Golekha Bihari Aich Vs Chief Commissioner (Orissa High Court)
Cuttack: The Orissa High Court is poised to deliberate on a significant Service Tax matter concerning the applicability of an exemption notification to works contracts executed for the Odisha Lift Irrigation Corporation Ltd. The court has decided to hear a writ petition challenging an appellate authority’s order that denied the exemption, a decision contrary to the initial finding by the adjudicating authority. The case hinges on the interpretation of a specific exemption notification and whether the state government corporation qualifies as a ‘governmental authority’ for the purposes of that exemption.
The genesis of the legal tussle lies in a works contract undertaken by the petitioner, Golekha Bihari Aich. Under the Service Tax regime, which was in force before the implementation of the Goods and Services Tax (GST), certain services, including aspects of works contracts, were subject to taxation. However, the government also issued various notifications granting exemptions from Service Tax for specific types of services or services provided to particular entities. In this instance, the core of the dispute revolves around Notification No. 25/2012-Service Tax, dated June 20, 2012, which listed a number of exempted services.
According to the petitioner, the works contract he executed was for the Odisha Lift Irrigation Corporation Ltd., an entity associated with the state government. When the matter of Service Tax liability on this contract came before the adjudicating authority, the initial tax officer who examined the case, the fact that the works contract was for this government corporation was acknowledged. Applying the provisions of Notification No. 25/2012-Service Tax, the adjudicating authority took the view that the services rendered under this contract were covered by the exemption provided in the notification. Consequently, the adjudicating authority decided to drop the proceedings against the petitioner, finding no Service Tax liability.
However, this decision did not bring finality to the matter. The tax department, specifically the Principal Commissioner GST & Central Excise, Bhubaneswar Commissionerate, was apparently not in agreement with the adjudicating authority’s interpretation. Acting at the instance of the Principal Commissioner, the Additional Commissioner, GST & Central Excise, filed an appeal against the adjudicating authority’s order before the Commissioner (Appeals), GST, Central Excise & Customs, Bhubaneswar. This is a standard step in the appellate hierarchy within the indirect tax structure, allowing the department to challenge orders perceived as incorrect or prejudicial to the revenue.
The Commissioner (Appeals), upon reviewing the appeal, sided with the department. In an order dated January 29, 2025, the Commissioner (Appeals) allowed the appeal filed by the Additional Commissioner. This appellate order effectively reversed the finding of the adjudicating authority and held that the Service Tax exemption under Notification No. 25/2012-Service Tax was not applicable to the works contract executed for the Odisha Lift Irrigation Corporation Ltd. The petitioner contends that the Commissioner (Appeals) passed this order without properly appreciating the fact that the services were provided to a Government Corporation, which, in the petitioner’s view, falls within the purview of the exemption notification.
Facing a potential Service Tax demand following the appellate order, the petitioner, Golekha Bihari Aich, approached the Orissa High Court seeking judicial intervention through a writ petition. Before the High Court, the petitioner’s counsel, Mr. Sunil Mishra, reiterated the argument that the works contract was for a Government Corporation and therefore the services were exempt under Notification No. 25/2012-Service Tax. He submitted that when the transaction is inherently exempted, the appellate authority’s decision to levy tax is incorrect and raises a question of law.
To support the claim for exemption, the petitioner’s counsel cited a judgment of the Supreme Court in the case of Commissioner, Customs Central Excise and Service Tax, Patna v. M/s. Shapoorji Pallonji and Company Pvt. Ltd., reported in 2023 Live Law (SC) 885. This reference suggests that the Supreme Court’s ruling in Shapoorji Pallonji might have dealt with a similar issue concerning the taxability of works contracts for government or public sector entities and the applicability of relevant exemption notifications. The petitioner is likely relying on this judgment to argue that the principles laid down by the apex court support the view that the services provided to Odisha Lift Irrigation Corporation Ltd. should be considered exempt.
Appearing for the revenue authorities (opposite parties No. 1 to 4), learned Senior Standing Counsel, Mr. Sujan Kumar Roy Choudhury, raised a preliminary objection regarding the maintainability of the writ petition. He contended that the petitioner had an effective alternative remedy available, which was to file an appeal before the appropriate appellate tribunal against the order of the Commissioner (Appeals). Indian law generally encourages litigants to exhaust all available statutory remedies before invoking the extraordinary writ jurisdiction of the High Courts.
However, the Orissa High Court decided to entertain the writ petition despite the objection concerning the alternative remedy. The court noted the petitioner’s submission that the appellate authority had allegedly failed to correctly apply the terms of the exemption notification and had acted at the instruction of the Principal Commissioner. These aspects, if substantiated, could constitute grounds for the High Court to exercise its writ jurisdiction even when an alternative remedy exists, particularly when the matter involves the interpretation of a notification and the status of a government entity.
The High Court has framed two specific issues that it intends to examine to resolve the dispute:
Firstly, the court will determine “whether the transaction in question falls within the fold of exemption notification” dated June 20, 2012. This requires a thorough examination of the nature of the works contract services provided by the petitioner and a detailed analysis of the clauses and conditions of Notification No. 25/2012-Service Tax to ascertain if these services are indeed listed as exempted.
Secondly, and perhaps more critically, the court will consider “whether the Odisha Lift Irrigation Corporation Ltd., is comprehended within the meaning of ‘governmental authority’ so that the service provided by execution of works contract in respect of Government Corporation would fall within the scope of exemption notification dated 20th June, 2012?” The applicability of many Service Tax exemptions for services provided to government-related entities often depends on whether these entities fall under definitions like ‘governmental authority,’ ‘government entity,’ ‘local authority,’ etc., as specified in the notifications. The court will need to interpret the term ‘governmental authority’ in the context of Notification No. 25/2012-Service Tax and determine whether Odisha Lift Irrigation Corporation Ltd., a state government corporation, fits this definition. This aspect often involves looking at the nature of control by the government, the functions performed by the corporation, and judicial precedents interpreting such terms. The Supreme Court’s decision in Shapoorji Pallonji might be particularly relevant to this point.
Following its decision to hear the case and frame the issues, the High Court issued procedural directions to facilitate the proceedings. Mr. Sujan Kumar Roy Choudhury’s appearance on behalf of the revenue authorities (opposite parties No. 1 to 4) was noted, and formal notice was dispensed with for these parties. The petitioner was directed to serve copies of the writ petition on the revenue’s counsel within three working days. The revenue was granted four weeks’ time to file a counter affidavit, presenting their detailed response to the petitioner’s contentions and the facts of the case. Notice is also to be issued to opposite party No. 5, presumably the Odisha Lift Irrigation Corporation Ltd., by speed or registered post with A.D., with the necessary steps to be taken by the petitioner within three working days.
Significantly, as an interim measure to protect the petitioner from potential coercive action by the department during the pendency of the writ petition, the High Court directed that the order dated January 29, 2025, passed by the Commissioner (Appeals), shall not be given effect to until the next date of hearing. This interim stay provides temporary relief to the petitioner, preventing the department from enforcing the Service Tax demand based on the appellate order.
The case has been listed for further hearing on May 15, 2025. The outcome of this case is expected to bring clarity to the Service Tax position of contractors undertaking works for state government corporations in Odisha under the purview of Notification No. 25/2012-Service Tax and contribute to the jurisprudence on the interpretation of exemption notifications and the definition of ‘governmental authority’ in the context of Service Tax.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
