MIDC asked to pay tax for leasing land

MUMBAI: Leasing of land by the Maharashtra Industrial Development Corporation (MIDC) to private parties for commercial consideration is not a sovereign activity and liable for service tax, a tribunal has said.
The Customs Excise and Service Tax Appellate Tribunal has asked MIDC to deposit Rs 185 crore before deciding on its appeal against a service tax department order. The department had asked MIDC to pay Rs 536 crore as service tax from June 1, 2007, for its commercial transactions—renting out immovable properties.
The tribunal said, “Sovereign functions are those of the nature of external affairs, defence, maintenance of law and justice, currency, coinage and taxation, undertaken for the benefit of public at large and both the income and expenditure in respect of these activities get credited to or expended from the consolidated fund of the state.” In MIDC’s case, none of the above conditions are satisfied, said the tribunal.
MIDC was formed to make a special provision for securing the orderly establishment of industrial areas. MIDC leases the land for construction of buildings on payment of premium. Once the construction is over, MIDC executes a lease agreement for 95 years for a rent of Re 1 per annum. The tribunal said that from the MIDC Act, it was clear that the corporation operates independently. The receipts of the corporation are credited to its own fund and do not go to the consolidated fund of the state. So, the activities undertaken by it cannot be construed as functions of the state.
The tribunal said MIDC has huge assets and no hardship would be caused if it had to make a pre-deposit.