LI Network
Published on: October 14, 2023 at 12:50 IST
In a significant judgment, the Supreme Court has clarified that services provided to the Indian Institute of Technology (IIT) and the National Institute of Technology (NIT) are exempt from service tax.
This decision came after a careful interpretation of the use of “or” and a semicolon in the Mega Service Tax Exemption Notification issued by the Department of Revenue in 2012.
The case centered on the service tax liability of M/s Shapoorji Pallonji and Company Pvt. Ltd. for contract works executed for IIT-Patna and NIT-Rourkela.
In 2012, the Department of Revenue issued the Mega Service Tax Exemption Notification, specifying the services exempted from service tax. This notification was subsequently amended in 2014. According to this notification, services provided to a “governmental authority” were exempt from service tax.
The definition of “governmental authority” in the 2014 notification included entities set up by an Act of Parliament or a State Legislature or established by the government with 90% or more participation by way of equity or control to carry out functions entrusted to a municipality under Article 243W of the Constitution.
The High Courts of Patna and Orissa had previously ruled that service tax was not leviable on contracts for IIT and NIT based on this definition. However, the Department challenged these judgments, arguing that an institute could only be considered a “governmental authority” if it was set up by statute and had 90% or more government control.
The Supreme Court, in a decision authored by Justice Datta, delved into the impact of the word “or” between sub-clauses (i) and (ii) of the definition and the implications of using a semicolon after sub-clause (i).
The Court determined that the use of “or” in the definition clause cannot be equated to “and,” as proposed by the Department. It emphasized that the plain and unambiguous language of the clause dictated the interpretation.
The judgment also highlighted the significance of punctuation in interpreting the meaning of a clause. It noted that the use of a semicolon was deliberate and intended to distinguish sub-clause (ii) from sub-clause (i).
The Court concluded that the long line of the definition governed only sub-clause (ii) due to the introduction of a semicolon after sub-clause (i. This decision affirmed the views of the High Courts of Patna and Orissa.
With this ruling, services provided to IIT and NIT will continue to be exempt from service tax, providing clarity on the matter.
Case Title: Commissioner, Customs Central Excise and Service Tax, Patna v. M/s Shapoorji Pallonji and Company Pvt Ltd; Union of India v. M/s Shapoorji Pallonji and Company Pvt Ltd