2022 (10) TMI 960 - HC - Service Tax

Recovery of Service tax - works contract - Government of Andhra Pradesh has awarded the work of Pranahitha Chevella Lift Irrigation Scheme Link-II Package 7 now renamed as Kaleshwaram Project - Link-II - Package No. 7 - applicability of N/N. 41/2009-Service Tax, dated 23rd October, 2009 and Circular No. 116/10/2009, dated 15th September, 2009 - HELD THAT - From a perusal of the documents, it is seen that the petitioners have been entrusted with the works of digging up the canal for the purpose of Kaleshwaram Project, as per the Articles of Contract, dated 17-11-2008. As seen from the documents filed by the petitioners, on an earlier occasion, the official respondents duly taking into consideration the exemption granted by the Ministry of Finance, Government of India, vide Notification No. 41/2009-Service Tax, dated 23-10-2009, have released the Service Tax amounts which were earlier recovered from the petitioners bills. Admittedly, the Government of India through the Ministry of Finance has issued the notification exempting the payment of Service Tax for certain works done by the Government or on its behalf. Notification No. 41/2009-Service Tax, dated 23-10-2009 makes it abundantly clear that the same is exempting the Service Tax for the canal works done by the Government or on its behalf i.e., the petitioners. Admittedly, in this case, there is no dispute that the petitioners have undertaken the work for digging up the canal system for the purpose of Kaleshwaram Project on behalf of the Government, which is admittedly not a commercial activity, and which is chargeable to service tax. Once the Government of India, through the Ministry of Finance, has granted the exemption to the work contracts in respect of canals and once the circular has been issued clarifying the same, the endorsement made by the Director of Works Accounts is without jurisdiction and contrary to the said exemption granted by the Government of India - It is well settled principle of law that any endorsements or orders made by the officials/Departmental Heads cannot override the provisions of the Act/Rules/Circulars. The official respondents are directed not to recover or deduct any amounts towards Service Tax pursuant to the endorsement of the Director of Works Accounts - Petition allowed.

Summary

Issues:
1. Recovery of Service Tax amounts from petitioners by respondent authorities.

Analysis:
The judgment addresses the issue of recovering Service Tax amounts from the petitioners by the respondent authorities. The petitioners were aggrieved by the deduction of Service Tax amounts from their bills, despite being exempted from paying such taxes for the contract work they had completed. The petitioners had undertaken canal works for the Kaleshwaram Project on behalf of the Government, which was not considered a commercial activity subject to service tax.

The Court examined the relevant notifications and circulars issued by the Ministry of Finance, Government of India, which clearly exempted certain works, including canal projects done by the Government or on its behalf, from service tax. The Court noted that the petitioners had previously been refunded the Service Tax amounts deducted from their bills based on these exemptions. The judgment highlighted that once an exemption had been granted by the Government of India, the deduction of Service Tax amounts was unjustifiable, and the benefit of the exemption should be extended without conditions.

The Court also emphasized that any orders or endorsements by officials could not override the provisions of the law, and in this case, the endorsement by the Director of Works Accounts to recover Service Tax was without jurisdiction. Consequently, the Court set aside the impugned orders and directed the respondent authorities not to recover or deduct any amounts towards Service Tax from the petitioners. The judgment also clarified that if any demand for tax payment was raised by GST authorities in the future, the petitioners alone would be liable for payment, and the respondent officers could not be held responsible for not recovering the Service Tax amounts.

In conclusion, the writ petitions were allowed, and any pending miscellaneous petitions were closed without costs, providing relief to the petitioners from the unjust recovery of Service Tax amounts based on the exemptions granted by the Government of India for their canal works under the Kaleshwaram Project.