2022 (10) TMI 583 - HC - Service Tax

Levy of Service Tax - Work Contract Services - construction of toilets, roads, sanitation, water reservoir, drinking water supply, sewage treatment plant etc - stand of the respondent is that Rajya Krishi Utpadan Mandi Parishad being a statutory authority created under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964 is covered within the definition of Government Authority and is entitled for exemption under Clauses-12 and 13 of the Mega Exemption Notification no.25/2012-ST dated 20.06.2012 - dispute is of financial year 2015-16. HELD THAT - The Krishi Utpadan Mandi Samiti is established by an Act of the State Legislature to provide for the regulation of sale and purchase of agricultural produce and for the establishment, superintendence and control of markets therefor in the State of Uttar Pradesh. Section 16 of U.P. Krishi Utpadan Mandi Adhiniyam has been placed before us to demonstrate that none of the functions and duties of the Committee are commercial or business in nature - It is evident from the Mandi Samiti Act that the Mandi Samiti is a Corporate body and all its functions and duties are directed towards regulating the sale and purchase of the agricultural produce. The Mandi Samiti is required to establish markets to exercise superintendence and control over the sale and purchase of the agricultural produce. The construction activities inside the Mandi area cannot be termed as business activities. In the similar facts and circumstances of this Court in Central Excise Appeal no.06 of 2022 2022 (9) TMI 535 - ALLAHABAD HIGH COURT had taken a view that the provisions of Mega Exemption Notification in light of the functions and duties of the Krishi Utpadan Mandi Samiti would be applicable in case of Work Contract Services provided by the Contractor to Krishi Utpadan Mandi Samiti and the Contractor would be entitled to exemption from levy of service tax in view of the exemption notification no. 12/2012-ST. - The argument of the learned counsel for the appellant revenue therein that the activity of letting/renting of Krishi Utpadan Mandi Samiti being commercial has been turned down. Appeal dismissed.

Summary

Issues:
1. Interpretation of exemption under the Mega Exemption Notification for service tax.
2. Determination of whether construction activities for Post-harvest storage infrastructure qualify for exemption.
3. Classification of activities of the Krishi Utpadan Mandi Samiti as commercial or non-commercial.
4. Applicability of exemption under the notification for work contract services provided to the Mandi Samiti.

Interpretation of Exemption under Mega Exemption Notification:
The case involved a dispute regarding the demand of services tax under "Work Contract Services" for construction activities provided by the respondent to a government authority. The respondent claimed exemption under Clauses-12 and 13 of the Mega Exemption Notification no.25/2012-ST. The revenue contended that the respondent wrongfully claimed exemption for the services provided. The Tribunal held that the construction activity for the Mandi Samiti was covered under Clause 14(d) of the Notification. The appellant argued that the exemption was only for providing Post-harvest storage infrastructure, excluding other construction works. The respondent argued that the term "Postharvest infrastructures" should be interpreted widely to include all constructions necessary for post-harvest storage, such as roads and toilets.

Qualification for Exemption for Construction Activities:
The Court analyzed the definition of "Post-harvest storage infrastructure for agricultural produce" under Clause-14 of the Notification. It was established that the construction activities for creating infrastructure for post-harvest storage of agricultural produce fell within the meaning of "Work Contract Services" exempted under the Clause. The term "infrastructure" was interpreted to include not only construction activities like sheds but also supporting services like roads and toilets necessary for post-harvest storage.

Classification of Mandi Samiti's Activities:
The Court examined the functions and duties of the Krishi Utpadan Mandi Samiti to determine if they were commercial in nature. It was noted that the activities of the Mandi Samiti, as a government authority established by an Act of the State Legislature, were not commercial or business-related. The Court highlighted that the Mandi Samiti's functions were directed towards regulating the sale and purchase of agricultural produce, and its construction activities were essential for providing necessary infrastructure.

Applicability of Exemption for Work Contract Services:
Based on the interpretation of the exemption notification and the non-commercial nature of the Mandi Samiti's activities, the Court upheld the Tribunal's decision that the Contractor providing work contract services to the Mandi Samiti was entitled to exemption from the levy of service tax. The Court cited a similar case where the exemption was applicable in light of the functions and duties of the Mandi Samiti. Consequently, the appeal was dismissed at the admission stage itself, finding no infirmity in the Tribunal's order.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Court's reasoning in interpreting and applying the relevant legal provisions.