Services by HIMUDA as Governmental authority like Maintenance, Conversion, and Water Charges Not Taxable: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Chandigarh Bench has ruled in favour of the Himachal Pradesh Housing and Urban Development Authority (HIMUDA), holding that statutory services rendered by the authority such as maintenance, conversion, water charges, and similar receipts are not taxable under the Service Tax law, as these are in the nature of municipal functions performed by a Governmental Authority.

The Tribunal, comprising Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), was dealing with multiple appeals filed by HIMUDA against service tax demands raised under various categories including renting of immovable property, business auxiliary services, and consulting engineer services. The demands collectively covered the financial years 2007-08 to 2014-15, amounting to over ₹18 crore.

HIMUDA contended that it was established under the Himachal Pradesh Housing and Urban Development Authority Act, 2004, functioning under the direct control of the State Government and performing essential civic duties such as urban planning, sanitation, water supply, drainage, and land regulation, which are part of the 12th Schedule to the Constitution.

Therefore, its activities fell squarely within the scope of Entry No. 39 of Mega Exemption Notification No. 25/2012-ST, which exempts services provided by Governmental Authorities in relation to functions entrusted to municipalities under Article 243W.

The Tribunal accepted HIMUDA’s argument, observing that the charges for maintenance, conversion, compounding, water supply, transfer fees, and other statutory levies were either regulatory or administrative in nature, forming part of the authority’s statutory mandate rather than being considered for any commercial service. It held that these receipts could not be treated as taxable services and were thus exempt under the notification.

CESTAT also agreed that construction services provided by HIMUDA to various State Government departments such as Health, Education, and Transport were non-commercial in nature, and therefore not liable to service tax.

However, HIMUDA voluntarily agreed to discharge tax liability on limited commercial construction activities carried out for certain projects during FY 2013-14 and 2014-15, for which the Tribunal remanded the matter to the adjudicating authority for quantification of tax on commercial works only.

The bench, depending on earlier decisions such as Housing Board Haryana (2024) and Suresh Kumar Bansal v. UOI (Delhi High Court), ruled that statutory and municipal functions are outside the tax net, and that no service tax can be imposed on composite construction activities in the absence of a clear valuation mechanism.

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