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2016 (8) TMI 722 - PUNJAB AND HARYANA HIGH COURT

2016 (8) TMI 722 - PUNJAB AND HARYANA HIGH COURT - 2016 (44) S.T.R. 195 (P & H) - Taxability of construction services - service of construction etc. provided to the Government, a local authority or a governmental authority - BPL houses constructed by the petitioners for the Board - reverse charge mechanism - Held that:- On a plain reading of the notification dated 20.6.2012, in our view, the service being provided by the petitioners would clearly fall in the exemption clause, as the Board is a g .....

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of the Board, if tax is leviable, from the bills of the petitioners is declared to be illegal. - Whether service tax burden can be passed - Held that:- The case of neither of the parties is that the liability, which may be put on the contractor/service provider, if tax is leviable, is being passed on to the Board, as the scheme of the Act provides for levy of tax 50:50 on service provider and the service recipient. Hence, the action of the Board, even if it is assumed that tax is leviable, t .....

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Petitioner : Mr. Jagmohan Bansal, Mr. Sandeep Khunger, Mr. Gagneshwar Walia, Mr. Davender Gorsi for Mr. Rajesh Bansal, Mr. Rajnish Gupta, Mr. Vikrant Kackria, Mr. Vishal Munjal, Mr. Shakti Singh for Mr. S. N. Yadav, Advocates For The Respondent : Ms. Mamta Singla Talwar, Deputy Advocate General, Haryana. Mr. Sudeep Singh, Advocate for respondents No. 2 & 3-Haryana Housing Board. Mr. Arvinder Singh, Advocate for respondents No. 2 & 3 in CWP No. 21731 of 2015. Mr. Sharan Sethi, Advocate f .....

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or short, 'the Board'), whereby service tax which, according to the Board, was payable in its hands, is sought to be deducted from the bills of the petitioners. 4. Learned counsel for the petitioner submitted that the petitioner is a firm carrying on the business as a contractor. It was awarded contract for construction of flats for BPL category vide letter dated 26.8.2013. The contract is nearing completion. As per the provisions of Finance Act, 1994 and notification No. 25/2012- S.T. d .....

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sing Board Act, 1971 (for short, 'the Act'). It is totally controlled by the Government. There is no private participation. It is engaged in construction of houses for the poor and for other customers as well. In addition to clause 12 of the notification dated 20.6.2012, it was submitted that the petitioner may be entitled to exemption even in clause 14, which talks about construction of low cost houses upto a carpet area of 60 square meters. In the case in hand the construction of house .....

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r submitted that after entry 12 in the notification dated 20.6.2012, entry 12A was inserted w.e.f. 1.3.2016 extending the exemption from payment of service tax in terms of the previous provisions upto 31.3.2020. 6. Taking the arguments further, learned counsel for the petitioner submitted that the issue was considered by a Division Bench of Patna High Court in Civil Writ Jurisdiction Case No. 16965 of 2015-Shapoorji Paloonji and Company Pvt. Ltd. v. Commissioner, Customs Central Excise and Servi .....

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is identical as in the present case, the award of contract for construction has been awarded by a governmental authority constituted under the Act of the State and the purpose of construction is not commercial. 7. It was further submitted that the benefit of exemption in terms of notification dated 20.6.2012, being effective from 1.7.2012, the petitioners in most of the petitions were awarded contract thereafter will not be liable for payment of service tax, however, in some cases there is some .....

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in deducting the entire amount of service tax even due for the previous period from the running bills. The grievance is that the petitioner being not liable to pay the tax, the action of the Board in deducting the same from the bills of the petitioner was totally un-called for. Further, it was submitted that in the case of contractors, the liability to pay the service tax is 50:50 on the service provider and the recipient. Even if the clause in the contract is seen, the petitioner would be liab .....

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eto. He further submitted that same stand was taken by the Board before the department in pursuance to the show cause notice but not accepted. The tax was deducted from the bills of the petitioner on account of an opinion received by the Board that such a transaction is taxable. He further submitted that the department has assessed the tax on the transaction in question besides other activities being undertaken by the Board prior to the period in question and the current period as well. The orde .....

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s concerned, it was submitted that the project was not sanctioned by the competent authority. 9. Learned counsel appearing for the department submitted that clause 12 of the notification dated 20.6.2012 provides for exemption from payment of tax if it is a non-commercial transaction. In the case in hand, there was no material produced by the Board before the adjudicating authority to suggest that exemption, as envisaged in clause 12 of the notification dated 20.6.2012, was available to the Board .....

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0. Heard learned counsel for the parties and perused the paper book. 11. The following issues arise for consideration by this court in the present petition: (i) Whether service tax is chargeable on construction of BPL houses constructed by the petitioners for the Board ? (ii) Whether in terms of condition No. 3 in the tender conditions, the petitioners would be liable to discharge the liability of service tax, if payable, by the Board as per the provisions of the Finance Act, 1994, the Rules and .....

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n from the whole or any part of the service tax leviable thereon. (2) If the Central Government is satisfied that it is necessary in the public interest so to do, if may, be special order in each case, exempt any taxable service of any specified description from the payment of whole or any part of the service tax leviable thereon, under circumstances of exceptional nature to be stated in such order. 13. In exercise of the powers conferred under the aforesaid provision, various notifications have .....

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h March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 210(E), dated the 17th March, 2012, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under Section 66B of the said Act, namely: xx xx xx 12. Services provided to the Government, a local authority or a governmental authority by way of cons .....

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ipation 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; xx xx xx (y) original works means has the meaning assigned to it in Rule 2A of the Service Tax (Determination of Value) Rules, 2006; xx xx xx Notification No. 2/2014-S.T. Dated 30-Jan-2014 Mega Exemption Notification-Governmental Authorities- Redefined In exercise of the powers conferred by su .....

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the said notification, in the paragraph 2, for clause(s), the following shall be substituted, namely:- (s) governmental authority means an authority or a board or any other body; (ii) set up by an Act of Parliament or a State Legislature; or (iii) 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; xx xx xx Notification: 6/2015-S. T. dated 01-Mar-2015 Exemption from Se .....

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, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide G.S.R. 467(E), dated the 20th June, 2012, namely: 1. In the said notification,- xx xx xx (ii) in entry 12, items (a), (c) and (f) shall be omitted. xx xx xx 3. Save as otherwise provided in this notification, this notification shall come into force on the Ist of April, 2015. The Finance Act, 2016 xx xx xx 102. Special provision for exemption in certain cases relating to construction of Government buildin .....

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e or any other original works meant predominantly for use other than for commerce, industry or any other business or profession; (b) a structure meant predominantly for use as - (i) an educational establishment; (ii) a clinical establishment; or (iii) an art or cultural establishment; xx xx xx Notification: 9/2016-S.T. Dated 01-Mar-2016 Exemption from Service Tax- Mega Notification- Amendment to Notification No. 25/2012-S.T. In exercise of the powers conferred by sub-section (1) of Section 93 of .....

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12, with effect from the Ist March, 2016, the following entry shall be inserted, namely- 12A. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration 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; (b) a structure meant predominan .....

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ply on or after the Ist April, 2020. [Emphasis supplied] xx xx xx 14. The Board has been constituted in terms of the provisions of Section 3 of the Act, as was enacted by the State Legislature. It is a body corporate which consists of a Chairman, a Chief Administrator and such other members, as the State Government may, from time to time, appoint by a notification. The Chief Administrator shall be a person from amongst the officers of the rank of Head of the Department or Joint Secretary of the .....

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fter sanction is granted by the State Government, the same is published in the official gazette. The Board is authorised to borrow money for implementation of the projects, as approved with prior approval of the State Government. Section 72 of the Act provides that the State Government shall exercise superintendence and control over the Board and its officers. The aforesaid provisions of the Act clearly show that the Board is a governmental authority, as it is fully under the control of the Stat .....

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ourt for the reason that the Board deducted the amount of service tax from the running bills of the petitioners from the very beginning opining that service tax was payable. The action was taken, as claimed, on an opinion sought by the Board. The tax deducted from the bills of the petitioners, if leviable, would be liability of the Board in law. 17. The service tax has been levied on various services with amendments made in Finance Act, 1994. The services on which the tax was levied were added f .....

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Government, a local authority or a governmental authority; (ii) the kind of service being construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of- (iii) it is meant predominantly for use other than for commerce, industry, or any other business or profession. 18. Original works has been defined in clause 2(y) of the notification dated 20.6.2012 to mean the meaning as assigned to in Rule 2A of the Service Tax (Determination o .....

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Similar issue came up for consideration before a Division Bench of Patna High Court in Shapoorji Paloonji and Company Pvt. Ltd.'s (supra), where the contact was for construction of administrative block in Indian Institute of Technology set up under the Institutes of Technology Act, 1961. Indian Institute of Technology was held to be a governmental authority and the contract for construction was opined to be falling in the exemption clause. The notice issued for levy of service tax was quashe .....

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esaid findings, the issue has lost significance, however, as the argument was raised, we will touch upon the same. Condition No. 3 in the additional conditions, as provided for in the contract entered into between the parties, reads as under: 3. Royalty, Sales Tax, Excise Duty, Octroi, Service Tax or any other tax or levy, shall be paid by the contractor direct to the respective department in accordance with their rules and regulations enforce from time to time, without any liability to the Hous .....

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