Service Tax - Exemption Notification Should Not Be Liberally Construed ; Assessee Has To Show That He Comes Within Its Purview: Supreme Court

The Supreme Court observed that exemption notification should not be liberally construed and it is for the assessee to show that he comes within the purview of the notification.

The bench comprising upheld the order passed by Customs, Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi which held that the Krishi Upaj Mandi Samiti (Agricultural Produce Market Committees) located in different parts of State of Rajasthan liable to pay service tax under the category of "renting of immovable property service" for the period upto 30.06.2012. 

The appellants- Market Committees contended that as the activity of allotment of shops/premises/spaces to traders and brokers by the respective Market Committees for the purpose of storage and/or marketing of agricultural produce is in the nature of a statutory activity as mandated under Section 9 of the Act, 1961 and, therefore, the Market Committees are exempted from payment of service tax on such services as per Circular No.89/7/2006 dated 18.12.2006. The authorities, on the other hand, contended that the activities of allotment/renting/leasing of the shop/shed/platform/land cannot be said to be a mandatory statutory activity and therefore, the Market Committees are not exempted from service tax as per 2006 circular as claimed by the respective Market Committees.

The court noted that, as per the exemption circular only such activities performed by the sovereign / public authorities under the provisions of law being mandatory and statutory functions and the fee collected for performing such activities is in the nature of a compulsory levy as per the provisions of the relevant statute and it is deposited into the Government Treasury, no service tax is leviable on such activities

On the issue of how the exemption notification has to be constructed, the bench made the following observations

1. The exemption notification should not be liberally construed and beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise at all by implication.
2. The notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. An exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the relevant policy and the exemption notifications issued in that regard. 8.2 The exemption notification should be strictly construed and given a meaning according to legislative intendment.
3. The Statutory provisions providing for exemption have to be interpreted in light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions.
4. In a taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining a defined meaning. Strict interpretation of the provision is to be accorded to each case on hand. Purposive interpretation can be given only when there is an ambiguity in the statutory provision or it results in absurdity, which is so not found in the present case

The court added that there is a vast difference and distinction between a charging provision in a fiscal statute and an exemption notification

Now, so far as the submission on behalf of the respondent that in the event of ambiguity in a provision in a fiscal statute, a construction favourable to the assessee should be adopted is concerned, the said principle shall not be applicable to construction of an exemption notification, when it is clear and not ambiguous. Thus, it will be for the assessee to show that he comes within the purview of the notification. Eligibility clause, it is well settled, in relation to exemption notification must be given effect to as per the language and not to expand its scope deviating from its language. Thus,

Referring to Section 9  of the Rajasthan Agricultural Produce Markets Act, 1961, the bench said that It cannot be said to be a mandatory statutory obligation of the Market Committees to provide shop/land/platform on rent/lease.

"If the statute mandates that the Market Committees have to provide the land/shop/platform/space on rent/lease then and then only it can be said to be a mandatory statutory obligation otherwise it is only a discretionary function under the statute. If it is discretionary function, then, it cannot be said to be a mandatory statutory obligation/statutory activity. Hence, no exemption to pay service tax can be claimed.", the court said.

Headnotes

Case: Krishi Upaj Mandi Samiti, New Mandi Yard, Alwar vs Commissioner of Central Excise and Service Tax, Alwar | CA 1482 of 2018 | 23 Feb

Citation: 2022 LiveLaw (SC) 203

Coram: Justices MR Shah and BV Nagarathna

Counsel: Adv Prakul Khurana and Adv Divyasha Mathur for appellants, Adv Nisha Bagchi for respondents

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