2021 (5) TMI 559 - HC - Service Tax

Levy of Service Tax - works contract service - construction of additional godowns as accorded by the Government of Tamil Nadu vide G.O.(Ms).No.119, Cooperation, Food and Consumer Protection Department, dated 05.11.2014 - HELD THAT - Though clause No.12(a) was withdrawn from the Mega Exemption Notification, it was reintroduced vide notification No.6/2015, dated 01.03.2015 issued by the department of Revenue and Finance Ministry, Government of India. The withdrawal notice was issued on 01.03.2015 but it came into effect on 01.04.2015. Since there was still some ambiguity as regards the treatment of the subject matter for the period from 01.04.2015 to 01.03.2016, to deal with the same, Section 102 of the Finance Act, 2016 was brought in. The second respondent clearly erred in proceeding on the premise that the exemption on which, the appellate order was predicated no longer held good. On this sole ground, the order impugned in the writ petition has to go. When the order suffers from a patent illegality, it is certainly open to the aggrieved party to invoke the writ jurisdiction of this Court - petitioner is a public sector undertaking. It is funded entirely by the Government. Even for the construction activities in question, the allocation was made only by the Government of Tamil Nadu. Such construction activities have been explicatively exempted by the Mega Exemption Notification issued on 20.06.2012. Of course, for a short duration, exemption was not available. Petition allowed.

Issues:
1. Whether service tax was leviable for the works contract service provided by contractors to the State-owned public sector undertaking.
2. Validity of the appellate authority's order exempting the service from service tax.
3. Maintainability of the writ petition challenging the order passed by the original adjudicating authority.
4. Impact of the withdrawal and subsequent reintroduction of the exemption clause in the Mega Notification.
5. Compliance with the Finance Act, 2016 regarding the period from April 2015 to February 2016.
6. Legality of the order passed by the original adjudicating authority after the appellate authority's order.

Analysis:

1. The case involved determining whether service tax was applicable to the works contract service provided by contractors to the State-owned public sector undertaking for the construction of additional godowns. The appellate authority had earlier set aside the order by the original adjudicating authority, exempting the service from service tax based on a specific notification.

2. The validity of the appellate authority's order exempting the service from service tax was challenged by the respondents, claiming that the exemption clause in the Mega Notification was withdrawn and, therefore, the appellate authority's order could not govern the proceedings. However, the Court found that the exemption clause was reintroduced through subsequent notifications, and the Finance Act, 2016 provided clarity on the treatment of taxable services during a specific period.

3. The respondents argued that the writ petition challenging the order passed by the original adjudicating authority was not maintainable as the order was appealable. The Court disagreed, stating that the order was erroneous as it proceeded on the premise that the exemption no longer applied, contrary to the provisions of the Finance Act, 2016.

4. Regarding the withdrawal and subsequent reintroduction of the exemption clause in the Mega Notification, the Court clarified that the break in exemption had been bridged by subsequent notifications, and the petitioner was entitled to the benefit under the Mega Exemption Notification for the construction activities in question.

5. The Court highlighted the provisions of the Finance Act, 2016, which specified that no service tax shall be levied during a particular period for taxable services provided to governmental authorities for construction works. The original adjudicating authority erred in passing an order at variance with the appellate order, which was still valid and not challenged before the Tribunal.

6. Considering the petitioner's status as a public sector undertaking funded by the Government and the explicit exemption provided for construction activities, the Court quashed the impugned order passed by the original adjudicating authority, stating that it was not defensible and allowed the writ petition.

The judgment analyzed various legal aspects, including the applicability of service tax, the validity of exemption notifications, compliance with the Finance Act, 2016, and the maintainability of the writ petition. Ultimately, the Court ruled in favor of the petitioner, emphasizing the erroneous nature of the original adjudicating authority's order and the continued validity of the appellate authority's decision.

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