Custom, Excise & Service Tax Tribunal
Kailash Electricals vs Cgst & Ce Kanpur on 4 April, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70382 of 2022
(Arising out of Order-in-Original No.KNP-EXCUS-000-COM-003-20-21 dated
08/05/2020 passed by Commissioner of Central Excise & Service Tax,
Kanpur)
M/s Kailash Electricals, .....Appellant
(117/N/52 Bishambar Dham, Kakadeo, Kanpur-208005)
VERSUS
Commissioner of Central Excise &
Service Tax, Kanpur ....Respondent
(117/7, Sarvodaya Nagar, Kanpur-208005)
WITH
Service Tax Appeal No.70293 of 2020
(Arising out of Order-in-Original No.KNP-EXCUS-000-COM-003-19-20 dated
28/02/2020 passed by Commissioner of Central Excise & Service Tax,
Kanpur)
Commissioner of Central Excise &
Service Tax, Kanpur .....Appellant
(117/7, Sarvodaya Nagar, Kanpur-208005)
VERSUS
M/s Kailash Electricals, ....Respondent
(117/N/52 Bishambar Dham, Kakadeo, Kanpur-208005)
APPEARANCE:
Shri Dharmendra Srivastava, Chartered Accountant for the Appellant-
assessee
Shri A.K. Choudhary, Authorised Representative for the Respondent-
Revenue
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NOs.70167-70168/2025
DATE OF HEARING : 17 December, 2024
DATE OF PRONOUNCEMENT : 04 April, 2025
Service Tax Appeal Nos.70382 of 2022 &
2 70293 of 2020
SANJIV SRIVASTAVA:
These two appeals, one by the assessee (appellant) and
other by revenue, are directed against Order-in-Original No.KNP-
EXCUS-000-COM-003-20-21 dated 08/05/2020 passed by
Commissioner of Central Excise & Service Tax, Kanpur. By the
impugned order following has been held:-
ORDER
i) I confirm the demand and order for recovery of service tax amounting to Rs.1,09,93,333/- (Rupees One Crore Nine Lakh Ninety Three Thousand Three Hundred and Thirty Three only) including Education Cess & Secondary & Higher Education Cess and order for recovery of the said amount from them under the provisions of Section 73(1) of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017.
ii) I also order for recovery of Interest under Section75 of the Finance Act, 1994, read with Section 174 of the CGST Act, 2017, at appropriate rates from the due date till the date of actual deposit of the confirmed amount of Service Tax.
iii) In terms of Section 78 of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017, I impose the penalty of Rs.1,09,93,333/- (Rupees One Crore Nine Lakh Ninety Three Thousand Three Hundred and Thirty Three only)."
2.1 Appellant-assessee is engaged in the work of designing, supply, erection, commissioning and installation of electrical equipments and devices including wiring and fitting thereof. They are also engaged in Construction work, repair and maintenance of electrical equipments under annual maintenance contracts and Supply of tangible goods Service. They are registered under the category of "Works Contract Services" and "Management, Maintenance or Repair Services".
2.2 In terms of Section 67 and Section 73(1) of the Finance Act, 1994, the Show cause Notice was issued to the assessee in continuation of the earlier show cause notice. The grounds relied Service Tax Appeal Nos.70382 of 2022 & 3 70293 of 2020 upon in the instant Notice are the same as mentioned in the earlier Show Cause Notice. In respect of the services provided by them to Indian Railways, IIT Kanpur and others in relation to Erection, Commissioning & Installation of various kinds of machinery/ equipment/structure etc. and maintenance and repair activities. The Demand cum Show Cause Notices have been issued to the assessee as they have mis-declared the taxable value of the services provided by them and failed to self assess the service tax liability properly. 2.3 After scrutiny and investigation, revenue was of the view that appellant-assessee has not paid service tax for the financial year 2014-15 as detailed in table bellow:-
Gross Abated Service Tax Gross Service Amount of amount of taxable value inclusive of taxable Tax paid Service Tax contract @70% As Cess amount as by the Not/short receipt as per Rule payable by declared in party as paid [(3) - per Profit & 2A(ii)(B) of the party @ the relevant per ST-3 (5)] Loss A/c for the Service 12,36% ST-3 returns returns of the year Tax for the 2014-15 ending (Determinati financial 31.03.2015 on of Value) year 2014- Rules, 2006 15 1 2 3 4 5 6
32,71,63,671 22,90,14,570 2,83,06,220 21,34,08,220 13,95,167 2,69,11,034 2.4 Vide the show cause notice dated 08.05.2017, appellant was asked to show cause as to why-
(i) Service Tax amounting to Rs.2,69,11,034/- (including P.E. Cess & S.H.E. Cess) short paid during the financial year 2014-15 should not be demanded and recovered from them under the provisions of Section 73(1) of the Finance Act, 1944.
(ii) Interest at the appropriate rate for the relevant period till the payment of service tax should not be demanded and recovered from them under the provisions of Section 75 of the Finance Act, 1994;
(iii) Penalty should not be imposed upon them under the provisions of Section 78 of the Finance Act, 1994 ibid for the reasons as discussed above."
Service Tax Appeal Nos.70382 of 2022 & 4 70293 of 2020 2.5 The said show cause notice has been adjudicated as per the Order-in-Original dated 08.05.2020 as referred in para-1 above.
2.5 Aggrieved by the above order, both appellant-assessee and revenue have filed these two appeals.
3.1 We have heard Shri Dharmendra Srivastava Chartered Accountant for the appellant and Shri A.K. Choudhary Authorized Representative for the revenue.
3.2 Arguing for the appellant learned Counsel submits that- Appellant is engaged in providing Works contract services to Indian Railways, IIT, Kanpur and they also involved to provide services of maintenance and repair for IIT Kanpur. All such services involve transfer of property in goods during execution, VAT is duly discharged by the appellant. The work contract services provided by the appellant are in respect of original work. The services provided in the category of Work Contract Services and the same are not taxable for the entire period.
For the period prior to 01.06.2007 Work Contract Services could not have been taxed as per the decision of Hon'ble Supreme Court in the case of Larsen & Tubro Ltd. 2015 (39) S.T.R. 913 (S.C.).
For the period after 01.06.2007 to 30 June, 2012 Work Contract Services (WCS) in respect of railways are not taxable as per para 1 of the definition, this fact has been admitted by the adjudicating authority and the demand has been duly dropped.
In respect of services provided to IIT, Kanpur, reliance is placed on the decision of Hon'ble Patna High Court in the case of Shapoorji Paloonji & Company Pvt. Ltd., wherein the IIT was considered as a government authority and allowed the exemption from service tax. This decision has been upheld by Hon'ble Supreme Court.
Similar view has been expressed by Chennai Bench of the Tribunal in the case of M/s R R Thulasi Builders India Pvt. Ltd. and in the case of M/s RGP Construction Vs Salem.
Service Tax Appeal Nos.70382 of 2022 & 5 70293 of 2020 Thus for the period 01.06.2007 to 30.06.2012 both the services are not taxable under the Service Tax Act. Exemption for the period after 01.07.2012 by Clause 14(a) & 12 (c) of Mega Exemption Notification No.25/2012-ST- services pertaining to construction, erection, commissioning, or installation of original works pertaining to railways are exempt from payment of service tax. Similarly, by Sl. No.12 of the said notification services provided to government, local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration has been exempted from payment of service tax if services provided to railways and IIT. In respect of service provided to Madhyanchal Vidyut Vitran Nigam Ltd. in terms of Notification No.30/2012 dated 20.06.2012, 50% of service tax liability would be upon the service recipient under reverse charge mechanism, the taxable value in such cases can be in accordance with Rule 2A of Service Tax Determination of Value Rules, 2006. Thus computation of demand in the impugned order is erroneous.
After 01.07.2012, valuation shall be done as per Rule 2A after allowing an abatement of 40%/60%/70%, as applicable in case of works contract services. As demand of service tax is confirmed on the maintenance services provided to IIT is unsustainable, demand of service tax liability needs to be set aside. 3.3 Learned Authorized Representative reiterates the findings recorded in the impugned order with regards to confirmation of the demand and the grounds taken in the appeal filed by the revenue in respect of the demands dropped.
4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument.
4.2 Impugned order records findings as follows:-
Service Tax Appeal Nos.70382 of 2022 & 6 70293 of 2020 "13. I have carefully examined the case records, the documents relied upon, and party‟s written defense replies as well as oral submissions made at the time of personal hearing.
14. The facts of the case in brief are that on the basis of intelligence that the party is engaged in the work of designing, supply, erection, commissioning and installation of electrical equipments and devices including wiring and fitting thereof and annual maintenance of the electrical equipments which appears to be taxable service and the party was not paying service tax, a team of Preventive officers of Central Excise Commissionerate, Kanpur, visited the business premises of M/S Kailash Electricals, Kanpur.
On examination of records of the party it was found that the party is engaged in executing work relating to supply, erection, design, installation and commissioning of electrical work for Railway and I.LT. Kanpur. The work comprises of wiring, fitting, fitting of Panel, Cable, erection of transformers etc. They were also taking annual maintenance contract of Electrical equipment for 1.1.T. Kanpur. For getting work order, they get the approval from various departments under Letter of Acceptance along with the site where work had to be executed and accordingly electrical works are completed. Further, all the payments were received in cheques after the execution/completion of work.
15. Thus, after investigation, initially, the department was of view that the works executed by the party appeared to be classifiable under following categories of taxable services: Erection, commissioning and installation services and Management and Maintenance or Repair Services. Thereafter, a demand cum show cause notice Dated 23.04.10 was issued to them covering period up to 2010. For the subsequent periods of 2010-11, 2011-12, 2012-13, 2012-13 and 2013-14 were also issued. The impugned Service Tax Appeal Nos.70382 of 2022 & 7 70293 of 2020 show cause notice was issued vide C.No. V(15) Off/Adj./ST/19/2017/2015-19 dated 08.05.201 for demand of Rs. 2,69,11,034/ However, the department has issued impugned show cause notice classifying the service rendered by the party under the 'Works Contract category but at the same time has denied the exemption to the service rendered to Railways by not accepting their work as Original Work as envisaged under exemption Notification No. 25/2012-St dated 20.6.2012.
16. Now, taking up the issues involved in the present case, I note that at the outset that there is no dispute as to the precise nature of the party's activities and the classification thereof. I find that that prime disagreement is actually whether these activities executed for Railways tantamount to providing a taxable service which is beyond the scope of "Original Work as provided in the exemption Notification and as alleged in the impugned show cause notices as above or the work falls under the ambit of exemption as claimed by the party. Now, I proceed to examine the applicability of service tax on the service provided by the party.
17. I find that in the show cause notice, the department has stated that the service portion in execution of 'Works Contract' is a 'declared service'. Being not covered in the negative list of services given under Section 66D of the Act ibid, the services provided by the party during the year 2014-15 were taxable services under the category of Works Contract service. Further, Notification No. 25/2012- ST dated 20.06.2012 at Sl. No. 14(a) exempt services by way of construction, erection, commissioning or installation of Original Works pertaining to Railways, Including mono rail and metro. The allegation of department is that the work executed by the party for Railways mainly includes modification work of sub-station, shifting of transmission lines, improvement in reliability of OHE system, execution Service Tax Appeal Nos.70382 of 2022 & 8 70293 of 2020 of balance work with regard to design, supply, erection, testing. and commissioning of Traction sub-station, break- down maintenance of equipments installed, which does not appear to have been included in the definition of "original works" as defined under Explanation 1(a) to Rule 2A of the Service Tax (Determination of Value) Rules, 2006 as amended. Besides this, it is further alleged that the party have also executed works related to design, supply, erection, testing and commissioning of Traction sub-station for Railways, but the party could not adduce any evidence showing the original nature of such works executed by them for Railways during the year 2014-15. Thus, the exemption at Sl. No. 14 (a) of Notification No 25/2012-ST dated 20.06.2012 as amended does not appear to be available to them in respect of the work executed by them for railways.
18. The party, on the other hand has contested that their contract is a composite contract for Railways which is exempted from the service tax vide entry no. 14 of Mega Exemption Notification No. 26/12 dated 20.06.2012. They further stated that the work rendered to Railway was exempted even prior to negative list regime.
19. Since the issue pertains to the inclusion or exclusion of a particular service activity under the taxable service category only on the basis that whether the work executed falls within the scope of "Original Work' or otherwise. Therefore, I find it important to reproduce the definition of "Original Work" as applicable at the relevant time. The definition of "Original Works under clause 2(y) of the said Notification provides that 'Original Works' has the meaning assigned to it under Rule 2A of the Service Tax (Determination of Value) Rules, 2006. The provisions of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 as amended w.e.f. 01.07.2012 are as under:
Service Tax Appeal Nos.70382 of 2022 & 9 70293 of 2020 "2A Determination of value of service portion in the execution of a Works Contract-
Explanation 1. For the purposes of this Rule,-
(a) "original works" means-
(i) all new constructions;
(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre- fabricated or otherwise;
20. On going through the definition, I find that for construction, it speaks about new construction which makes it clear that as far as construction work is concerned, repairing and restoration will not fall under the 'Original Work', whereas in rest of the categories the word 'new' is missing. In the (ii) point it clearly speaks about the addition or alterations to abandoned or damaged structures on land. In case of erection, commissioning or installation of plants and machinery, It speaks only about pre-fabrication which means that the assembly was fabricated prior to the installation. The fabrication could have occurred onsite or offsite. The degree of prefabrication allowed is based upon the product as well as the project documents
21. Therefore, I observe that the definition not only covers new work but also addition and alteration including erection commissioning or installation. Therefore, in my opinion the work allotted to the party by Railways is squarely covered under the definition of "Original Work' as defined above. Thus, the proposed liability in respect of Railways deserves to be quashed.
22. I further find that the department has also stated that party has failed to adduce any evidence showing the Service Tax Appeal Nos.70382 of 2022 & 10 70293 of 2020 original nature of such work executed by them for Railways. In this regard, I observe that the party has submitted letters of the acceptance issued by the Railways authorities in their favour which reveal that orders of the railway to the party were placed for design, supply, erection, testing of commissioning of traction sub stations feeding post, SSF equipments. The LOA were duly signed and executed. Thus, in my opinion the LOA submitted by the party is enough evidence to confirm the nature of work executed by the party for the Railways.
23. At this juncture, I would also like to refer the clarification issued by TRU vide No. 123/5/2010-TRU dated 24.05.2010 where clarification has been given specially to wipe out the confusion in field formation in respect of work of laying of cables and similar activities. In the given circular taxable status of various activities, on which disputes have been arisen, have been clarified and tabulated. I notice that at Sl. No. 8, it has been provided that, Sl. No Activity Status
8. Railways electrification, Not a taxable service under any electrification alongside the clause of Sub Section (105) of Railways Track Section 65 of the Finance Act, 1994
24. Thus, it is now abundantly clear from the above the work related to electrification is exempted from service tax in any clause of Sub section (105) of Section 65 of the Finance Act, 1994. Therefore, I hold that the demand of service tax against the party on the work of Railways is not sustainable and liable to be set aside.
25. Now coming to the work executed by the party for the IIT, Kanpur and other parties, I find that party has taken contract for execution of different types of work which includes electrical work, repairing and replacement of electrical devices, modification of electrical installations, Annual maintenance contract of sub-station and moreover construction of hall for residence of Boys. Thus apart from Service Tax Appeal Nos.70382 of 2022 & 11 70293 of 2020 contract for electrical work, party has undertaken the work of AMC and repair and construction of Hall/Hostel. Therefore, the work executed by the party other than Railway also falls under the category "Works Contract' covering erection, commissioning, construction work and repairing and annual maintenance contract. However, I do not find any exemption from service tax to them similar to the exemption granted to the work executed for Railways. Therefore, the party has rendered themselves liable to service tax on the value of work contract executed for all the parties other than Railways.
26. Further, I observe that as regards the works executed by the party for IIT, Kanpur and other parties, it is clear from the documents that the party have executed the works related to electrical repair, renovation work, replacement of damaged cables, modification of electrical installations and electrical work etc. besides executing the work related to constructions, but again the party vide their letter dated 05.09.2016 or otherwise could not adduce any evidence showing the original nature of such works executed by them for IIT, Kanpur and other parties during the year 2014-15. Thus, it appears that the contracts covering the said work for IIT, Kanpur and other parties was within the category of the work other than "original work" for discharging the liability of service tax.
27. In view of the above facts, I observe that as per the details given in the RUDs (No.3), the party has executed the work for parties other then Railways for Rs 14,31,86,548/- and they are liable to Service Tax Rs. 1,23,88,500/- on the abated value of Rs. 10,02,30,584/-. Since the party has already paid Rs 13,95,167/-, I hold that party have rendered themselves liable to pay Service Tax of Rs 1,09,93,333/- and the same is recoverable from them.
Service Tax Appeal Nos.70382 of 2022 & 12 70293 of 2020
28. In so far as the Department's allegation that interest under Section 75 of the Finance Act, 1994 is to be recovered from the party on the Service Tax not paid, I note that charging of interest on the Service Tax amount not paid is not contested. Nevertheless a perusal of the relevant provision is useful to settle the matter beyond doubt and in this regard I find that Section 75 of the said Act provides that:-
"Every person, liable to pay the tax in accordance with the provisions of Section 68 or Rules made there under, who fails to credit the tax or any part thereof to the account of the Central Govemment within the period prescribed, shall pay simple interest at such rate not below ten percent and not exceeding thirty six percent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette, for the period by which such crediting of the tax or any part thereof is delayed."
29. Thus, there can be no doubt that interest is attracted whenever the due tax is not paid with time. This view is confirmed by the Hon'ble Tribunal, CESTAT, Chennai in the case of INMA international Security Academy (P) Ltd. vs. CCE ((2005) 1 STT 31/2005 (180) ELT107] which held that "The question, now, is whether the party should be called upon to pay interest on the Service Tax amount in terms of Section 75 of the Finance Act, 1994. The assessee's plea of ignorance does not appear to be appealing in as much as it is common man's knowledge that delayed payment of dues will normally carry interest. The interest charged in this case is in terms of Section 75 ibid." Hence, I find that the law is settled with regard to recovery of interest on the - amount of Service Tax not paid. Therefore the party is required to pay interest at the applicable rate on the Service Tax Appeal Nos.70382 of 2022 & 13 70293 of 2020 amount of Service Tax which they failed to pay under the provisions of Section 75 of the Finance Act, 1994.
30 In so far as the proposed penal action under Section 78 of the Finance Act, 1994 is concerned, I find that it is established beyond doubt that the party failed to pay the legitimate Service Tax that was liable to be paid by them. Moreover, they were responsible for willful mis-statement and suppression of facts and various contraventions of Section 70 of the Finance Act, 1994, read with Rule 7 of the Service Tax Rules, 1994, in as much as they failed to self-assess the Service Tax liability for the period 2014-15. Besides this, the party did not disclose proper & correct information in the statutory ST-3 returns as prescribed under Section 70 of the Finance Act, 1994, hence, failed to comply with the Statutory provisions of the said act, which makes them liable for penalty under Section 78 of the Finance Act, 1994
31. I further find that the show cause notices in question has been issued in continuation to the demands of Service Tax in recurring nature. Further, during the subject period the party were registered with the Service Tax department in the category of Work Contract Service' and 'Management, Maintenance or Repair Service', they were filing ST-3 returns showing provided services in the category of Work Contract Service and Management, Maintenance or Repair Service and paid Service Tax accordingly However, the party has failed to pay due Service Tax on the services provided by them during the subject period on the issue of work executed by the is not covered under the definition of Original Work' as defined under Rule 2A of the Service Tax (Determination of Value) Rules, 2006. Thus, penalty under Section 78 of the Finance Act, 1994 is imposable One more fact, which I would like to add that even after the investigations were initiated. and the party became fully aware of the provisions of the Service Tax Appeal Nos.70382 of 2022 & 14 70293 of 2020 Finance Act, 1994, they did not bother to pay appropriate Service Tax on the taxable services provided by them. This fact clearly confirms the party's intention to evade payment of Service Tax, and once, such intention gets proved, the presence of pre-requisite for imposition of penalty under Section 78 of the Finance Act, 1994 gets confirmed This cannot be equated with the mere failure on the part of the party. Hence, for this deliberate evasion of Service Tax by the party, as discussed hereinabove, penalty is imposable upon the party in the instant case. A simple reading of the provisions of Section 78 makes it abundantly clear that when the allegations of suppression of facts, willful mis-statement, fraud, collusion, etc., with intent to evade payment of duty are proved, then the defaulter shall also be liable to pay the penalty in addition to Service Tax and Interest. I find that in this case all the efforts were made in order to evade payment of Service Tax during the entire period. Thus, I hold that for this act, the party had rendered themselves liable to penal action under Section 78 of the Finance Act, 1994."
4.3 Revenue has challenged the findings recorded in the impugned order saying that Commissioner has failed to examine the individual work order to satisfy himself that the they are with reference to "original works". There is examination of the work orders executed by the appellant for the railways. After having examined adjudicating authority has concluded that these pertain to the Original Works. Revenue in their appeal has made a sweeping statement without pointing out to a single order which were in relation to some other activities, which is not in nature of original works in absence of anything specific, we do not find any merits in the appeal filed by the revenue on this account. Further we find that impugned order not only drops the demand for this reason only, but in the impugned order has gone ahead to interpret the phrase "original work" used in the notification No 25/2012-ST dated 20.06.2012. On the basis of his interpretation of the said phrase, he has concluded that all Service Tax Appeal Nos.70382 of 2022 & 15 70293 of 2020 these work orders would qualify for exemption under that notification. In their appeal revenue has not specified any reason to question the interpretation placed. In absence of any challenge to the interpretation placed in the impugned order to phrase "original works" the ground taken in the appeal is not sufficient to dislodge the findings recorded.
4.4 In respect of services provided to IIT Kanpur, we find that the issue is squarely covered by the decision of Hon'ble Supreme Court in the case of M/s SHAPOORJI PALLONJI & COMPANY PVT. LTD.2023 (79) G.S.T.L. 145 (S.C.) / (2023) 11 Centax 180 (S.C.) wherein following has been held:-
"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 :
EXEMPTION CLARIFICATION
NOTIFICATION NOTIFICATION
"governmental "governmental authority"
authority" means a means an 2(s) authority
board, 2(s) or an or a board or any other
authority or any other body;
body established with
(i)Set up by an Act of
90% or more
Parliament or a State
participation by way of
Legislature; or
equity or control by
Government and set
(ii) established by
up by an Act of the Government,
Parliament or a State
Legislature to carry with 90% or more
out any function participation by way of
entrusted to a equity or control, to carry
municipality under out any function
article 243W of the entrusted to a
Constitution; municipality under article
Service Tax Appeal Nos.70382 of 2022 &
16 70293 of 2020
243W of the Constitution;
15.Having read the two definitions, first and foremost, it
is necessary to ascertain the objective behind the
Clarification Notification which amended the Exemption Notification and re-defined "governmental authority". A bare perusal of the Exemption Notification reveals that the exemption therein was only extended to those entities, viz. board or authority or body, which fulfilled the three requisite conditions, i.e. : (a) having been established with 90% or more participation by way of equity or control by Government, (b) set up by an Act of the Parliament or a State Legislature, and (c) carrying out any function entrusted to a municipality under Article 243W of the Constitution. It is evident that the scope of the exemption was severely restricted to only a few entities. Although the reason for re-defining "governmental authority" has not been made available by the appellants, we presume that unworkability of the scheme for grant of exemption because of the restricted definition of "governmental authority" was the trigger therefor and hence, the scope of the exemption was expanded to cover a larger section of entities answering the definition of "governmental authority". An amendment by way of the Clarification Notification was, therefore, introduced which expanded the definition of "governmental authority" and widened the exemption base for service tax to be provided even to an authority or a board or any other body, set up by an Act of Parliament or a State Legislature without the condition of having been established with 90% or more participation by way of equity or control by Government to carry out any function entrusted to a municipality under Article 243W of the Constitution.
16.While the aforesaid interpretation of amended clause 2(s) has been upheld by the Patna High Court, the appellants have countered the same by submitting that the Service Tax Appeal Nos.70382 of 2022 & 17 70293 of 2020 amended definition of "governmental authority" as in clause 2(s) should be interpreted in a manner so as to make the long line under clause 2(s) applicable to both sub-clause (i) and sub-clause (ii). In other words, as per the appellants, to qualify as a "governmental authority"
under clause 2(s)(i), such authority, board or body must not only be a statutory authority set up by an Act of Parliament or a State Legislature but must also have 90% or more participation of the Government by way of equity or control to carry out any like function that a municipality under Article 243W of the Constitution is entrusted to discharge.
17.We have no hesitation to disagree with the latter interpretation sought to be placed by the appellants, for the reasons that follow.
18.In Superintendent & Legal Remembrancer, State of West Bengal v. Corporation of Calcutta [(1967) 2 SCR 170], a nine-judge Bench of this Court, relying upon Craies‟ On Statute Law (6th edn.), stated that where the language of a statute is clear, the words are in themselves precise and unambiguous, and a literal reading does not lead to absurd construction, the necessity for employing rules of interpretation disappears and reaches its vanishing point.
19.This Court in Union of India & Ors. v. Ind-Swift Laboratories Ltd. [(2011) 4 SCC 635 = 2011 (265) E.L.T. 3 (S.C.) = [2011] 30 STT 461 (SC)], held that harmonious construction is required to be given to a provision only when it is shrouded in ambiguity and lacks clarity, rather than when it is unequivocally clear and unambiguous.
20.What is plain and ambiguous from a bare reading of a provision under consideration must be interpreted in the same way as it has been stipulated and not in a way that it presumes deficiency and radically changes the meaning and context of the provision. This is the view expressed in Service Tax Appeal Nos.70382 of 2022 & 18 70293 of 2020 the decision of a five-judge Bench of this Court in Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd. [(1961) 2 SCR 189]. The relevant passage therefrom reads as under :
........ In interpreting a taxing statute, "10. equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed : it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency."
21.It is a well-established principle of statutory interpretation that any authority, entrusted with the function of legislating, legislates for a purpose; it can, thus, safely be assumed that it will not indulge in unnecessary or pointless legislation. This Court, in Utkal Contractors & Joinery (P.) Ltd. v. State of Orissa [(1987) 3 SCC 279], lucidly explained thus :
........ It is again important to remember that "9. Parliament does not waste its breath unnecessarily. Just as Parliament is not expected to use unnecessary expressions, Parliament is also not expected to express itself unnecessarily. Even as Parliament does not use any word without meaning something, Parliament does not legislate where no legislation is called for. Parliament cannot be assumed to legislate for the sake of legislation; nor can it be assumed to make pointless legislation. Parliament does not indulge in legislation merely to state what it is unnecessary to state or to do what is already validly done. Parliament may not be assumed to legislate unnecessarily."
22.Having noticed some of the precedents in the field of interpretation of statutes, we now move on to a little bit of Service Tax Appeal Nos.70382 of 2022 &
19 70293 of 2020 English grammar. The word "or" as well as the word "and" is a conjunction; and it is well known that a conjunction is used to join words, phrases, or clauses. On how the conjunctions "or" and "and" are to be read, guidance could be drawn from authoritative texts and judicial decisions. As per Justice G.P. Singh‟s Principles of Statutory Interpretation, the word "or" is normally disjunctive while the word "and" is normally conjunctive. In English law, the position is clear as crystal, as explained by Lord Scrutton in Green v. Premier Glynrhonwy Slate Co. [(1928) 1 K.B. 561, page 569] that one does not read "or" as "and" in a statute unless one is obliged, because "or" does not generally mean "and" and "and" does not generally mean "or".
23.When the meaning of the provision in question is clear and unambiguous by the usage of "or" in clause 2(s), there remains no force in the submission of Ms. Bagchi that "or" should be interpreted as "and". In our opinion, the word "or" employed in clause 2(s) manifests the legislative intent of prescribing an alternative. Going by the golden rule of interpretation that words should be read in their ordinary, natural, and grammatical meaning, the word "or" in clause 2(s) clearly appears to us to have been used to reflect the ordinary and normal sense, that is to denote an alternative, giving a choice; and, we cannot assign it a different meaning unless it leads to vagueness or makes clause 2(s) absolutely unworkable. We are fortified in our view by the decision of this Court in Sri Jeyaram Educational Trust v. A.G. Syed Mohideen [(2010) 2 SCC 513], where it was held thus :
It is now well settled that a provision of "11. a statute should have to be read as it is, in a natural manner, plain and straight, without adding, substituting or omitting any words. While doing so, the words used in the provision should be assigned and ascribed their natural, ordinary or Service Tax Appeal Nos.70382 of 2022 & 20 70293 of 2020 popular meaning. Only when such plain and straight reading, or ascribing the natural and normal meaning to the words on such reading, leads to ambiguity, vagueness, uncertainty, or absurdity which were not obviously intended by the legislature or the lawmaker, a court should open its interpretation toolkit containing the settled rules of construction and interpretation, to arrive at the true meaning of the provision. While using the tools of interpretation, the court should remember that it is not the author of the statute who is empowered to amend, substitute or delete, so as to change the structure and contents. A court as an interpreter cannot alter or amend the law. It can only interpret the provision, to make it meaningful and workable so as to achieve the legislative object, when there is vagueness, ambiguity or absurdity.
The purpose of interpretation is not to make a provision what the Judge thinks it should be, but to make it what the legislature intended it to be."
24.In the present case, the word "or" between sub- clauses (i) and (ii) indicates the independent and disjunctive nature of sub-clause (i), meaning thereby that "or" used after sub-clause (i) cannot be interpreted as "and" so as to tie it with the condition enumerated in the long line of clause 2(s) which is applicable only to sub- clause (ii).
25.Applying a different lens, let us test the worth of Ms. Bagchi‟s submission in the light of the punctuations in clause 2(s). It has been held by a Bench of nine Hon‟ble Judges of this Court in Kantaru Rajeevaru v. Indian Young Lawyers Association & Ors. [(2020) 9 SCC 121, para 18] that when a provision is carefully punctuated and there is doubt about its meaning, weight should undoubtedly be given to the punctuation; however, though a punctuation may have its uses in some cases, but it cannot certainly be regarded as a controlling element and cannot be allowed to Service Tax Appeal Nos.70382 of 2022 & 21 70293 of 2020 control the plain meaning. While so observing, this Court considered several decisions as well as the punctuation comma in the relevant provision of the Supreme Court Rules, 2013.
26.What follows is that p unctuation, though a minor element, may be resorted to for the purpose of construction.
27.In the present case, the use of a semicolon is not a trivial matter but a deliberate inclusion with a clear intention to differentiate it from sub-clause (ii). Further, it can be observed upon a plain and literal reading of clause 2(s) that while there is a semicolon after sub-clause (i), sub-clause (ii) closes with a comma. This essentially supports the only possible construction that the use of a comma after sub-clause (ii) relates it with the long line provided after that and, by no stretch of imagination, the application of the long line can be extended to sub-clause
(i), the scope of which ends with the semicolon. We are, therefore, of the opinion that the long line of clause 2(s) governs only sub-clause (ii) and not sub-clause (i) because of the simple reason that the introduction of semicolon after sub-clause (i), followed by the word "or", has established it as an independent category, thereby making it distinct from sub-clause (ii). If the author wanted both these parts to be read together, there is no plausible reason as to why it did not use the word "and" and without the punctuation semicolon. While 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. Therefore, we cannot overstep and interpret "or" as "and" so as to allow the alternative outlined in clause 2(s) to vanish.
Service Tax Appeal Nos.70382 of 2022 & 22 70293 of 2020
28.Let us consider the problem from a different angle. The revised definition of "governmental authority" and the few punctuations in the definition (two semicolons and two commas) and the conjunction „or‟ have been noticed above. Literally read, the conjunction „or‟ between sub- clauses (i) and (ii) clearly divides the two clauses in two parts with the first part completely independent of the second part. The first part is by itself complete and capable of operating independently. A construction leading to an anomalous result has to be avoided and to so avoid, it has to be held that the long line of clause 2(s) starting with "with 90%" and ending with "Constitution" qualifies sub- clause (ii); and, if the conjunction „or‟ is to be read as „and‟, meaning thereby that the portion "with 90% ... Constitution" has to be read as qualifying both sub-clauses
(i) and (ii), then the intention of redefining "governmental authority" would certainly be defeated. As discussed earlier, the purpose for which "governmental authority"
was re-defined must have been to make it workable. We cannot, therefore, resort to a construction that would allow subsistence of the unworkability factor. Assuming what Ms. Bagchi contended is right, it was incumbent for the appellants to bring to our notice, if not by way of pleading, but at least with reference to the relevant statutes, which of the particular authorities/boards/bodies are created by legislation - Central or State - "with 90% or more participation by way of equity or control by Government".
Each word in the definition clause has to be given some meaning and merely because promoting educational aspects is one of the functions of a municipality in terms of Article 243W of the Constitution read with Schedule XII appended thereto is no valid argument unless equity or control by the Government, to the extent of 90%, is shown to exist qua the relevant authority/board/body. Incidentally, neither is there any indication in the petition nor has Ms. Bagchi been able to disclose the identity of Service Tax Appeal Nos.70382 of 2022 & 23 70293 of 2020 any such authority/board/other body which is covered by her argument. No such identified authority/board/body covered by the aforesaid construction of the definition of "governmental authority" in clause 2(s) of the Clarification Notification, which the appellants appeal to us to accept, having been brought to our notice, we are unable to find any fault in the decisions of the Patna High Court and the Orissa High Court extending the benefit of the Exemption Notification to the educational institutions, and a fortiori, to SPCL.
29.We need not draw guidance from any of the decisions cited by Ms. Bagchi, except one, on the question of construction of the relevant clause because none of those decisions had the occasion to deal with the issue emanating from the Exemption Notification and the Clarification Notification that we are tasked to consider.
30.Ms. Bagchi heavily relied on the decision of a five- judge Bench of this Court in Dilip Kumar (supra) to urge that in case of any ambiguity in interpreting an exemption notification, the interpretation that favours the revenue must be adopted; also, the burden of proving applicability of the exemption notification would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. At the outset, we record that there is absolutely no quarrel with the proposition laid down therein. We, however, reject the contention of Ms. Bagchi based on Dilip Kumar (supra) because the ratio is not applicable to the facts and circumstances of this case. This, for the simple reason, that there exists no ambiguity insofar as the interpretation of clause 2(s) is concerned. We are endorsed in our opinion by the Latin maxim quoties in verbis nulla est ambiguitas, ibi nulla expositio contra verba expressa fienda est, which means that when there is no ambiguity in the words, then no exposition contrary to the words is to be Service Tax Appeal Nos.70382 of 2022 & 24 70293 of 2020 made. It is, therefore, clear as a sunny day that there arises only one plausible construction of clause 2(s) which is the one the Patna High Court adopted, and which we are inclined to uphold.
31.Ms. Bagchi had submitted that the impugned judgment broadens the scope of the exemption to include vast number of statutory bodies; therefore, unfairly burdening the exchequer. We observe that the authority having the competence to issue a notification completed its job by re-defining "governmental authority" and now it is a task entrusted to the courts to interpret the law. It is, at this juncture, important to notice the law laid down by this Court, speaking through Hon‟ble O. Chinnappa Reddy, J. in Girdhari Lal & Sons v. Balbir Nath Mathur [(1986) 2 SCC 237]. The position of law was affirmed in the following terms :
Where different interpretations are likely "6. to be put on words and a question arises what an individual meant when he used certain words, he may be asked to explain himself and he may do so and say that he meant one thing and not the other. But if it is the legislature that has expressed itself by making the laws and difficulties arise in interpreting what the legislature has said, a legislature cannot be asked to sit to resolve those difficulties. The legislatures, unlike individuals, cannot come forward to explain themselves as often as difficulties of interpretation arise. So the task of interpreting the laws by finding out what the legislature meant is allotted to the courts. Of course, where words are clear and unambiguous no question of construction may arise. Such words ordinarily speak for themselves. Since the words must have spoken as clearly to legislators as to judges, it may be safely presumed that the legislature intended what the words plainly say. This is the real basis of the so-called golden rule of construction that where the words of statutes are Service Tax Appeal Nos.70382 of 2022 & 25 70293 of 2020 plain and unambiguous effect must be given to them. A court should give effect to plain words, not because there is any charm or magic in the plainness of such words but because plain words may be expected to convey plainly the intention of the legislature to others as well as judges."
32.Keeping the above-said ratio in mind, an interpretation of the relevant provision resulting in the expanded scope of its operation cannot in itself be sufficient to attribute ambiguity to the provision."
Thus, we find merit in the appeal filed by the appellant- assessee in this regard.
4.5 In respect of the services provided to Madhyanchal Vidyut Vitran Nigam Ltd the demand has been confirmed after allowing the benefit of abatement. Appellant do not dispute the leviability of service tax, submit that amount of service tax due has been paid by them by taking abatement as applicable. Also they claim that they are liable to pay only 50% of the service tax due in terms of Notification No 30/2012-ST dated 20.06.2012. 4.6 Explaining the scheme of partial reverse charge mechanism of payment as per Notification No 30/2012-ST, Education Guide clarifies as follows:-
"10.1 Partial Reverse Charge With effect from 1.7.2012 a new scheme of taxation is being brought into effect whereby the liability of payment of service tax shall be both on the service provider and the service recipient. Usually such liability is affixed either on the service provider or the service recipient, but in specified services and in specified conditions, such liability shall be on both the service provider and the service recipient. 10.1.3 If the service provider is exempted being a SSI (turnover less than Rs 10 lakhs), how will the reverse charge mechanism work?
The liability of the service provider and service recipient are different and independent of each other.
Service Tax Appeal Nos.70382 of 2022 & 26 70293 of 2020 Thus in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is obliged to pay under the partial reverse charge mechanism. 10.1.6 How is the service recipient required to calculate his tax liability under partial reverse charge mechanism? How will the service recipient know which abatement or valuation option has been exercised by the service provider? The service recipient would need to discharge liability only on the payments made by him. Thus the assessable value would be calculated on such payments done (Free of Cost material supplied and out of pocket expenses reimbursed or incurred on behalf of the service provider need to be included in the assessable value in terms of Valuation Rules). The invoice raised by the service provider would normally indicate the abatement taken or method of valuation used for arriving at the taxable value. However since the liability of the service provider and service recipient are different and independent of each other, the service recipient can independently avail or forgo an abatement or choose a valuation option depending upon the ease, data available and economics."
From the perusal of the above clarifications it is quite evident that liability to pay service under the scheme of partial reverse charge mechanism has been well defined on both the service provider and service recipient. The liabilities are independent of each other, and each one is required to discharge his liability independently. Service receiver cannot shift the liability upon the service provider or vice versa, in excess of any amount specified in this regard. Thus we find that in respect of the services specified under the said scheme as per Notification No 30/2012- ST, the liability to pay service tax on the appellant in case of work contract services provided by them to the Madhyanchal Vidyut Vitran Nigam will have to be limited 50% of the service Service Tax Appeal Nos.70382 of 2022 & 27 70293 of 2020 tax payable as claimed by the appellant. Impugned order is totally silent on this account.
4.7 The demand in respect of this needs to be worked out and adjusted against the amount already paid. For this limited purpose the matter needs to be remanded back to the Original Authority. The quantum of penalty if any imposable would be determined in case any amount of tax is due. 5.1 Appeal filed by the appellant is allowed as indicated 4.4 & 4.7.
5.2 Appeal filed by the revenue is dismissed as indicated in para 4.3.
(Order pronounced in open court on-04 April, 2025) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp