Krishi Upaj Mandi Samiti, New Mandi Yard, Alwar vs. Commissioner of Central Excise and Service Tax, Alwar
Background
Various Krishi Upaj Mandi Samitis (Agricultural Produce Market Committees) in Rajasthan, set up under state law to regulate agricultural markets, used to rent out land and shops to traders and collect allotment fees. The tax authorities demanded service tax on this renting activity for the period before July 2012 (after which such renting activity was placed in a tax-exempt "Negative List"). The Market Committees argued that renting out land/shops was itself a mandatory statutory duty under Section 9 of the Rajasthan Agricultural Produce Markets Act, 1961, and that a 2006 government circular exempted such statutory activities from service tax altogether.
Decision Breakdown
The Supreme Court dismissed the Market Committees' appeals. It held that Section 9(2) of the 1961 Act used the word "may," not "shall," making the renting/leasing activity discretionary rather than a mandatory statutory duty, and only a genuinely mandatory statutory function could qualify for the 2006 circular's exemption. The Court also rejected the argument that fees going into the "Market Committee Fund" (which is periodically deposited in a government treasury) made this a form of statutory levy, since the money remained the Committee's own fund throughout. The Court further reasoned that the government's later decision to place this same activity in the post-2012 tax-exempt "Negative List" itself showed that it had not been exempt before that date. Exemption notifications, the Court reiterated, must be construed strictly against the party claiming the exemption.
Lesson Learnt
A statutory body's commercial-style activities (like renting out property) are not automatically exempt from tax just because the body is a creature of statute: exemption depends on whether the specific activity is a genuinely mandatory legal duty, and tax exemption clauses are read narrowly, not expansively, in the taxpayer's favour.