By TIOL News Service

MUMBAI, AUG 04, 2017: NAGPUR Municipal Corporation is before the CESTAT in appeal against confirmation of demand of service tax and imposition of penalties.

The demand of service tax has been made in respect of various heads of income under the category of 'Sale of space or time for advertisement service'.

+ Grant of right for display advertisement on Bus Shelter to M/s. Green Thumb Innovators Private Limited .

+ Agreement made with M/s. Lokmat Newspapers Pvt. Ltd. whereby the Star Buses of Nagpur Municipal Corporation would be used for display of advertisement by M/s. Lokmat Newspapers Pvt. Ltd.

The appellant submitted that -

+ In respect of advertisement on street light electric poles and hoarding, vehicle, bus stand, banner stand etc., they are collecting taxes and license fee in respect of permission granted for putting up advertisement boards on the private properties and not providing such properties for advertisement.

+ The owner of such properties may be involved in providing such services of sale of space for advertisement or display.

+ The appellant permits the use of its land or other immovable property for fixing poles/structures for putting up bill boards for advertisement or fixation of kiosks for advertisement on street light poles and are neither selling any space for advertisement nor are providing any service in relation to sale of space for advertisement.

+ They are only permitting the use of their own property and such transactions do not amount to sale of time or space for advertisement. [Pimpri Chinchwad Municipal Corporation - 2012-TIOL-1461-CESTAT-MUM relied upon.]

+ Nagpur Municipal Corporation is a statutory body and there cannot be any intention to evade payment of taxes; that they were of the bonafide opinion that no service taxis applicable on the taxes and royalty collected by them against the grant of rights. [Surat Municipal Corporation - 2006-TIOL-533-CESTAT-DELrelied upon.]

The AR relied on the Kerala High Court decision in Kothamangalam Municipality - 2014-TIOL-838-HC-KERALA-ST to assert that the amounts collected are not in the nature of tax but charges for permitting advertisement.

The Bench observed -

"4. …We find that for the purpose of permitting M/s. Green Thumb Innovators Private Limited to use this space on the bus stand for advertisement an agreement has been entered into between Nagpur Municipal Corporation and M/s. Green Thumb Innovators Private Limited. The very fact that the amounts is collected by virtue of an agreement between the two parties shows that they are not in the nature of tax, but are for the nature of income other than tax. If the amount collected for the activities undertaken in these agreements were tax then no such agreement would have been needed. The Nagpur Municipal Corporation holds the right to advertise and M/s. Green Thumb Innovators Private Limited have bought the right to advertise on the bus stand for a specified period. In the above circumstances, it is apparent that the appellant are involved in sale of space for advertisement and are liable to tax in respect of the bus stand."

As regards the other instances wherein service tax demands have been raised, the CESTAT held as under -

++ Income arising on account of advertisement on street light and the properties owned by the appellant - in all these cases, there would be liability arising on account of sale of space for advertisement just as in the case of bus stand, as the same are granted by way of agreements and are not in the nature of tax of any kind.

++ In case of Revenue generated out of license fee of private property for permitting advertisement on the private properties, demand of service tax is not sustainable. [Selvel Media Services Private Limited v. Municipal Corporation of City of Ahmedabad - 2010-TIOL-978-HC-AHM-ST .

Conclusion: Demand of Service Tax is sustained except for portion, which relates to the Revenue generated on the alleged sale of space from private properties not owned by the appellant.

Penalty: Penalties under Sections 76, 77 and 78 are set aside invoking Section 80 of the Finance Act, 1994.

The Appeal was partly allowed.

(See 2017-TIOL-2769-CESTAT-MUM)