Calcutta High Court
Tenacity Security & Anr vs Kolkata Municipal Corporation & ... on 11 July, 2022
APOT/155/2017
APO/192/2019
APO/35/2020
OD-2, 3 & 4
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
CIVIL APPELLATE JURISDICTION
ORIGINAL SIDE
HEARD ON : 11.07.2022
DELIVERED ON: 11.07.2022
CORAM:
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE BIVAS PATTANAYAK
APOT/155/2017
IA NO:GA/1/2017 (OLD NO. GA/1908/2017)
GA/2/2017 (OLD NO. GA/2039/2017)
TENACITY SECURITY & ANR.
Vs.
KOLKATA MUNICIPAL CORPORATION & ORS.
APO/192/2019
WITH
WPO/92/2017
IA NO:GA/2/2017 (OLD NO.GA/2253/2017)
BENGAL PROTECTIVE GUARDS & ANR.
VS.
KOLKATA MUNICIPAL CORPORATION & ORS.
APO/35/2020
WITH
WPO/103/2017
IA NO: GA/1/2017 (OLD NO: GA/2254/2017)
GA/2/2017 (OLD NO.GA/2255/2017)
STAR SECURITY & DETECTIVE AGENCY & ANR.
VS.
KOLKATA MUNICIPAL CORPORATION & ORS.
Page 1 of 9
APOT/155/2017
APO/192/2019
APO/35/2020
Appearance:
Mr. Pranab Kumar Dutta, Sr. Adv.
Mr. Atish Dipankar Ghosh, Adv.
Mr. Saurabh Bagaria, Adv.
Mr. P. Sharma, Adv.
Mr. Indranil Banerjee, Adv.
Mr. Saumyajit Mishra, Adv.
...for the appellant (Item No.4)
Mr. Saurabh Bagaria, Adv.
Mr. Indranil Banerjee, Adv.
...for the appellant (Item No.3)
Mr. K.K. Maiti, Adv.
Mr. Tapan Bhanja, Adv.
...for respondent Nos. 5 & 6
Mr. Asoke Kumar Banerjee, Sr. Adv.
Mr. Biswajit Mukherjee, Adv.
Mr. Arijit Dey, Adv.
....for respondent.
Mr. S.K. Tiwari, Adv.
...for UOI.
(Judgment of the Court was delivered by T.S. Sivagnanam, J.)
GA/1908/2017
1. We have heard learned Counsel for the parties and we are satisfied
with the reasons given in the affidavit filed in support of the condone delay
application. Accordingly, the delay of 7 days in filing the appeal is condoned.
2. The application is allowed.
GA/2254/2017
APOT/155/2017
APO/192/2019
APO/35/2020
3. We have heard learned Counsel for the parties and we are satisfied
with the reasons given in the affidavit filed in support of the condone delay
application. Accordingly, the delay of 14 days in filing the appeal is
condoned.
4. The application is allowed.
APOT/155/2017, APO/192/2019 & APO/35/2020
5. Since the issue involved in these three appeals are identical, with the
consent of the learned Advocates appearing on either side, the appeals are
taken up for hearing together and are disposed of by this common judgment
and order. It would suffice to take note of the facts in APO/155/2017.
6. The appellant, Tenacity Security, is a service provider to the Kolkata
Municipal Corporation (KMC) pursuant to a contract entered by which they
are to supply security guards in the municipal corporation. For easy
reference, the appellant shall be known as 'service provider' and the KMC as
'service recipient'. All was well with the arrangement between the parties as
KMC was reimbursing the service tax remitted by the provider to the
department. However, on and after 4th January, 2014, KMC refused to
reimburse the service tax component as raised in the invoice of the provider
by placing reliance on the Municipal Commissioner's Circular No.83 of 2013-
14. For better appreciation, the Circular is quoted hereinbelow :
APOT/155/2017
APO/192/2019
APO/35/2020
" The Law Department of Kolkata Municipal Corporation opined
that the service rendered by the Kolkata Municipal Corporation and
service given to K.M.C in rendering Public Service are exempt from the
payment of Service Tax in view of the provision contained in the
notification bearing No. 25 of 2012 dated 20.06.2012 issued by the
Government of India, Ministry of Finance, Department of Revenue
published in the Gazette of India, extraordinary part-II section 3, sub-
section (i), since the function and duties of Kolkata Municipal
Corporation is concomitant to the public interest as per the enshrined
provision of the Constitution of India. The Kolkata Municipal
Corporation shall, therefore, not be liable to pay Service Tax in terms
of the provision of the said notification until further order in view of
the fact the K.M.C is discharging Constitutional obligation imposed
upon the K.M.C by the Constitution of India. All COs and HODs of all
Departments/Units/Cells are requested to take note of it and act
accordingly."
7. The appellant had filed the writ petition challenging the said Circular
stating that it is an incorrect interpretation of the Mega Exemption
Notification issued by the Central Government. In the meantime, since the
appellant did not remit the service tax component to the department, show
cause notices were issued to all the three appellants. The matter has
culminated in an order of adjudication which has been challenged by the said
service provider before the Customs, Excise and Service Tax Appellate
Tribunal, Kolkata Bench (CESTAT). The learned single Bench, by the
impugned order, though separate orders, they contain the same reasoning,
APOT/155/2017
APO/192/2019
APO/35/2020
taking note of the fact that the service tax authorities had issued summons
to the appellants and that the proceedings are yet to attain finality, opined
that it would be appropriate to permit the service tax authorities to conclude
the proceedings against the appellants in accordance with law. The learned
single Bench further pointed out that so far as the Circular issued by the
KMC dated 4th January, 2014 is concerned, the view of KMC that they need
not pay service tax may not be accepted by the service tax authorities.
Further, the authorities deciding the liability of the service tax under the
Finance Act, 1994 is the appropriate authority to adjudicate the liability of
the appellant to pay service tax in respect of the contract between it and the
KMC in accordance with law. Though such was the observation in the
penultimate paragraph of the order, the writ petition stood dismissed.
Aggrieved by such order, the appellants are before us by way of these
appeals.
8. The learned senior counsel appearing for the appellants referred to
Section 66F of the Finance Act, which deals with the principles of
interpretation of specified description of services or bundled services. It is
submitted that in terms of sub-Section 1 of Section 66F unless otherwise
specified, reference to a service (main service) shall not include reference to a
service which is used for providing main service. It is submitted that bearing
in mind the interpretative provision as contained in Section 66F of the Act, if
the Mega Exemption Notification No.25/2012-ST is examined, the exemption
APOT/155/2017
APO/192/2019
APO/35/2020
will apply only in cases where service is provided to a local authority by way
of construction, erection, commissioning, installation, completion, fitting out,
repair, maintenance, renovation or alteration of clause (e) pipe line, conduit
or plant for water supply, water treatment or sewerage treatment or disposal.
Further, it is submitted that clause 25 of the notification has to be read
which deals with services provided to local authorities by way of water
supply, public health etc. Further, it is submitted that KMC seeks to place
reliance on clause 39 of the Mega Exemption Notification which in the
opinion of the appellants would be inapplicable because it deals with services
by a local authority and not services provided to a local authority.
9. The KMC has taken a stand as is evident from the Circular No.83 of
2013-14 dated 4th January, 2014 that the services rendered by them and
services given to them in rendering public services is exempted from payment
of service tax in view of Mega Exemption Notification No.25/2012-ST dated
20th June, 2012 issued by the Government of India since the functioning and
duties of the KMC is concomitant to the public interest as enshrined in the
Constitution of India. Therefore, the KMC opined that they are not liable to
pay service tax in terms of the provisions of the said notification until further
orders in view of the fact that the KMC is discharging constitutional
obligation imposed upon them by the Constitution of India. The correctness
of the interpretation made by KMC in their Circular dated 4th January, 2014
has to be decided. In our considered view, the writ court is not an
APOT/155/2017
APO/192/2019
APO/35/2020
appropriate forum to decide the issue at the first instance since the
adjudicating authority is yet to decide upon the same. The Service Tax
Department has not put KMC on notice in any of the three proceedings
initiated against the appellants. The appellants' stand apart from other
things is that the service tax component which is remitted by them as a
service provider has to be reimbursed by the recipient, KMC. Thus, unless
and until the adjudication is done in the presence of the KMC, it will not be a
binding adjudication. The appeal which is now pending before the learned
CESTAT assuming is allowed in favour of the appellants therein, yet the order
will continue to remain a paper order because KMC may take a stand that
such order of the learned CESTAT would not bind them. Therefore, to give a
final solution to the matter, the KMC has to be made a party to the
proceedings and is made as a co-noticee along with the appellants and,
thereafter, an adjudication has to be commenced and after hearing the
parties, a speaking order is required to be passed. We are conscious of the
fact that in one of the cases adjudication has been completed and the
appeals are pending before the learned CESTAT (Kol) in Appeal No.
ST/75994/2018 and ST/76382/2018. However, those appeals may not be
proceeded since we are inclined to issue a comprehensive direction in these
appeals to the Service Tax Commissionerate to commence and complete a
fresh adjudication after issuing notice not only to the appellant but to the
KMC as well.
APOT/155/2017
APO/192/2019
APO/35/2020
10. In the result, the three appeals are disposed of by this common
judgement and order by directing the concerned Service Tax
Commissionerate to issue fresh notices to the appellants as well as KMC
which shall be treated as continuation of the earlier show cause notices. After
hearing the parties, the concerned authority shall adjudicate the issue and
pass a reasoned order on merits in accordance with law. In the meantime, we
request the learned CESTAT to defer the hearing of the proceedings which are
pending before it in Appeal No. ST/75994/2018 and ST/76382/2018 until
the adjudication is completed in terms of the above direction. As soon as the
adjudication is completed, the appellants as well as the department shall
intimate the tribunal and the tribunal shall also consider impleading the
KMC as a party to the proceedings in the said case so as to avoid multiplicity
of proceedings. Considering the peculiar facts and circumstances of the case,
we are of the view that no coercive action shall be initiated against the
appellants till the adjudication is complete.
11. We make it clear that we have noted the submissions of the appellant
as well as the stand taken by the KMC in this judgment and order for the
purpose of moulding relief to be granted herein and we have not decided the
legal issue which is left open to be decided by the concerned adjudicating
authority. The concerned adjudicating authority shall issue show cause
notices to the appellants as well as the KMC within a period of four weeks
from the date of receipt of a server copy of this judgment and order. The
APOT/155/2017
APO/192/2019
APO/35/2020
appellants and the KMC are granted four weeks' time from the date of receipt
of the show cause notices to submit their replies. Thereafter, the adjudication
proceedings shall be commenced and completed within a period of three
months therefrom. The authorised representatives of the appellants and the
KMC shall be afforded an opportunity of personal hearing. The parties are
directed to co-operate with the concerned officer for the early conclusion of
the adjudication proceedings.
12. Consequently, the connected applications for stay are also disposed of.
(T.S. SIVAGNANAM, J.)
I agree.
(BIVAS PATTANAYAK, J.)
SN/GH/S.Das/As.
