Commissioner Vs Shapoorji Pallonji and Company Pvt. Ltd. & Ors. (Supreme Court of India)
Supreme Court held that services provided by the educational institutions IIT, Patna and NIT, Rourkela to the Government/ local authorities/ governmental authorities are eligible for exemption from service tax.
Facts- The issue involved here is whether the educational institutions in question, viz. (i) the Indian Institute of Technology, Patna (“IIT Patna”) and (ii) the National Institute of Technology, Rourkela (“NIT Rourkela”), are covered by the definition of “governmental authority” in Mega Service Tax Exemption Notification1 (“Exemption Notification”) inter alia exempting various services from the tax network rendered to government, governmental, or local authorities. If “governmental authority” as defined in the Exemption Notification takes within its embrace IIT Patna and NIT Rourkela, they would be eligible for an exemption from the service tax that otherwise applies to construction services provided by service providers or subcontractors within their premises.
Conclusion- The Clarification Notification introduced an amended version of clause 2(s), the whole canvas was open for the author to define “governmental authority” whichever way it wished however, “governmental authority” was re-defined with a purpose to make the clause workable in contra-distinction to the earlier definition and thus it cannot overstep and interpret “or” as “and” to allow the alternative outlined in a clause.
When there was no ambiguity in the words, then no exposition contrary to the words was to be made. It is, therefore, clear as a sunny day that there arises only one plausible construction of clause 2(s) which was the one the Patna High Court adopted and which we are inclined to uphold.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. We are tasked to decide two civil appeals that centre around a common question: whether the educational institutions in question, viz. (i) the Indian Institute of Technology, Patna (“IIT Patna”, hereafter) and (ii) the National Institute of Technology, Rourkela (“NIT Rourkela”, hereafter), are covered by the definition of “governmental authority” in Mega Service Tax Exemption Notification1 (“Exemption Notification”, hereafter) inter alia exempting various services from the tax network rendered to government, governmental, or local authorities. If “governmental authority” as defined in the Exemption Notification takes within its embrace IIT Patna and NIT Rourkela, they would be eligible for an exemption from the service tax that otherwise applies to construction services provided by service providers or subcontractors within their premises.
THE APPEALS
2. In Civil Appeal No. 3991 of 2023 (“CA-I”, hereafter), the appellant assails the judgment and order dated 03rd March, 2016 of the High Court of Judicature at Patna (“Patna High Court”, hereafter) whereby a writ petition2 preferred by the first respondent, i.e., M/s Shapoorji Pallonji & Company Pvt Ltd (“SPCL”, hereafter) was allowed and the service tax collected by the appellant was directed to be refunded.
3. Civil Appeal No. 3992 of 2023 (“CA-II” hereafter) challenges the judgment and order dated 05th February, 2018 of the High Court of Orissa at Cuttack (“Orissa High Court”, hereafter). The Orissa High Court while relying on the aforesaid decision of the Patna High Court in favour of SPCL, on a similar question of law, allowed a writ petition3 preferred by SPCL for refund of service tax.
THE RELEVANT NOTIFICATIONS
4. The Exemption Notification, under consideration, was issued by the Department of Revenue under section 93 of the Finance Act, 1994 (“the 1994 Act”, hereafter) inter alia exempting various taxable services from the levy of whole of the service tax under section 66B thereof. Clause 12(c) of the Exemption Notification, which is relevant for the purpose of the present adjudication, reads as follows:
“12. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –
(a) ***
(b) ***
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) ***
(e) ***
(f) ***”
5. Since we are concerned with the interpretation of “governmental authority”, clause 2(s) of the Exemption Notification defining “governmental authority” is reproduced hereunder:
“(s) “governmental authority” means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution.”
6. It may also be noticed that section 66D of the 1994 Act, inserted by the Finance Act, 2012 with effect from 1st July, 2012, specifies the negative list of services, i.e., the services on which service tax is not leviable.
7. Clause 2(s) of the Exemption Notification underwent an amendment vide a Notification dated 30th January, 2014 (“Clarification Notification”, hereafter). This amendment, re-defining “governmental authority”, sought to broaden the scope of the exemption. The amended definition is set out hereinbelow:
“(s) “governmental authority” means an authority or a board or any other body;
(i) set up by an Act of Parliament or a State Legislature; or
(ii) established by Government,
with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.”
8. Having outlined the relevant legal framework under consideration, we consider it proper to delve into the facts that formed the genesis of the writ petitions before the Patna High Court and the Orissa High Court.
FACTS
9. The material facts, leading to the presentation of CA-I, are as follows:
a) IIT Patna, the fourth respondent, appointed NBCC India Limited (“NBCC”, hereafter), the third respondent, as a Project Management Consultant to oversee the construction of building/facilities/services for its academic complex. Vide Letter of Award dated 20th December, 2012, NBCC awarded the contract for construction works to SPCL at a total contract price of Rs.167,70,09,043.00 (Rupees One hundred Sixty‑Seven Crore Seventy Lakh Nine Thousand Forty-Three only). Clause 4.2.4 of the Letter of Award specified that the aforementioned rates did not include service tax and that SPCL would be reimbursed for this tax by IIT Patna upon providing receipts.
b) SPCL, in accordance with the Letter of Award, duly registered itself with the Central Excise and Service Tax (“CEST”, hereafter) and discharged its service tax obligations amounting to Rs.9,73,25,398.23 (Rupees Nine Crore Seventy-Three Lakh Twenty-Five Thousand Three Hundred Ninety-Eight and Twenty-Three paisa) for the period spanning from March 2013 to April 2015. It is important to note that these service tax amounts were integrated into the monthly running bills for the aforementioned months, which were submitted by SPCL and subsequently approved and paid by IIT Patna. This meant that IIT Patna was ultimately responsible for settling the service tax dues.
c) The Indian Audit and Account Department raised an audit objection on 30th June, 2015 to the effect that service providers engaged in construction activities for educational institutions meeting the criteria of a “government, local authority, or governmental authority” according to clause 12(c) of the Exemption Notification were not obligated to remit service tax. Consequently, because IIT Patna was classified as a governmental authority, the payment of service tax by them was objected as such payment contravened the exemption provision specified in the Exemption Notification. Additionally, IIT Patna was directed to immediately undertake actions for the recovery or adjustment of the service tax previously paid to SPCL.
d) Following receipt of the audit objection, IIT Patna notified NBCC vide a letter dated 27th August, 2015 and conveyed that the Joint Secretary (Tax Research Unit) at the Government of India’s Ministry of Finance, Department of Revenue, had clarified the definition of auxiliary educational services. This clarification included an enumeration of various services eligible educational institutions could receive and which would be exempted from service tax. Notably, this clarification did not specifically mention construction activity. Additionally, IIT Patna expressed its intention to establish a methodology for the recovery of service tax reimbursement.
e) Apprehensive of the initiation of recovery proceedings for the service tax already paid, SPCL approached the Patna High Court seeking the following relief:
“(i) the instructions of the respondent no.2 dated 30.06.2015 (as contained in Annexure-6) directing immediate recovery adjustment of service tax reimbursed by the respondent no.4 be quashed.
(ii) for a declaration that [IIT Patna] is obliged to reimburse service tax paid by the [SPCL] on the service of construction of its building premises.
(iii) alternatively for a direction to the [Commissioner, Customs Central Excise and Service Tax] to refund the amount of service tax paid by [SPCL] on the service of construction of building premises of [IIT Patna] in pursuance of the contract.”
f) Vide the impugned judgment, the Patna High Court allowed the writ petition of SPCL and held that IIT Patna would indeed be covered within the definition of a “governmental authority” under clause 2(s). In its interpretation of clause 2(s), the Court observed that provisions contained in sub-clauses (i) and (ii) of clause 2(s) are independent disjunctive provisions and the expression “90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution” is related to sub-clause (ii) alone because sub-clause (i) is followed by the punctuation “;” and then by the conjunction “or”. According to the Court, any authority set up by an Act of Parliament or by an Act of the State Legislature as envisaged in sub-clause (i), therefore, cannot be made subject to the condition of “90% or more participation by way of equity or control” and it is only an authority or a board or any other body established by the Government as envisaged under sub-clause (ii) of clause 2(s) that has to meet the requirement of governmental participation of 90% or more by way of equity or control. It was, accordingly, ruled that the construction activity undertaken by SPCL is exempt from payment of service tax in terms of the Exemption Notification read with the Clarification Notification, followed by a direction that the service tax collected by the Revenue shall be refunded to SPCL or IIT Patna, as the case may be.
10. The relevant facts, leading to the presentation of CA-II, are as follows:
a) SPCL was awarded a works contract vide Work Order dated 22nd February, 2013 by NIT Rourkela to carry out construction projects at its The total value of the contract was Rs.302,82,39,866.00 (Rupees Three Hundred Two Crore Eighty-Two Lakh Thirty-Nine Thousand Eight Hundred Sixty-Six only). Clause 12 of the Work Order stated that the aforesaid price shall be inclusive of all taxes except service tax which may be reimbursed as applicable.
b) SPCL sought clarifications from the Service Tax Commissionerate regarding the applicability of service tax on services rendered to NIT, Rourkela.
c) SPCL, however, discharged its service tax liability amounting to Rs 5,79,17,168.00 (Rupees Five Crore Seventy-Nine Lakh Seventeen Thousand One Hundred Sixty-Eight only) to the Service Tax Department and raised all the bills to NIT, Rourkela charging service tax. However, no service tax was paid by NIT, Rourkela claiming that the work executed is exempt from the payment of service tax.
d) Aggrieved, SPCL approached the Orissa High Court for reimbursement of such service tax payment.
e) The Orissa High Court, vide the impugned judgment, allowed the writ petition of SPCL by relying upon the judgment and order of the Patna High Court, as aforesaid. The Deputy Commissioner of Service Tax was directed to dispose of SPCL’s pending application for refund of service tax within two months.
SUBMISSIONS
11. Ms. Bagchi, learned counsel representing the appellants in both the appeals, contended that IIT Patna and NIT Rourkela were not eligible for the benefits outlined in the Exemption Notification due to its exclusion from the definition of “governmental authority”. In contesting the impugned judgment and order of the Patna High Court, she advanced the following submissions:
a) The Amendment to the Exemption Notification carried out vide the Clarification Notification aimed to broaden its applicability beyond statutory bodies, extending its benefits to government-established entities as well. The Clarification Notification further clarified this expansion by encompassing government-established bodies within the definition of “governmental authorities”. However, it is important to note that the requirement of 90% or more government equity or control still applies to both types of governmental bodies, whether they are statutory or non-statutory.
b) The High Court’s error lay in its interpretation of the sub-clauses as independent and disjunctive. The deliberate separation of the condition of “90% or more participation” from sub-clause (ii) serves the specific intent of making it applicable to both sub-clauses.
c) It is firmly established that punctuation marks alone should not dictate the interpretation of a statute, especially when meaning of the statute is clear without them. The general principle is that punctuation marks carry less weight in the interpretation of statutes, especially when dealing with subordinate legislation. Furthermore, punctuation marks may convey different impressions, and their interpretation should not be isolated but considered in conjunction with other clauses to discern legislative intent. To support this argument, reference was made to the decisions of this Court in Barun Kumar & Ors. vs. State of Jharkhand & Ors.4, Bihar State Electricity Board vs. Pulak Enterprises & Ors.5, and ONGC Ltd vs. Afcons Gunanusa JV6.
d) The terms ‘or’ and ‘and’ can be interchangeably interpreted to fulfil the legislative intent. In this context, reference was made to the rulings of this Court in Jindal Stainless Ltd. v. State of Haryana7, Barun Kumar (supra) and Akshaibar Lal (Dr.) v. Vice-Chancellor, Banaras Hindu University8.
e) The impugned judgment of the Patna High Court carries the risk of unconditionally broadening the coverage and scope of the exemption to include various public bodies, such as Telecom Regulatory Authority of India, Airports Authority of India, and public sector banks. These entities could potentially claim exemptions under different clauses of the Exemption Notification, covering various services provided by a “governmental authority”. A lenient interpretation of the term “governmental authority” could unfairly burden the exchequer. Reliance was placed on the decision of a Constitution Bench of this Court in Commissioner of Customs (Import), Mumbai vs. Diip Kumar and Company & Ors.9 wherein it was held that any notification or a clause granting an exemption must be interpreted strictly and literally, with any ambiguity resolved in favour of the revenue.
f) IIT Patna and NIT Rourkela are institutions incorporated under central statutes, i.e., the Indian Institute of Technology Act, 1961 (“the 1961 Act”, hereafter) and the National Institutes of Technology Act, 2007 (“the 2007 Act”, hereafter), respectively, and they do not carry out any duties or responsibilities akin to Schedule XII of the Constitution; the two educational institutions, therefore, do not fall under the classification of “governmental authority” nor are exempted under the negative list.
g) SPCL has paid service tax through self-assessment. Reliance was placed on ITC Limited vs. Commissioner of Central Excise, Kolkata10 in support of the contention that the order of self-assessment being an assessment order under the Customs Act, 1962 is appealable and a refund claim is not sustainable unless the assessment itself is set aside.
h) Classification of IIT Patna as a “governmental authority” has no bearing on the applicability of service tax to the transaction between SPCL and The crux of the argument lies in the specific nature of this case: SPCL has delivered its services to NBCC, not directly to IIT Patna. IIT Patna has engaged NBCC as a Project Management Consultant, making SPCL the service provider and NBCC the service recipient in this particular transaction. Consequently, it cannot be contended that SPCL provided services directly to IIT Patna. NBCC lacks the status of a “government, local authority, or governmental authority” under the Exemption Notification, and it has not asserted such a claim. Therefore, the activities and transactions between SPCL and NBCC are subject to service tax and do not qualify for exemption under the Exemption Notification.
12. Learned counsel representing SPCL, supported the impugned judgment and order of the Patna High Court and contended that while construction services are classified as taxable under section 65 of the 1994 Act, the Exemption Notification provides an exemption for services rendered to the Government, local authorities, or governmental authorities. IIT Patna, as an institution of national importance, was established by the Parliament under Article 248 of the Constitution, through the 1961 Act. Similarly, NIT Rourkela was established under the 2007 Act. Consequently, IIT Patna and NIT Rourkela should be considered governmental authorities in accordance with clause 2(s)(i) of the Exemption Notification, read in conjunction with the Clarification Notification. In reply to the submission of the appellants that the classification of IIT Patna as a “governmental authority” would not have any bearing on the applicability of service tax to the transaction between SPCL and NBCC as service provider and service recipient respectively, learned counsel drew support from clause 29(h) of the Exemption Notification which exempts services provided by sub-contractors by way of works contract to another contractor providing works contract services which are already exempted under the Exemption Notification. Accordingly, it was submitted that there was no merit in the appeals and the same deserved outright dismissal.
13. Learned counsel appearing for IIT Patna supported the impugned judgment and order of the Patna High Court. According to him, IIT Patna qualifies as a “governmental authority” under the Exemption Notification as amended by the Clarification Notification. It was further submitted that the provisions contained in sub-clause (i) and sub-clause (ii) of clause 2(s) are independent disjunctive provisions and the expression ”90% or more participation by way of equity or control” is related to sub-clause (ii) alone, meaning thereby that an authority established by Government should have 90% or more participation in order to be exempted from service tax. The authority set up by an Act of Parliament or State Legislature is not subject to this condition. No case for interference having been set up, the counsel prayed for dismissal of CA-I.
ANALYSIS
14. Before we commence our analysis, it would be apt to juxtapose the relevant clauses from the Exemption Notification and the Clarification Notification for facility of appreciation:
