2020 (11) TMI 624 - AT - Service Tax

Works Contract Service - exemption under Sl. No. 12(a)/12A of Notification No. 25/2012-ST dated 20.06.2012 - erection, commissioning and installation of transmission lines for various Government companies / corporations - service tax on the reimbursement of amount towards crop compensation, right of way, from the service recipient, being incidental to the works contract executed - Difference of Opinion. HELD THAT - In view of difference of opinion, the following question(s) arise for consideration. 1. Whether the view of Member (Judicial) is correct, holding that within the extended meaning of Article 243W, read with 12th Schedule of the Constitution, Transmission and Distribution of Electricity is included; Or as held by learned Member (Technical) that Transmission and Distribution of Electricity is not included in Article 243W read with 12th Schedule of the Constitution? The Registry is directed to place the records before Hon ble President for appointment of learned third Member to give opinion on the point(s) of difference.

Summary

Issues Involved:
1. Eligibility for exemption under Sl. No. 12(a)/12A of Notification No. 25/2012-ST.
2. Inclusion of crop compensation/right of way in taxable value for service tax purposes.

Issue-Wise Detailed Analysis:

1. Eligibility for Exemption under Sl. No. 12(a)/12A of Notification No. 25/2012-ST:

The primary issue is whether the respondent correctly claimed exemption under Notification No. 25/2012-ST for services provided to various government transmission corporations. The exemption applies to 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 or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession.

The adjudicating authority held that the transmission corporations qualify as "Governmental Authorities" under para 2(s) of the Notification No. 25/2012-ST, as they are set up by the Government and fulfill the conditions of having 90% or more participation by way of equity or control by the Government. The services provided were deemed eligible for exemption, as they were predominantly for purposes other than commerce, industry, or any other business or profession.

Revenue's appeal argued that the transmission corporations do not fulfill the conditions of being set up by an Act of Parliament or State Legislature and do not carry out functions entrusted to a municipality under Article 243W of the Constitution. They contended that the corporations are commercial entities involved in the transmission of high-voltage power, which is not a function of municipalities.

The Tribunal, referencing the Patna High Court decision in Shapoorji Palonji & Company Pvt. Ltd. vs. CC, CE & ST, Patna, concluded that the transmission corporations are indeed "Governmental Authorities" as defined in the Notification. The Tribunal held that the exemption is applicable as the services provided were predominantly for purposes other than commerce or industry, and the corporations are not primarily engaged in commercial activities.

2. Inclusion of Crop Compensation/Right of Way in Taxable Value:

The second issue concerns whether amounts received as crop compensation/right of way should be included in the taxable value for service tax purposes. The respondent argued that these amounts were reimbursements for compensation paid to farmers for damage to crops during construction activities and should not be included in the taxable value.

The adjudicating authority agreed with the respondent, stating that these amounts were received at actuals and, as per Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, reimbursements received by a service provider from the service receiver, as a pure agent, cannot be considered part of the taxable value.

Revenue's appeal contended that the respondent did not act as a pure agent, as they received more than the actual amounts paid to farmers. Therefore, the amounts should be included in the taxable value.

The Tribunal found that the reimbursement for crop compensation was not for any service provided by the respondent to the service receiving companies. It held that the respondent acted as a pure agent in discharging the service receiver's obligation to the landowners, and thus, the activity was not taxable. Even if there was a surplus, it did not constitute a service under the Finance Act, 1994.

Separate Judgments:

The Tribunal's decision was not unanimous. The Member (Technical) disagreed with the Member (Judicial) regarding the interpretation of Article 243W and the inclusion of transmission and distribution of electricity within its scope. The Member (Technical) argued that transmission and distribution of electricity are not functions entrusted to municipalities under Article 243W and that the exemption notification should not apply to entities created by government orders rather than by Acts of Parliament or State Legislatures.

The matter was referred to the Hon'ble President for appointment of a third Member to resolve the difference of opinion.

Conclusion:

The Tribunal dismissed Revenue's appeal, upholding the respondent's claim for exemption under Notification No. 25/2012-ST and ruling that crop compensation amounts are not includible in the taxable value. The decision highlights the interpretation of "Governmental Authority" and the scope of Article 243W in determining eligibility for service tax exemptions.