[Service Tax case] Exemption provisions in tax statutes should be interpreted strictly: Supreme Court

The Supreme Court on Wednesday reiterated that in a tax-related statute, statutory provisions providing for exemption have to be interpreted strictly and in light of words employed in them and there cannot be any addition or subtraction from such provisions [Krishi Upaj Mandi Samiti, New Mandi Yard, Alwar v. Commissioner of Central Excise and Service Tax, Alwar]..A Division Bench of Justices MR Shah and BV Nagarathna was of the view that for the appellants in the case to take benefit of exemptions, they ought to fulfill all the relevant conditions laid down in the statute provided."The exemption notification should be strictly construed and given a meaning according to legislative intendment. 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," the Court held.The Court was hearing a bunch of appeals assailing the order of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, which had held that the Market Committees (appellants) would be liable to pay service tax in respect of shops, premises, buildings, etc., rented/ leased out for any other commercial purpose other than with respect to the agricultural produce..ArgumentsIt was the case of the appellants that under Section 9 of the Rajasthan Agricultural Produce Markets Act 1961, the activity of allotment of shops/ premises/ spaces to traders and brokers by the appellants for the purpose of storage or marketing of agricultural produce is in the nature of a statutory activity, and therefore, the appellants are to be exempted from payment of service tax on such services.The appellants further relied on a 2006 circular to seek exemption from service tax. It was argued that since the appellants are the public authorities constituted under the Rajasthan Agricultural Produce Markets Act, and since they perform the statutory duty of allotment/ renting/ leasing of land/shop, they as Market Committees are entitled to exemption from service tax.On the other side, the respondent argued that under the Rajasthan Agricultural Produce Markets Act, activities of allotment/ renting/ leasing of the shop/ shed/ platform/ land cannot be said to be a statutory activity since under Section 9, no mandatory duty is cast upon the appellants for the performance of above activities.They argued that under the relevant provision of Section 9, the words used are “market committee may”, which in itself makes it clear that it is not a mandatory statutory duty..JudgmentAt the outset, the Court noted that the 2006 circular clearly provides that if an authority like the Market Committees performs a service, which is not in the nature of a statutory activity and the same is undertaken for consideration, then in such cases, service tax would be leviable.The Court was of the view that for the appellants to take benefit of the exemption, they should fulfill all the relevant conditions laid down in the statute and the exemptions provided."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," the Court observed.Rejecting the submissions of the appellants, the top court observed that the provision of Section 9 (which the appellants relied upon) is an enabling provision and the words used is “market committee may”, which clearly depicts the intent of the legislature that the particular activity is not a mandatory statutory activity."Under Section 9(2), it is not a mandatory statutory duty cast upon the Market Committees to allot/lease/rent the shop/platform/land/space to the traders. Hence, such an activity cannot be said to be a mandatory statutory activity as contended on behalf of the appellants. ...Thus, under the Act, 1961, it cannot be said to be a mandatory statutory obligation of the Market Committees to provide shop/land/platform on rent/lease," the Court observed.The Court, therefore, rejected the appeal on the ground that no exemption from paying service tax can be claimed by the appellants since the activity of the appellants is a discretionary function rather than a mandatory function or activity under the Rajasthan Agricultural Produce Markets Act 1961..Advocates Prakul Khurana and Divyasha Mathur argued on behalf of appellants.Advocate Nisha Bagchi argued on behalf of respondents..[Read Judgment]