2022 (9) TMI 535 - HC - Service Tax

Exemption from Service Tax - work contract services - construction of boundary wall, godown, shops, toilets, roads, sanitation, water reservoir, drinking water supply, sewage treatment plant etc - whether respondent contractor is covered under Clauses-12 and 13 of the Mega Exemption Notification no.12/2012-ST dated 20.06.2012? - HELD THAT - The Krishi Utpadan Mandi Samiti, a body corporate created under Section 12 of U.P Krishi Utpadan Mandi Adhiniyam 1964 is covered in the definition of 'Government Authority' under Clause 2(s) of the Mega Exemption Notification - Clause-12 of the Mega Exemption Notification clearly provides that any service provided to the Government, a local authority or a government authority relating to construction work which is not for commercial or business purposes is exempted and such services be not taxable for the service tax. The construction of markets in the Mandi area can not be termed as business activity. The renting/leasing of the shops, market sheds etc for consideration is another method of regulation of the Mandi area. By leasing/renting of market sheds, the activities of Samiti cannot be categorized as commercial/business activity. In M/S BHARAT BHUSHAN GUPTA AND COMPANY VERSUS STATE OF HARYANA AND OTHERS 2016 (8) TMI 722 - PUNJAB AND HARYANA HIGH COURT wherein contract was awarded for construction of flats for BPL category to the Board created under Haryana Housing Board Act, relying upon SHAPOORJI PALOONJI COMPANY PVT. LTD. VERSUS COMMISSIONER, CUSTOMS CENTRAL EXCISE AND SERVICE TAX AND OTHERS 2016 (3) TMI 832 - PATNA HIGH COURT , it was held that the Board being a statutory Government Body, it shall be entitled to the benefit of exemption, as was provided to Shapoorji Paloonji and Company Pvt Ltd for construction for Indian Institute of Technology. In light of the functions and duties of the Krishi Utpadan Mandi Samiti, it is evident that the Work Contract Services provided by the respondent contractor to Krishi Utpadan Mandi Samiti is exempted from levy of Service tax in view of the exemption notification no.12/2012-ST. - the arguments of the learned counsel for the appellant revenue about the activity of letting/renting of Krishi Utpadan Samiti being commercial has no basis. Appeal dismissed.

Summary

Issues:
- Interpretation of Mega Exemption Notification no.12/2012-ST
- Exemption eligibility for services provided to Government Authority
- Classification of services under "Work Contract Services" for construction activities

Interpretation of Mega Exemption Notification no.12/2012-ST:
The case involves a Central Excise Appeal challenging an order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Allahabad. The dispute revolves around the demand of service tax under the head of "work contract services" for various construction activities carried out for a statutory authority. The appellant argues that the respondent contractor is not covered under the Mega Exemption Notification no.12/2012-ST due to the commercial nature of the construction activities.

Exemption eligibility for services provided to Government Authority:
The respondent, a registered contractor with the service tax department, asserts that the services provided to the Krishi Utpadan Mandi Samiti fall within the exemption under Clause-12 of the Mega Exemption Notification. The respondent contends that the Mandi Samiti qualifies as a Government Authority as defined in the notification, established by an Act of the State Legislature to regulate the sale and purchase of agricultural produce. The respondent emphasizes that the activities of the Mandi Samiti are not commercial or business-related, thus meeting the criteria for exemption.

Classification of services under "Work Contract Services" for construction activities:
The legal counsels for both parties present contrasting arguments regarding the nature of services provided by the respondent contractor to the Mandi Samiti. The appellant argues that since the Mandi Samiti charges rent for the constructed facilities, the services should not be exempted under Clause-12 of the Mega Exemption Notification. Conversely, the respondent contends that the construction activities carried out for the Mandi Samiti are essential for fulfilling its statutory functions and do not constitute commercial or business activities. The respondent relies on previous court decisions to support the claim that such services are indeed exempted under the notification.

In the judgment, the High Court analyzes the provisions of the Mega Exemption Notification, particularly Clause-12, and interprets the definition of "Government Authority" to determine the eligibility for exemption. The court concludes that the services provided by the respondent contractor to the Mandi Samiti are exempt from service tax as they align with the non-commercial nature of the construction activities required for the Mandi Samiti's regulatory functions. The court dismisses the appeal, upholding the CESTAT's order and affirming the exemption status of the services in question.