB EX SRI.T.C.SURESH MENON SMT.SHEELA DEVI.I., SC, CENTRAL BOARD OF EXCISE amp CUSTOM THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 15.01.2024, ALONG WITH WP(C).25987/2014 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

W.P.(C) No.25987/2014 and conn.cases -:4:- J U D G M E N T [WP(C) Nos.25987/2014, 35571/2014 and 15/2015] Petitioners in these cases are persons, who were successful bidders for collection of entry fees to the bus stand from buses and autorikshaws entering the stand owned and operated by the Palakkad Municipality. They were also given the right to collect charges from the cloakroom facility and the comfort station which also formed part of the bus stand.

The challenge in these writ petitions is to the demand for service tax under the provisions of the Finance Act, 1994, (hereinafter referred to as ‘the Act’) over and above the amounts payable by the petitioners in these cases to the Municipality in terms of the agreements executed by them with the Municipality. The Palakkad Municipality had raised demands for payment of service tax on account of the fact that the service tax department had raised those demands on the Palakkad Municipality and also on account of an audit objection in respect of Palakkad Municipality by the Accountant General.

W.P.(C) No.25987/2014 and conn.cases -:5:- 3. Sri. Harisankar V. Menon, the learned counsel appearing for the petitioners in these cases would submit that the periods in question relate to the period prior to 01-07-2012 (on which date there was a substantial amendment to the provisions of the Act introducing the concept of negative list) as well as to periods after 01-07-2012. It is submitted that insofar as the period prior to 01-07-2012 is concerned, the charge of service tax was in terms of the provisions contained in Section 66 of the Act, on services specified in that provision. He refers to the provisions of Section 65 (105)(zzzz) and clause (c) of Explanation 1 to Section 65(105)(zzzz) of the Act, which specifically excludes land used for educational, sports, circus, entertainment and parking purposes from the definition of immovable

property

under Explanation

of Section 65(105)(zzzz) of the Act. It is submitted that after the amendment of the Finance Act, 1994, w.e.f. 01-07-2012, all services other than services included in the negative list came within the purview of service tax, by virtue of the provisions contained in Section 66 B of the Act (as amended w.e.f. 01-07-2012). He submits that the negative list of services is

W.P.(C) No.25987/2014 and conn.cases -:6:- contained in Section 66 D of the Act and by virtue of Section 66 D of the Act, all services by Government or a local authority except the services mentioned under 66D(a) (i) to (iv) of the Act were excluded from the charge of service tax under Section 66 D of the Act. It is submitted that the mega exemption notification namely notification No.25/2012-ST, dated 20-06-2012, as amended from time, specifically excluded services by Government or a local authority by way of any activity in relation to any function entrusted to a Municipality under Article 243 W of the Constitution of India. It is submitted that the provisions of the mega exemption notification in fact clarify the statutory position after amendment from 01-07-2012. He has also referred to the provisions of Article 243 W and the XIIth Schedule of the Constitution of India to contend that item No.(17) in the XIIth Schedule indicates that the activity engaged in by the petitioners in these cases pursuant to the award of tender by the Palakkad Municipality is specifically excluded from levy of service tax even under the provisions of the mega exemption notification.

W.P.(C) No.25987/2014 and conn.cases -:7:-

Learned Standing Counsel appearing for the 3rd respondent would submit that even if the contention of the learned counsel for the petitioners were to be accepted, the exemption would apply only to activities directly carried by the Municipality. It is submitted that the question as to whether the petitioners in these cases are liable to pay service tax to the Municipality is a matter to be adjudicated in accordance with the provisions contained in the Act and the petitioners in these cases cannot approach this Court directly under Article 226 of the Constitution of India seeking an adjudication of that issue at the hands of this Court. It is submitted that the Accountant General has rightly pointed out that the amounts received by the Palakkad Municipality from the petitioners would be liable to a levy of service tax. It is submitted that if and when the liability is adjudicated in terms of the provisions contained in the Act, the petitioners may have to avail statutory remedies and since the issue involves disputed questions of fact, it may not be proper for this Court to adjudicate the issue under Article 226 of the Constitution of India. The learned Standing Counsel appearing for the 3rd respondent would also submit with

W.P.(C) No.25987/2014 and conn.cases -:8:- reference to the agreement executed in the year 2015 that the petitioners in these cases had undertaken to clear the liability for service tax. It is submitted that in such circumstances, it is not open to the petitioners to now contend that they are not liable to pay service tax.

The learned counsel for the petitioners, in reply, would submit that the clause in the agreement regarding the payment of service tax would be applicable only if service tax was actually payable on the transaction. It is submitted that the agreement cannot be construed against the terms of the statute and the mega exemption notification, which would clearly indicate that the services in question were exempt from the levy of service tax.

Learned counsel appearing for the Palakkad Municipality (respondents 1 and 2) would substantially support the contentions taken by the learned counsel for the petitioners in these cases and would submit that the Municipality had issued demands against the petitioners only on account of the fact that there was an audit objection by the Accountant General and also on account of the fact that certain communications had

W.P.(C) No.25987/2014 and conn.cases -:9:- been issued by the department regarding payment of service tax on the amounts collected by the Municipality from the petitioners.

Having heard the learned counsel for the petitioners in these cases, learned counsel for the Palakkad Municipality and the learned Standing Counsel for the 3rd respondent, I am of the view that the petitioners are entitled to succeed. For the period prior to 01-07-2012, the charge of service tax is under Section 66 of the Act, on the services specified in that provision. The demand for service tax insofar as the petitioners are concerned, is relatable to Section 65(105)(zzzz) of the Act. A reading of Explanation 1 to Section 65(105)(zzzz) of the Act will indicate that amounts collected out of lease of land used for parking purposes is specifically excluded from the definition of immovable property. From 01-07-2012 there has been a substantial amendment to the provisions of the Finance Act, 1994, and by virtue of the provisions of Section 66 B of the Act, there was a levy on all services other than those included in the negative list of services. The negative list of services was enumerated in Section 66D of the Act (after amendment w.e.f

W.P.(C) No.25987/2014 and conn.cases -:10:- 01-07-2012). By virtue of the provisions contained in Section 66 D (a) of the Act, services by Government or a local authority were completely exempted from service tax except to the extent of services specified in clauses (i) to (iv) of Section 66 D (a) of the Act. A reading of sub-clauses (i) to (iv) of Section 66 D(a) of the Act would indicate that the services in question in these cases are not enumerated in sub-clauses (i) to (iv) of Section 66D(a) of the Act. The provisions of the mega exemption notification namely notification No.25/2012-ST, dated 20-06-2012 also indicate that any service rendered by a local authority in relation to any function entrusted to a Municipality under Article 243 W r/w XIIth schedule to the Constitution of India would be exempted from the levy of service tax. Entry 17 of the XIIth schedule to the Constitution of India specifically deals with public amenities including street lighting, parking lots, bus stops and public conveniences. The provisions of Section 30 of the Act r/w the provisions of the first schedule to that Act indicate that the substantial part the activities which were subject matter of the agreement entered into between the Municipality and the petitioners in these cases relate to

W.P.(C) No.25987/2014 and conn.cases -:11:- activities contemplated by the provisions of Article 243 W r/w the provisions of the XIIth schedule to the Constitution of India.

Therefore

these

writ

petitions

are allowed. W.P.(C)No.25987 of 2014 will stand allowed by quashing Exts.P1, P1(a), P2 and P2(a) notices issued to the petitioner in that writ petition. W.P.(C)No.35571 of 2014 will stand allowed by quashing Exts.P1, P1(a), P2 and P2(a) notices issued to the petitioner in that writ petition. W.P.(C)No.15 of 2015 will stand allowed by quashing Exts.P1, P2 and P2(a) notices issued to the petitioner in that writ petition. It is declared that the activities in respect of which the petitioners had entered into agreement with the Municipality will not be subjected to levy of service tax under the provisions of the Act before or after amendment of 01-07-2012. It is made clear that this judgment will not be treated as a finding by this Court in respect of taxability of any activity after the 101st amendment to the Constitution of India and the introduction of Goods and Services Tax. GOPINATH P. ats

JUDGE

W.P.(C) No.25987/2014 and conn.cases -:12:- APPENDIX OF WP(C) 25987/2014 PETITIONER’S EXHIBITS EXHIBIT P1 COPY OF THE NOTICE ISSUED BY THE 1ST RESPONDENT DATED 21.02.2014. EXHIBIT P1(A) COPY OF THE NOTICE ISSUED BY THE 1ST RESPONDENT DATED 21.02.2014. EXHIBIT P2 COPY OF THE NOTICE ISSUED BY THE 1ST RESPONDENT DATED 30.07.2014. EXHIBIT P2(A) COPY OF THE NOTICE ISSUED BY THE 1ST RESPONDENT DATED 30.07.2014. EXHIBIT P3 COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT DATED 23.08.2014. EXHIBIT P3(A) COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT DATED 23.08.2014. EXHIBIT P4 COPY OF LETTER FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT DATED 26.08.2014. EXHIBIT P4(A) COPY OF LETTER FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT DATED 26.08.2014. EXHIBIT P5 COPY OF LETTER ISSUED BY THE 3RD RESPONDENT DATED 26.08.2014. EXHIBIT P6 COPY OF NOTIFICATION NO.25/2012 ISSUED BY MINISTRY OF FINANCE, GOVT. OF INDIA, NEW DELHI DATED 20.06.2012. W.P.(C) No.25987/2014 and conn.cases -:13:- APPENDIX OF WP(C) 35571/2014 PETITIONER’S EXHIBITS EXHIBIT P1 COPY OF THE NOTICE ISSUED BY THE IST RESPONDENT EXHIBIT P1(A) COPY OF THE NOTICE ISSUED BY THE IST RESPONDENT EXHIBIT P2 COPY OF THE NOTICE ISSUED BY THE IST RESPONDENT EXHIBIT P2(A) COPY OF THE NOTICE ISSUED BY THE IST RESPONDENT EXHIBIT P3 COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT EXHIBIT P3(A) COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT

W.P.(C) No.25987/2014 and conn.cases -:14:- APPENDIX OF WP(C) 15/2015 PETITIONER’S EXHIBITS EXT.P-1: COPY OF THE NOTICE ISSUED BY THE IST RESPONDENT EXT.P-2: COPY OF THE NOTICE ISSUED BY THE IST RESPONDENT EXT.P-2(A): COPY OF THE NOTICE ISSUED BY THE IST RESPONDENT EXT.P-3: COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT EXT.P-3(A): COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT