CHENNAI: Services provided by sovereign bodies like municipalities are not taxable, the Madras High Court has ordered, and quashed notices issued by the GST and Central Excise department against two such civic bodies. The issue pertains to Virudhachalam and Cuddalore municipalities moving pleas seeking to quash the demand notices of the GST and Central Excise department over levying service tax on the services provided by the civic bodies in public spaces.
The State government challenged the notices on the grounds that municipalities are not a ‘person’ within the definition of the Finance Act, 1994 as it stood before 2012 for which the service tax was levied. It, therefore, submitted that the question of levying tax on services provided by the respective municipalities cannot be taxed under the provisions of the Act.
The Goods & Services Tax and Central Excise department contended that for the period before 2012, even if there was no definition for the word ‘person’, its definition in the General Clauses Act would apply and therefore, the petitioners are liable to pay tax.
Justice C Saravanan, allowing the plea moved by the Virudhachalam and Cuddalore municipalities, in his order observed, “ ... that the petitioner (municipalities) was renting out stops in the bus stand and other areas where it was having immovable properties, explains that the expression ‘any other person’ can only mean any other person other than the owner of the property.
Therefore, owner of the immovable property is not liable to pay tax under Section 66 of the Finance Act, 1994 for the period up to June 30, 2012.” Emphasising that the interpretation given to ‘any other person’ in the present case has large scale ramifications, the court clarified that the expression ‘any other person’ qua Section 65 (105) cannot be uniformly applied to other provisions of the Finance Act,1994 unless they are examined separately and individually on a case-by-case basis.
Further, the High Court judge held that such services mentioned are provided by a government or local authority and they are exempted under Section 65D (1)(a) of the Finance Act,1994 as amended and as in force from July 2012.