Supreme Court Upholds Service Tax Exemption for IIT Patna and NIT Rourkela

Commissioner Vs Shapoorji Pallonji And Company Pvt. Ltd. & Ors. (Supreme Court of India)

Summary: The Supreme Court considered two connected civil appeals concerning the meaning of “governmental authority” under the Mega Service Tax Exemption Notification No. 25/2012-Service Tax, dated 20 June 2012, as amended by Notification No. 02/2014-Service Tax dated 30 January 2014. The common issue was whether the Indian Institute of Technology, Patna (IIT Patna) and the National Institute of Technology, Rourkela (NIT Rourkela) fell within the amended definition and consequently obtained the exemption applicable to specified construction services provided to the Government, a local authority or a governmental authority. The first appeal arose from the Patna High Court judgment dated 3 March 2016, which had directed refund of service tax collected in relation to construction at IIT Patna.

The second arose from the Orissa High Court judgment dated 5 February 2018, which, relying on the Patna decision, directed consideration of SPCL’s refund application concerning construction at NIT Rourkela. The relevant exemption was issued under section 93 of the Finance Act, 1994 and clause 12(c) covered structures meant predominantly for educational, clinical, or art or cultural establishments. The original definition of “governmental authority” required 90% or more participation by Government by equity or control, statutory establishment, and performance of a municipal function under Article 243W. The 30 January 2014 amendment recast clause 2(s) into two alternatives: an authority, board or other body set up by an Act of Parliament or State Legislature; or a body established by Government with 90% or more participation by equity or control, in either case to carry out a function entrusted to a municipality under Article 243W.