The Madras High Court rejected a batch of writ petitions challenging a notification that withdrew service tax exemption on services in nature of works contract, as granted under a Mega Exemption Notification.
The court opined that the law presumes every citizen to know the law. The court observed that because "works contract" services are considered "declared services" under the Finance Act of 1994, the petitioners' services were subject to service tax. It added that every citizen has to arrange their affairs in consonance with the law.
Brief Facts:
The petitioners are construction companies hired by the State and Federal Governments' Public Works Departments to build schools. The Mega Exemption Notification No. 25/2012-Service Tax, dated 20.06.2012, was issued by the Central Government and exempts services rendered to local or governmental authorities, as well as to the Government, from paying service tax. The Central Government subsequently revoked the aforementioned exemption through Notification No. 6/2015-Service Tax, dated 01.03.2015. The Central Government thereafter reinstated the aforementioned exemption. The Mega Exemption Notification was amended to limit the service tax exemption to agreements signed before 01.03.2015, nevertheless.
The petitioners filed writ petitions before the Madras High Court, challenging Notification No.6/2015-ST, and the Show Cause Notices/ Orders issued to them levying service tax in light of the said Notification.
Contentions of the Petitioner:
The petitioner contended that since the Government had granted service tax exemption in the public interest, rescinding the exemption notification must likewise be in the public interest. The petitioner argued that the withdrawal of the aforementioned exemption was arbitrary and in violation of Articles 14 and 19 of the Indian Constitution, arguing that there was no public interest involved in doing so.
Contentions of the Respondent:
It was submitted that the notice dated 30.01.2017, has not been challenged and made objections, for interference, at the interim state, the contention of the appellant herein that service tax was never collected from the Government / Tamil Nadu Housing Board, has not been disputed. On the other hand, service tax is paid by the appellant, and reimbursement is sought. If any amount has already been collected, then the appellant cannot retain, but pay to the 1st respondent.
But, in the case on hand, no service tax was collected, but the appellant is compelled to pay and thereafter, to get the same reimbursed. Appellants need not be mulcted with liability to pay service tax, which they have not collected from the Government/Tamil Nādu Housing Board, and consequently, to pay the same to the 1st respondent. Intention not to collect service tax from the government for sovereign functions is the main issue and that is why exemption has been granted earlier.
Observations of the Court:
The court observed that because "works contract" services are considered "declared services" under the Finance Act of 1994, the petitioners' services were subject to service tax. The Court concluded that there was no promissory estoppel involved in the granting of such exemption, even if it was decided that the petitioners had only been granted a short reprieve under the Mega Exemption Notification.
The bench noted that the Finance Act of 1994's Chapter V contains provisions for the imposition and collection of service taxes. In addition, the Service Tax on "Works Contract Service" was added to the Finance Act with effect from May 11, 2007, and it became taxable on June 1, 2007.
The Courts found that the petitioners' services would have been subject to service tax if a temporary reprieve had not been granted to them by virtue of the Mega Exemption Notification. The Court noted that "works contract services are "declared services under the Finance Act. As a result, it determined that the issuance of this exception did not include promissory estoppel.
In accordance with Section 67 of the Finance Act, the petitioners are now obligated to pay service tax on the taxable services after the exemption was revoked by Notification No. 6/2015-Service Tax, dated 01.03.2015. The High Court further ruled that "High Court while exercising its jurisdiction under Article 226 of the Constitution of India does not sit in appeal over the decision of the Government to withdraw a Notification or an exemption," adding that the question of whether the government's decision to withdraw the exemption was in the public interest or not could be brought before the court. The Court stated that the Government's decision to revoke the exemption is also a matter of policy.
Rejecting the arguments that some of the petitioners were illiterate and/or semi-literate and thus, were unaware of the amendments made in the Mega Exemption Notification, the Court ruled that the law presumes every citizen to know the law. It added that every citizen has to arrange their affairs in consonance with the law.
Decision:
The Madras High Court dismissed the batch of writ petitions challenging Notification No.6/2015-Service Tax, dated 01.03.2015, which withdrew service tax exemption on services in nature of works contract, as granted under the Mega Exemption Notification No.25/2012-Service Tax, dated 20.06.2012.
Case Title: M/s. Raju Construction & Ors. versus The Government of India & Ors.
Coram: Justices S. Vaidyanathan and C. Saravanan
Case No: W.P.Nos.24996 of 2019
Advocates for Petitioner: Mr S. Rajasekar
Advocate for Respondent: Ms. R. Hemalatha, Senior Standing Counsel; Mr. V. Ravi, Special Government Pleader
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