Urban News

Indian Express 05.05.2010

Civic body cannot levy Service Tax for giving permission: High Court

Express News Service Tags : corporation, levy service tax Posted: Monday , Apr 05, 2010 at 0307 hrs

Ahmedabad: AMC had collected Rs 6.17 lakh from an ad company for putting up hoardings

The Gujarat High Court has held that the Ahmedabad Municipal Corporation (AMC) cannot collect Service Tax from advertising companies for giving them written permission to put up hoardings at private places.

A Division Bench comprising Justices D A Mehta and H N Devani passed the judgement recently while acting on a petition by an Ahmedabad-based advertising agency.

According to the details of the case, the AMC had recovered Rs 6.17 lakh from the petitioner company as Service Tax for giving it written permission to erect advertising hoardings at various places in the city.

The civic body had demanded the amount through various communications in 2008 and 2009. The company — Selvel Media Services — later paid the amount ‘under protest’. Subsequently, it challenged the AMC move in the court and demanded refund of the amount with interest.

The petitioner contended that under the Finance Act, an individual is eligible for Service Tax if he is providing taxable service. However, he added, the AMC could not be termed to be a person who is providing service to any person so as to fall in the ambit of the said definition of ‘taxable service’.

Upholding the contention of the petitioner, the HC observed that the AMC’s act of granting written permission “cannot be treated to be a sale of space for advertisement, that is, providing space for display.” “Therefore, once it is found that the AMC is not rendering any taxable service to the petitioner, in the facts of the present case, it is not possible to uphold the action of the AMC in calling upon the petitioner to make payment of service tax,” the court observed.

The bench further said: “It may be that in a wider sense, the regulatory function of the AMC could be termed to be a public service for ensuring safety of public at large or providing a hazard-free environment within the local limits.”

But nowhere the Sales Tax Act entitles the AMC to collect tax on the fees collected for giving written permission, it said, adding, “AMC cannot act as an agent for the purpose of recovery of service tax.”