The Supreme Court of India dismissed the appeal of revenue and held that the Court have the power to interpret the law on the mega exemption under service tax on the scope of “Governmental Authority “.
M/s Shapoorji Pallonji and Company Pvt. Ltd, the question before the court is whether the educational institutions in question, viz. (i) the Indian Institute of Technology, Patna (“IIT Patna”) and (ii) the National Institute of Technology, Rourkela (“NIT Rourkela”), are covered by the definition of “governmental authority” in Mega Service Tax Exemption Notification (“Exemption Notification”) inter alia exempting various services from the tax network rendered to government, governmental, or local authorities.
If “governmental authority” as defined in the Exemption Notification takes within its embrace IIT Patna and NIT Rourkela, they would be eligible for an exemption from the service tax that otherwise applies to construction services provided by service providers or subcontractors within their premises.
The appellant challenged the judgment and order of the High Court of Judicature at Patna (“Patna High Court”) whereby a writ petition preferred by the first respondent, i.e., M/s Shapoorji Pallonji & Company Pvt Ltd (“SPCL”) was allowed and the service tax collected by the appellant was directed to be refunded.
The Exemption Notification, under consideration, was issued by the Department of Revenue under section 93 of the Finance Act, 1994 (“the 1994 Act”, ) inter alia exempting various taxable services from the levy of whole of the service tax under section 66B thereof.
It may also be noticed that section 66D of the 1994 Act, inserted by the Finance Act, 2012 with effect from 1st July 2012, specifies the negative list of services, i.e., the services on which service tax is not leviable.
Clause 2(s) of the Exemption Notification underwent an amendment vide a Notification dated 30th January 2014 (“Clarification Notification”). This amendment, re-defining “governmental authority”, sought to broaden the scope of the exemption.
IIT Patna, the fourth respondent, appointed NBCC India Limited (“NBCC”), the third respondent, as a Project Management Consultant to oversee the construction of buildings/facilities/services for its academic complex. The NBCC awarded the contract for construction works to SPCL at a total contract price of Rs.167,70,09,043.00 (Rupees One hundred Sixty-Seven Crore Seventy Lakh Nine Thousand Forty-Three only).
SPCL, by the Letter of Award, duly registered itself with the Central Excise and Service Tax (“CEST”) and discharged its service tax obligations amounting to Rs.9,73,25,398.23 (Rupees Nine Crore Seventy-Three Lakh Twenty-Five Thousand Three Hundred Ninety-Eight and Twenty-Three paisa) for the period spanning from March 2013 to April 2015.
The Indian Audit and Account Department raised an audit objection on 30th June 2015 to the effect that service providers engaged in construction activities for educational institutions meeting the criteria of a “government, local authority, or governmental authority” according to clause 12(c) of the Exemption Notification were not obligated to remit service tax.
Consequently, because IIT Patna was classified as a governmental authority, the payment of service tax by them was objected to as such payment contravened the exemption provision specified in the Exemption Notification. Additionally, IIT Patna was directed to immediately undertake actions for the recovery or adjustment of the service tax previously paid to SPCL.
Ms. Bagchi, counsel representing the appellants in both the appeals, contended that IIT Patna and NIT Rourkela were not eligible for the benefits outlined in the Exemption Notification due to its exclusion from the definition of “governmental authority”.
A two-judge bench observed that Justice S Ravindra Bhat and Justice Dipankar Datta observed that “To make a statute workable by employing interpretative tools and to venture into a kind of judicial legislation are two different things. Merely because the statute does not yield intended or desired results, that cannot be reason for us to overstep and cross the Lakshman Rekha by employing tools of interpretation to interpret a provision keeping in mind its outcome. Interpretative tools should be employed to make a statute workable and not to reach a particular outcome. The impugned judgments and orders are upheld and the appeals are dismissed, without any order for costs.”
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