Road and Roof Projects Vs Assistant Commissioner of Revenue (Calcutta High Court)
The Calcutta High Court recently ruled that the Goods and Services Tax (GST) exemption for certain works contracts should be determined by the nature of the work, specifically if it relates to functions entrusted to Panchayat or Municipalities, rather than the authority that issued the tender. This decision came in a case involving Road and Roof Projects, a registered taxpayer, and the Assistant Commissioner of Revenue.
The petitioner, executed water-related works during 2020-21 and 2021-22 under work orders issued by the West Bengal Irrigation and Waterways Department and claimed exemption under Notification No. 12/2017–CT(Rate) asserting that the works related to “water management” — a function under Article 243G and the 11th Schedule of the Constitution — and therefore eligible for exemption.
The Adjudication authorities denied the exemption and issued the demand order. Aggrieved by the same, the Petitioner preferred an appeal before the First Appellate Authority.
Whereas the Appellate Authority allowed exemption for 2020–21, the exemption for 2021–22 was denied solely because the works were commissioned by the Irrigation and Waterways Directorate and not directly by a Panchayat or Municipality.
The Calcutta High Court sided with the petitioner for the 2021-22 period. The Court found the appellate authority’s reasoning for denying the exemption lacked basis, emphasizing that the exemption notification’s applicability rests on whether the work’s character aligns with functions entrusted to Panchayats or Municipalities under Articles 243G and 243W of the Constitution. The fact that the work orders originated from the Irrigation Department did not alter the fundamental nature of the work itself. Therefore, the High Court set aside the appellate authority’s order for 2021-22, mandating that the exemption be granted and quashing the related tax demands. This ruling clarifies that the substance of the work, and its alignment with constitutional mandates for local bodies, dictates GST exemption eligibility, irrespective of the tendering government department.
