Page 107 - GSTL_3rd September 2020_Vol 40_Part 1

2020 ] KARNATAKA INDUSTRIAL AREAS DEV. BOARD v. COMMR. OF CENTRAL TAX 41
mitted that a conjoint reading of the provisions of Sections 5, 13, 14, 18 and 19 of
the KIAD Act clearly indicates that appellant has its own identity as distinct from
the State Government. The receipts of the appellant are credited to its own fund
and do not go to the Consolidated Fund of the State. If that be so, the activities
undertaken by it cannot be construed as functions of the State. He also submitted
that leasing of land by the appellant on its own account to private individuals on
commercial consideration cannot be said to be a sovereign function at all as nor-
mally understood. He then referred to the judgment of Apex Court in the case of
Chief Conservator of Forests v. J.M. Khondare [1996 2 SCC 293] wherein the Su-
preme Court has observed “one of the tests to determine whether the executive
function is sovereign in nature is to find out whether the State is answerable for
such action in Courts of law”. He then submitted that as per Section 5(2) of KIAD
Act, the appellant is a body corporate with perpetual succession and a common
seal, and may sue and be sued in its corporate name. He then also referred to
Apex Court’s decision in the case of APMC, Karnataka v. Ashok Harikuni [2000 8
SCC 61 75-76 para 21) wherein the Apex Court has observed : “what is approved
to be ‘sovereign is defence of the country, raising armed forces, making peace or
war, foreign affairs, power to acquire and retain territory. Other functions of the
State including welfare activity cannot be construed as ‘sovereign exercise of
power. Hence, every governmental function of State need not be sovereign.” He
further submitted that in the present case, none of these conditions get satisfied
and therefore, the functions undertaken by the appellant are not sovereign func-
tions. In this aspect, he reiterated the findings of the Commissioner in para 88 to
116 of the Order-in-Original.
5.2 Learned Special Counsel also contested the submission of the appel-
lant that they fall in the definition of ‘State’ as provided in Article 12 of the Con-
stitution of India and enjoys immunity from taxation of its activity under Article
289(2). He submitted that in the scheme of Constitution and of Article 289 and
Article 285 as well as the provisions of 12th Schedule of the Constitution, proper-
ties and incomes of instrumentalities of State are not covered within the expres-
sion “State” in Article 289 of the Constitution. In the absence of provisions of the
Act excluding the income or property of an instrumentality of the State from the
liability to service tax, for providing a taxable service, there is no justification for
reading down the provisions of the Act to exclude taxability of activities of in-
strumentalities of State. He then submitted that in the present case, what is
sought to be taxed are the services rendered to industrialists and persons intend-
ing to start industrial undertakings. He further submitted that service tax is not a
direct tax on property as purported by the appellant rather on the services ren-
dered in relation to the property and undoubtedly an indirect tax. Appellant be-
ing an instrumentality of the State is not entitled to claim immunity from pay-
ment of service tax. He further submitted that the judgment relied upon by the
appellant to show that the appellant is instrumentality of the State and is im-
mune from the payment of service tax is not applicable in the facts and circum-
stances of the case. Learned Special Counsel also justified the demand of service
tax on individual services provided by the appellant.
5.3 He also filed additional submissions wherein the Revenue has de-
nied that the appellants have the power of eminent domain. He further submit-
ted that simply defined ‘eminent domain’ is the power of the sovereign to take
property for public use without the owner’s consent, whereas in the present case,
the appellant does not have the power to acquire the land by itself and hence the

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