2016 (3) TMI 832 - HC - Service Tax

Service tax liability - Construction of academic complex of Indian Institute of Technology (IIT) - Held that - the Indian Institute of Technology, Bihta, Patna, whose academic block was to be constructed by the petitioner, was set up by an Act of Parliament, i.e., Indian Institutes of Technology Act, 1961 (59 of 1961) as an institute of national importance under Article 248 of the Constitution of India read with 7th Schedule List I. As per the definition of Governmental Authority as amended on 30th January 2014, an authority or board or any other body set up by an Act of Parliament or State Legislature is a Governmental Authority. Therefore, the Notification dated 20th June, 2012, exempts the activity of construction undertaken by the petitioner from payment of service tax. Thus, the service tax paid either by the petitioner or respondent No.4 and collected by respondent No.1, cannot be levied or collected as it is not chargeable levy and Entitlement for refund of Service tax - Undue enrichment - Held that - the payment of service tax has not been made by the numerous consumers and collected by the petitioner. It is paid by the petitioner alone. The petitioner is entitled for the reimbursement of the amount of service tax by respondent No. 4 in terms of the letter of award of contract. Such payment of service tax by the petitioner is not indirect collection of taxes but the direct payment by the petitioner. Therefore, it is not a case of undue enrichment. Thus, since the levy as collection of service tax paid by the petitioner or respondent No.4, has not been found to be justified, therefore, the respondent No. 1 shall refund the amount of the service tax deposited either to the petitioner or respondent No. 4, as the case may be, expeditiously. - Decided in favour of petitioner

Issues Involved:
1. Liability of service tax on the petitioner for construction activities.
2. Applicability of exemptions under Notification No. 25/2012 and subsequent amendments.
3. Definition and interpretation of "Governmental Authority" for service tax exemption.
4. Argument of undue enrichment in the context of service tax refund.

Detailed Analysis:

1. Liability of service tax on the petitioner for construction activities:
The petitioner, a Limited Company, was contracted by NBCC to construct an academic complex for the Indian Institute of Technology (IIT), Bihta. The contract specified that the petitioner would be responsible for paying any tax levied on the transfer of property in goods involved in the works contract under the Bihar State Government Sales Tax Act. The petitioner registered for service tax and began payments as required by the contract and received notices to pay service tax from the Superintendent of Service Tax.

2. Applicability of exemptions under Notification No. 25/2012 and subsequent amendments:
The petitioner argued that service tax was not payable on the construction activity based on an audit objection and Notification No. 25/2012, which exempts certain services from service tax. The relevant notification, dated 20th June 2012, and its amendments, particularly Notification No. 2/2014, define the conditions under which services provided to the Government or a Governmental Authority are exempt from service tax. The court examined these notifications and the statutory provisions of the Finance Act, 1994, to determine the applicability of the exemptions.

3. Definition and interpretation of "Governmental Authority" for service tax exemption:
The court analyzed the definition of "Governmental Authority" as provided in the notifications. The definition includes any authority or board set up by an Act of Parliament or State Legislature or established by the government with 90% or more participation by way of equity or control. The court found that IIT, Bihta, established by an Act of Parliament, qualifies as a Governmental Authority. The court clarified that the condition of 90% or more participation by way of equity or control applies only to authorities established by the government and not to those set up by an Act of Parliament or State Legislature.

4. Argument of undue enrichment in the context of service tax refund:
The respondent argued that refunding the service tax to the petitioner would result in undue enrichment. The court rejected this argument, stating that the petitioner paid the service tax directly and not through numerous consumers. The payment of service tax by the petitioner was not an indirect collection of taxes but a direct payment, making the argument of undue enrichment inapplicable.

Conclusion:
The court concluded that the construction activity undertaken by the petitioner for IIT, Bihta, is exempt from payment of service tax under the relevant notifications. Consequently, the service tax paid by the petitioner or IIT, Bihta, was not chargeable, and the direction for payment of service tax was quashed. The court ordered the refund of the service tax amount to the petitioner or IIT, Bihta, as applicable, expeditiously.

← Previous Next →