IMPORTANT POINT
Municipal services are exempt from service tax under the Finance Act, 1994, as per the negative list of services.

ORDER :

1. The present writ petitions under Article 226 & 227 of the Constitution of India have been preferred, in sum and substance, claiming the following reliefs:-

“It is, therefore, most respectfully prayed that the present petitioner for writ may kindly be allowed: and

i. By way of an appropriate writ, order or direction, the order dt. 30.12.2022 (Annexure-2) may kindly be declared illegal and be quashed and set aside and it may be upheld that the petitioner is exempted from the tax liability, penalty and interest.

ii. That further it may be declared that the petitioner is not covered under the provisions of Service Tax under Section 65B (41), Section 66E(a), Section 65B(44), Section 66B, Section 66B(44), Section 66(D), sub clauses (a) to (q), section 68, 69 and section 70 under the act read with rule 4, 6 and 7 of service tax rules 1994.

iii. That in alternate penalty imposed by the respondent by virtue of order dt. 30.12.2022 (Annexure-2) may be ordered to be waived off in the Amnesty Scheme of the Government.

iv. That the letter dt. 20.02.2024 (Annexure-3) may kindly be declared illegal and be quashed and set aside. The amount recovered from the account of the petitioner may be refunded back with interest.

v. That the letter dt. 27.02.2024 (Annexure-4) may kindly be declared illegal and be quashed and set aside. The amount recovered from the account of the petitioner may be refunded back with interest.

vi. That in case, the respondents are to pass any adverse order against the petitioner relating to the cause of the writ petition, then the same be also be quashed and set aside.

vii. Any other appropriate order or direction which may be deemed fit in the fact and circumstances of the case may kindly be passed in favor of the petitioners.”

2. The bone of contention revolves around the Municipality, a constitutional entity established under Part 9A of the Constitution of India. Specifically, it is an institution of self-government constituted under Article 243Q for the purpose of governing urban areas. The core question is whether services of such municipal unit fall within the purview of ‘service to be taxed’ under the Finance Act, 1994 (hereinafter referred to as ‘the Act of 1994’).

3. Mr. Sandeep Shah, learned Senior Counsel assisted by Mr. Abhimanyu Singh Rathore, Ms. Akshiti Singhvi, Mr. Nishant Bapna & Mr. Piyush Sharma and learned counsel Mr. Rajesh Parihar & Mr. Zubin Mehta, appearing on behalf of the petitioners, submit that the constitutional objective of creating a municipal unit was to have a democratic unit for governing the urban areas with the theme of local self governance and providing services to the citizens of the urban area.

3.1 Learned counsel further submit that the taxation scheme applicable to the petitioners originates from the Act of 1994, and particularly, Section 66D which delineates a negative list of services for taxation purposes.

3.2 Learned counsel also submit that the Municipalities in Rajasthan, which are here in core consideration, are governed by Rajasthan Municipalities Act, 2009 (hereinafter referred to as ‘the Act of 2009’). They drew the Court’s attention to Sections 45 & 46 of the Act of 2009, which prescribe the core municipal functions and other municipal functions.

3.3 Learned counsel further submit that the municipal functions do not fall within the ambit of taxation in accordance with the statute of the Act of 1994. They further drew the Court’s attention to the notification No.25/2012 (Annexure-5) dated 20.06.2012 whereby certain services were exempted from whole of services on which tax is leviable under Section 66B.

3.4 Learned counsel also submit that as per such notification, particularly, referring to entry 39, the Services by Government and Local Authority are included in the notification by the Central Government on being satisfied that it was necessary in the public interest to do so and were exempted of the service tax liable.

3.4 Learned counsel also submit that the aforesaid no