CESTAT Chandigarh Holds Mohali Municipal Corporation Not 'Person' Under Finance Act, Quashes Tax Demand

On 1 July, the Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside service tax demands raised against the Mohali Municipal Corporation, on revenue earned from advertisements, holding that a Municipal Corporation was not covered within the term “person” under the Finance Act, 1994 during the relevant period.

A Bench comprising Judicial Member S. S. Garg and Technical Member P. Anjani Kumar held that the Municipal Corporation, being a sovereign local body, could not be brought within the ambit of taxable service under the category “Selling of Space for Advertisement Service” prior to 1 July 2012. It held:

“the period involved in the present appeal is from April 2005 to March 2010 and during that time, the activity of Selling of Space for Advertisement was taxable if a person provides service to another person”

The dispute arose after the Department alleged that the Municipal Corporation had earned revenue by providing space for advertisements and had failed to discharge service tax under the category of “Selling of Space for Advertisement Service” for the period between 2005 and 2012.

The Municipal Corporation contended that it had not acted as a commercial service provider but had merely collected advertisement tax under statutory powers conferred under the Punjab Municipal Corporation Act. It further submitted that properties such as parks, green belts and bus shelters were maintained for public purposes, and the amounts collected were statutory levies used for civic welfare.

The Tribunal accepted this stand and observed that, during the relevant period, service tax on advertisement space applied only where a “person” provided services to another “person”. It further held that the term “person” was not defined under the Finance Act, 1994 prior to 1 July 2012 in a manner that would include a Municipal Corporation, which functioned as a sovereign local body and could not be treated as a taxable service provider.

It also noted that the amounts collected were in the nature of advertisement tax rather than consideration for services rendered. It recorded that the properties in question were owned by GMADA and were handed over to the Municipal Corporation for maintenance, repair and management of parks, green belts and bus shelters. The Corporation, in turn, permitted display of advertisements and collected advertisement tax under Sections 90 and 122 of the Municipal Corporation Act, as authorised under Article 243X of the Constitution.

Further, the Bench relied on the decision in Commissioner of CGST, Jaipur vs. Rajasthan Tourism Development Corporation Ltd., observing that the extended period of limitation cannot be invoked in cases involving public undertakings of the State.

Accordingly, the CESTAT set aside the entire demand along with interest and penalties and allowed the appeals with consequential relief.

For Appellant: Mr. Sudeep Singh Bhangoo, Advocate

For Respondent: Mr. Yashpal Singh, Authorized Representative