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2016 (8) TMI 722 - HC - Service TaxTaxability 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 governmental authority having been set up under a State Act, i.e., Haryana Housing Board Act, 1971. It is wholly controlled by the State Government. BPL houses constructed by the petitioners are meant for residential purpose and not for commerce, industry or any other business or profession. For the kind of contract entered into between the petitioners and the Board, no service tax is leviable, hence, the action of the Board in deducting part of the service tax, though payable in the hands 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, to pass on their share of burden as per the provisions of the Act on the contractors is not envisaged in the clause. On the contract for construction of BPL houses, as awarded by the Board to the petitioners, no service tax is leviable w.e.f. 1.7.2012 - The Board is not entitled to pass on the burden of service tax payable on its part, if the tax is leviable, upon the contractors.
Issues Involved:
1. Whether service tax is chargeable on the construction of BPL houses constructed by the petitioners for the Board? 2. Whether the petitioners are liable to discharge the service tax liability, if payable, by the Board as per the tender conditions? Issue-wise Detailed Analysis: Issue No. (i): Whether service tax is chargeable on construction of BPL houses constructed by the petitioners for the Board? Section 93 of the Finance Act, 1994 enables the Government to grant exemptions from service tax. Relevant notifications, such as Notification No. 25/2012-S.T. dated 20.6.2012, exempt 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 civil structure meant predominantly for use other than for commerce, industry, or any other business or profession. The Board, constituted under the Haryana Housing Board Act, 1971, is a governmental authority fully controlled by the State Government. The Board engages contractors for the construction of BPL houses, which are not meant for commercial purposes. The petitioners argued that the services provided fall under the exemption clause of the notification dated 20.6.2012. The Board initially deducted service tax from the petitioners' bills based on an opinion that such tax was payable. However, the Patna High Court in Shapoorji Paloonji and Company Pvt. Ltd. v. Commissioner, Customs Central Excise and Service Tax held that similar contracts for construction by governmental authorities are exempt from service tax. The court concluded that the construction services provided by the petitioners to the Board are exempt from service tax, as the Board is a governmental authority and the construction of BPL houses is not for commercial purposes. Therefore, the Board's action of deducting service tax from the petitioners' bills was illegal. Issue No. (ii): Whether the petitioners are liable to discharge the liability of service tax, if payable, by the Board as per the tender conditions? Condition No. 3 of the contract states that the contractor shall pay taxes such as royalty, sales tax, excise duty, octroi, and service tax directly to the respective department. The petitioners argued that the liability for service tax, if any, should not be shifted to them by the Board. According to the Finance Act, 1994, and Notification No. 30/2012-S.T. dated 20.6.2012, the liability for service tax on works contracts is 50% on the contractor and 50% on the contractee. The court found that the Board's action of deducting the entire service tax amount from the petitioners' bills, even if tax was leviable, was not justified. The contract clause does not envisage passing the Board's share of the tax burden onto the contractors. The assessment framed by the department in the Board's case does not affect the legal issue raised by the petitioners regarding the Board's deductions from their bills. Conclusion: 1. No service tax is leviable on the contract for the construction of BPL houses awarded by the Board to the petitioners from 1.7.2012 onwards. 2. The Board cannot pass on its share of the service tax burden to the contractors if the tax is leviable. The writ petitions were disposed of accordingly.
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