Construction Services provided to IIT exempt even though Government does not hold 90% or more equity/control in it We are sharing with...
Construction
Services provided to IIT exempt even though Government does not hold 90% or
more equity/control in it
We are sharing with you an important
judgement of the Hon’ble High Court of Patna in the case of Shapoorji
Paloonji& Company (P) Ltd. Vs. Commissioner, Customs & Central Excise
& Service Tax [(2016) 67 taxmann.com 218 (Patna)] on the following
issue:
Issue:
Whether an
authority established under an Act of Parliament/ State Legislature is a
Governmental authority, for claiming exemption under the Mega Exemption
Notification No. 25/2012-ST dated June 20, 2012, without having 90% or more
equity/control in it by the Government?
Facts &
Background:
Shapoorji Paloonji & Company (P)
Ltd. (“the Petitioner”) was appointed
as contractor for construction of academic complex of Indian Institute of
Technology (“IIT”), Bihta (“the Services”) by National Building
Construction Corporation Limited (consultant for construction appointed by
IIT). The Petitioner initially paid Service tax on the Services but stop paying
Service tax after some time and also claimed refund with respect to earlier
payments.
Petitioner’s contention: Construction/ Works
contract of 'educational institution' is exempt under Entry No. 12(c) of the
Mega Exemption Notification No. 25/2012-ST dated June 20, 2012 (“the Mega Exemption Notification”), as
the Services were provided to IIT, being a 'Governmental authority', which is
set up under an Act of Parliament.
Revenue’s contention: IIT is not a Governmental
authority, as Government did not have 90% or more equity/control in it. Hence
benefit of the Mega Exemption Notification is not available in this case.
Relevant provisions: The term 'Governmental
authority' as defined under Clause 2(s) of the Mega Exemption Notification was
amended by Notification No. 02/2014 – ST dated January 30, 2014 in the
following manner:
For the period prior to January 30,
2014:
"(s)
“governmental authority’’ means a board, or an authority or any other body
established with 90% or more participation by way of equity or control by
Government and set up by an Act of the Parliament or a State Legislature to
carry out any function entrusted to a municipality under article 243W of the Constitution;"
W.e.f. January 30, 2014:
“(s)
“governmental authority” means an authority or a board or any other body;
(i) set
up by an Act of Parliament or a State Legislature; or
(ii)
established by Government,
with 90% or
more participation by way of equity or control, to carry out any function
entrusted to a municipality under article 243W of the Constitution.”
Held:
The Hon’ble High Court of Patna held
as under:
·
The ‘Governmental authority’ as defined in the Notification
dated January 30, 2014, means an authority or a board or any other body set up
by an Act of Parliament or State Legislature;
·
The provisions contained in sub-clause (i) and sub-clause
(ii) of Clause 2(s) of the Mega Exemption Notification are independent
dis-conjunctive provisions and the expression “90% or more participation by way of equity or control to carry out any
function entrusted to a municipality under article 243W of the Constitution”
is related to sub-clause (ii) of Clause 2(s) alone, as the sub-clause (i) is
followed by ';' and the word 'or'. Therefore, each of the sub-clauses is independent
provision;
·
Thus, it means that when an authority is established by
Government, then, it should have 90% or more participation by way of equity or
control to carry out any function entrusted to a municipality under Article
243W of the Constitution to be eligible for exemption;
·
The Authority set up by an Act of Parliament or State
Legislature is not and cannot be made subject to the condition of 90% or more
participation by way of equity or control to carry out any function entrusted
to a municipality under Article 243W of the Constitution;
Thus, it was held that the Services
provided by the Petitioner in respect of the academic block of IIT
is exempt
from Service tax in terms of the Mega Exemption Notification as amended.
It was further held that since the
levy as collection of Service tax paid by the Petitioner or IIT has not been
found to be justified, therefore, the Department shall refund the amount of the
Service tax deposited either to the Petitioner or IIT, as the case may be,
expeditiously.
Our
Comments:
It would not be out of place here to
mention that Entry No. 12 of the Mega Exemption Notification was amended vide
Notification No. 6/2015-ST dated March 1, 2015 (effective from April 1, 2015)
to delete exemption from Service tax on services provided to the Government, a
local authority or a Governmental authority by way of construction, erection,
commissioning etc. of:
(a) a civil structure or any other original works meant
predominantly for use other than for commerce, industry, or any other business
or profession;
(c) a structure meant predominantly for use as (i) an
educational, (ii) a clinical, or (iii) an art or cultural establishment;
(f) a residential complex predominantly meant for
self-use or the use of their employees or other persons specified in the
Explanation 1 to Section 65B(44) of the Finance Act.
Ø However, in Union Budget
2016, new Section 102 is proposed to be
inserted in the Finance Act, 1994 vide the Finance Bill, 2016 to provide restoration of exemption
from Service tax provided for the services provided under a continuous contract
which had been entered into prior to March 1, 2015 and on which appropriate
stamp duty, as applicable, had been paid prior to that date. Therefore, the
services provided during the period from April 1, 2015 to February 29, 2016
under such contracts are proposed to be exempted from Service tax;
Ø Refund of Service tax
also allowed, if paid on the said services during the period from April 1, 2015
to February 29, 2016 in accordance with the law including the law of unjust
enrichment - Application for refund may be allowed to be filed within a period
of 6 months from the date on which the Finance Bill, 2016 receives the assent
of the President;
Ø Vide corresponding
amendment in the Mega Exemption Notification [New Entry 12A], said exemption is
also being restored till 31.03.2020 [Read with Notification No. 9/2016-ST dated March 1, 2016].
Hope the information will assist you in your Professional
endeavours. In case of any query/ information, please do not hesitate to write
back to us.
Thanks & Best
Regards,
Bimal Jain
FCA,
FCS, LLB, B.Com (Hons)
COMMENTS