2024 (12) TMI 357 - HC - Service Tax

Exemption of service tax under the Mega Exemption Notification for services provided by the petitioner - BSNL is recipient of service - HELD THAT - The Defence Services, Government of India is the beneficiary of the services provided by the petitioner through its subcontractors. It is but also apparent that the services provided by BSNL to the DoT by way of implementation of the Project are also exempted from the applicable service tax in terms of Entry 12A of the Mega Exemption Notification dated 20 June 2012 read with Section 102 of the Finance Act, 1994, and by the same logic the notional services provided by the petitioner to BSNL would also be exempt from the applicability of service tax, by virtue of Entry 29 (h) provided under the said Mega Exemption Notification dated 20 June 2012. State of Andhra Pradesh v. Larsen Toubro Limited 2008 (8) TMI 21 - SUPREME COURT was a case where the respondent was engaged for execution of civil, mechanical and other building works throughout India, including the State of Andhra Pradesh. The respondent, in order to execute the said work, entered into contracts with its clients (contractees) and under the contract, the respondent with the consent of the contractee, was permitted to assign parts of the construction work to the sub-contractors. Accordingly, the respondent placed orders with the sub-contractors for the agreed price inclusive of applicable taxes. The overall work was done under the supervision of the consultants nominated by the contractee. The sub-contractors purchased goods and chattels in the nature of bricks, cement, steel etc. and brought the same to the site which remained the property of the sub-contractors. The respondent was served with a notice to the effect that the company had failed to disclose the turnover of the sub-contractors for a certain period. Undoubtedly, the work in the nature of laying down of Optical Fibre Cable Network is in the nature of setting up a civil infrastructure so as to benefit the defence forces of this country in having a better communication network. The said services are clearly exempted from imposition of services tax for the ultimate beneficiary being the Government of India. Further, Entry 29 (h) of the aforesaid notification also provides that the sub-contractor providing services by way of works contract to another contractor providing works contract services are also exempt from imposition of service tax. The present writ petition is allowed and a writ in the nature of certiorari is issued thereby holding the impugned advance ruling dated 23 March 2018 passed under Section 28E of the Customs Act, 1962 to be not sustainable in law, and is therefore, hereby quashed. The petitioner shall be entitled to claim consequential reliefs.

Summary

Issues Involved:

1. Applicability of service tax exemption under the Mega Exemption Notification for services provided by the petitioner.
2. Determination of the "recipient of service" for the purpose of service tax liability.
3. Alleged discriminatory treatment in tax exemption between similar purchase orders.

Issue-wise Detailed Analysis:

1. Applicability of Service Tax Exemption:

The petitioner sought to set aside an Advance Ruling which denied service tax exemption for services provided under a Purchase Order (PO) dated 09 September 2014. The petitioner argued that the services provided to BSNL, acting as an "implementing agency" for the Network for Spectrum (NFS) Project, were exempt under Entry 12A of the Mega Exemption Notification No. 25/2012-Service Tax. This entry exempts services provided to the government by way of construction, erection, commissioning, installation, etc., of a civil structure meant predominantly for non-commercial use. The court found that the services provided by the petitioner were indeed exempt, as they were ultimately for the benefit of the Defence Services, Government of India, and thus fell under the exemption.

2. Determination of the "Recipient of Service":

A critical aspect of the judgment was identifying the true "recipient of service." The Advance Ruling had identified BSNL as the recipient, which did not qualify for the exemption. However, the court concluded that the Government of India, specifically the Defence Services, was the actual recipient of the services, as BSNL was merely the implementing agency. This interpretation aligned with the exemption criteria, which focus on the ultimate beneficiary of the services rather than the intermediary.

3. Alleged Discriminatory Treatment:

The petitioner highlighted a discrepancy in the treatment of similar purchase orders. While the petitioner's PO was subject to service tax, another PO issued to a different contractor (M/s Vindhya Telelinks Limited) under the same tender was granted a refund, acknowledging the service tax exemption. The court noted this inconsistency and ruled that it amounted to discriminatory treatment, violating the petitioner's rights under Article 14 of the Constitution of India. The court emphasized that both POs were similar in nature and scope, with the only difference being the geographical region covered.

Conclusion:

The court allowed the writ petition, quashing the impugned Advance Ruling and affirming the service tax exemption for the petitioner. The judgment underscored the importance of consistent application of tax laws and the need to recognize the ultimate beneficiary of services when determining tax liability. The petitioner was entitled to claim consequential reliefs based on the court's findings.