Karnataka High Court
M/S. Bagalkot Nirmithi Kendra vs The Union Of India on 25 November, 2025
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
1
Reserved on : 14.10.2025
Pronounced on :25.11.2025
IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH
DATED THIS THE 25TH DAY OF NOVEMBER, 2025
BEFORE R
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.103139 OF 2021 (T-RES)
BETWEEN:
M/S. BAGALKOT NIRMITHI KENDRA
RS NO.120, BEHIND NEW CIRCUIT HOUSE
VIDYAGIRI, BAGALKOT
DIST. BAGALKOT - 587 102
REPRESENTED BY ITS PROJECT DIRECTOR
SHANKARILNGA
S/O LATE NAGAPPA GOGI.
... PETITIONER
(BY SRI GIRISH A.YADAWAD, ADVOCATE)
Digitally signed by
RAKESH S
HARIHAR
Location: High
AND:
Court of Karnataka,
Dharwad Bench,
Dharwad 1. THE UNION OF INDIA
DEPARTMENT OF REVENUE
MINISTRY OF FINANCE, NORTH BLOCK
NEW DELHI - 110 001
REPRESENTED BY ITS SECRETARY.
2. THE GST COUNCIL
5TH FLOOR, TOWER-II
2
JEEVAN BHARAT BUILDING
JANPATH ROAD
CONNAUGHT PLACE
NEW DELHI - 110 001
REPRESENTED BY ITS SECRETARY.
3. THE COMMISSIONER OF CENTRAL TAX (AUDIT)
DHARWAD AUDIT CIRCLE
C.R. BUILDING, NAVANAGAR
HUBBALLI - 580 025.
4. THE ASSISTANT COMMISSIONER (AUDIT)
CENTRAL EXCISE, AUDIT CIRCLE
HUBBALLI - 580 025.
5. THE UNDER SECRETARY TO THE
GOVERNMENT OF INDIA
MINISTRY OF FINANCE, NORTH BLOCK
NEW DELHI - 110 001.
6. STATE OF KARNATAKA
COMMERCIAL TAXES DEPARTMENT
VIDHANA SOUDHA
BENGALURU - 560 001
REPRESENTED BY ITS SECRETARY.
7. THE UNDER SECRETARY TO THE
GOVERNMENT OF KARNATAKA
FINANCE DEPARTMENT
VIDHANA SOUDHA
BENGALURU - 560 001.
8. THE DEPUTY COMMISSIONER
BAGALKOT DISTRICT
DISTRICT ADMINISTRATIVE BUILDING
BAGALKOTE - 587 103.
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RESPONDENT NO.8 IS DELETED VIDE COURT
ORDER DATED 21.09.2021.
... RESPONDENTS
(BY SRI M.B.KANAVI, CGSC FOR R1 AND R5;
SRI GIRISH S.HULMANI, ADVOCATE FOR R2 TO R4;
SMT. KIRTILATA R.PATIL, HCGP FOR R6 AND R7)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT
THE PETITIONER NAMELY M/S. BAGALKOT NIRMITHI KENDRA IS A
GOVERNMENT ENTITY AS DEFINED UNDER CLAUSE (ZFA) OF THE
NOTIFICATION DATED 32/2017 DATED 13.10.2017 ISSUED BY THE
GOVERNMENT OF KARNATAKA VIDE ANNEXURE-C AND
CONSEQUENTLY DECLARE THE PETITIONER IS ENTITLED TO TAX
EXEMPTION UNDER ENTRY NO.9B OF THE NOTIFICATION
NO.32/2017 DATED 13.10.2017 ISSUED BY THE GOVERNMENT OF
KARNATAKA.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 14.10.2025, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The petitioner - M/s. Bagalkot Nirmithi Kendra is at the doors
of this Court seeking a direction to declare the petitioner to be a
'Government Entity' as defined under Clause (zfa) of the notification
dated 13.10.2017 issued by the Government of Karnataka and
consequently, declare that the petitioner is entitled to tax
4
exemption under Entry No.9B of the said notification and has also
called in question a communication dated 07.07.2021 issued by the
fourth respondent.
2. Heard Sri Girish A. Yadawad, learned counsel for the
petitioner, Sri M.B.Kanavi, learned Central Government Standing
Counsel for respondent Nos.1 and 5, Sri Girish S. Hulmani, learned
counsel for respondent Nos.2 to 4 and Smt. Kirtilata R. Patil,
learned High Court Government Pleader for respondent Nos.6 and
7.
3. Facts in brief, germane, are as follows:
The petitioner is a Society registered under the Karnataka
Societies Registration Act, 1960, which comes into existence in
terms of a government order dated 05.09.1990. It is the claim of
the petitioner that it is an entity established by the Government of
Karnataka. The establishment of the petitioner is said to be under
the National Network Programme of Building Centres Scheme, by
the Housing and Urban Development Corporation of the
Government of India, in furtherance of the Scheme notified. The
petitioner is exclusively engaged in civil construction works for the
5
State and Central Governments. The rules and regulations of the
petitioner are all said to necessitate approval from the hands of the
State. Copies of Memorandum of Association of the petitioner and
the Rules governing the petitioner are all appended to the petition.
4. On 29.06.2017, a notification is issued by the fifth
respondent - the Ministry of Finance, the Government of India
exempting tax liability on certain entities for supply of services after
the emergence of GST regime. On 13.10.2017, a notification is
issued by the State, Finance Department, amending the definition
of 'Government Entity' by including Clause (zfa). Between the audit
period from July, 2017 and March, 2018, an audit was conducted of
the petitioner by the fourth respondent - the Assistant
Commissioner of Central Excise. The third respondent - the
Commissioner of Central Excise seeks certain documents for the
period between July, 2017 and March, 2018. It is the claim of the
petitioner that the petitioner has submitted all the requisite
documents as stipulated in the communication for an ongoing
enquiry, on 14.09.2020. As a result of the aforesaid
communication, on 13.01.2021, the fourth respondent addresses a
6
communication to the petitioner, based on the documents
submitted by the petitioner. On 15.02.2021, the petitioner replies
to the said communication, which results in the impugned
communication dated 07.07.2021, indicating that the petitioner
cannot be exempted from tax liability. The petitioner has clarified
by e-mail to the fourth respondent, contending that the petitioner
fall into the category of a 'Government Entity' as notified in the
notification dated 13.10.2017, as the petitioner is controlled by the
State Government and no other person has any control whatsoever
on the petitioner.
5. On 17.08.2021, the fourth respondent communicates the
eighth respondent to direct the petitioner to comply with the GST
liability, since other Nirmithi Kendras in the State of Karnataka are
also complying with the GST liabilities accrued to them. It is the
aforesaid observation or aforesaid opinion of the fourth respondent
that the petitioner cannot be declared to be a 'Government Entity',
has driven the petitioner to this Court in the subject petition.
6. Learned counsel for the petitioner would vehemently
contend that the petitioner is established and controlled wholly by
7
the Government of Karnataka and therefore, the petitioner is a
'Government Entity' under Clause (zfa) of the notification dated
13.10.2017. The petitioner enters into contracts and carries out
work only for the State and Central Governments and therefore,
requires to be exempted from tax liability under Entry No.9B of the
notification No.32/2017. The learned counsel further submits that
the definition of the 'Government Society' includes a Society
established with 90% or more control, which undoubtedly includes
the petitioner. He submits that the fourth respondent has seriously
misinterpreted the definition Clause itself and indulged in the
impugned communication.
7. Per contra, Sri Girish S. Hulmani, learned counsel for
respondent Nos.2 to 4 would seek to defend the action holding that
the petitioner can never be declared a 'Government Entity' and it is
liable to pay tax as every Nirmithi Kendras in the State are paying
tax. He would seek dismissal of the petition.
8. Smt. Kirtilata R. Patil, learned High Court Government
Pleader would submit that they are only formal parties and leave
the decision to the hands of this Court.
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9. I have given my anxious consideration to the submissions
made by the learned counsel for the respective parties and have
perused the material on record.
10. In furtherance whereof, the only issue that falls for
consideration is, whether the petitioner is to be declared as
'Government Entity' as obtaining in the notification dated
13.10.2017, exempting it from tax liability and consequently, the
impugned communications to be obliterated.
11. The petitioner comes to existence pursuant to its
registration in the year 1990. The registration carried with it a
Memorandum of Association of the petitioner and the rules and
regulations thereof. The objectives of the petitioner are as follows:
"MEMORANDUM OF ASSOCIATION OF THE BAGALKOT
NIRMITHI KENDRA
I. The name of the Society shall be "NIRMITHI KENDRA",
hereinafter called the "Kendra".
II. The registered office of the Kendra shall be at
Bagalkot
III. Objectives: The objectives of the Kendra are to:
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1) serve as a seminal agency to generate and
propagate innovative ideas on housing:
2) a clearing house of information and data bank on
housing which would bring the fruits of research
from "lab" to "land",
3) a production Centre to prefabricate standardised
housing materials including rubble filler blocks,
standardised country burnt bricks, hollow blocks all
stabilised blocks, funicular shell, precast plate
floors, filler blocks, RCC frame for doors and
windows ferrocement rafters, water tanks, fibre
roofing sheet sanitary wares, tiles, smokeless
chulah and allied housing material including
sanitary ware and electrical fittings etc;
4) an agency to set up and run wood processing units,
ferrocement, sanitary ware manufacturing units,
tile manufacturing units, for manufacture
machine/tools and equipments connected with
housing, design wing construction wing, R & D wing
and consultancy wing;
5) a training house to impart skills to local workmen
in innovative housing techniques and create a
cadre of trained workers in all blocks in the District
6) a nodal agency to serve as a catalyst in the field of
housing ensuring horizontal co-ordination in
implementation of housing programmes;
7) a chain for retail outlets of housing material;
8) an agency for transportation and distribution of
house building materials;
9) an agency to arrange for financial assistance for
house construction,
10) a forum to organise exhibitions, seminars,
orientation programmes, demonstration of housing
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and publish useful data and literature on housing
and allied activities;
11) a Research and Development institution and a
consultant in the field of housing;
12) without prejudice to the generally of the above and
for effectively carrying out these objectives the
Kendra shall have the power to acquire, hold and
receive property of any kind including securities
and negotiable instruments to conduct and
maintain buildings including the right to alter and
improve them and to equip them suitably to
manage, sell, transfer or otherwise dispose of or
deal with property of any kind belonging to the
Kendra to enter into contracts for or in connection
with any of the purposes of the Kendra to enter
into contracts for or in connection with any of the
purposes of the Kendra and on its behalf to raise
moneys and funds in such a manner as may be
deemed fit for on behalf of the Kendra and;
13) to do all such things and to perform all such acts as
may be necessary or appropriate for the
achievement of any or all of the above objects,
14) to take up construction work of any nature like
fabrication, manufacture, installation, etc
conductive with other objects and generating
employment opportunities, particulary for the
weaker sections of the Society."
The governing body of the petitioner comprises of 14
members, who are the 14 members are as follows:
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"4. GOVERNING BODY.
(a) There shall be a Governing Body of 14 members
(b) The Governing Body shall be composed of
1. Deputy Commissioner, Bagalkot - Chairman
2. Chief Executive Officers, Z. P. Bagalkot - Executive
Chairman
3. The Deputy Secretary, (Development) Z.P. Bagalkot -
Member Secretary
4. The Executive Engineer Z.P. Engg. Division Bagalkot
5. The District Welfare Officer, Bagalkot
6. The Chief Planning Officer, Z. P. Bagalkot
7. Director KARNIK, Bangalore
8. Representative from Engg. College/Polytechnic
Bagalkot
9. The Lead Bank Officer, Bagalkut
10. The General Manager, District Industries Centre,
Bagalkot
11. A representative of Nodal agency
12. A representative of NGO agency
13. A leading architect
14. Three representatives from the catogary of individual
members in be nominated by the chairman which can
be Ex-officio, Entrepreneurs, and the Volunteers ."
12
The Chairman is the Deputy Commissioner, the Executive
Chairman is the Chief Officer of the Zilla Panchayat, the Member
Secretary is the Deputy Secretary (Development) of the Zilla
Panchayat, the Executive Engineer of the Zilla Panchayat, the
District Welfare Officer, the Chief Planning Officer of the Zilla
Panchayat are the ex-officio members and other office bearers of
the governing body of the petitioner as noticed hereinabove. Right
from the Chairman - the Deputy Commissioner upto the Chief
Planning Officer of the Zilla Panchayath, will be the members of the
Executive Committee. The Executive Committee of the petitioner -
Nirmithi Kendra is as follows:
"7. EXECUTIVE COMMITTEE.
(a) There shall be an Executive Committee of five
members
(b) The members of the Executive Committee shall be:
1. The Chairman of the Governing body Deputy
Commissioner
2. Executive Chairman
3. The Project Manager. Nirmithi Kendra.
4. The Executive Engineer, ZP division, Bagalkot
5. Deputy Secretary (Development) Z.P. Bagalkot"
13
The petitioner is headed by the Chairman, the Chairman is
the Deputy Commissioner. Therefore, the petitioner is completely
controlled by the government. It is funded from the grants and
contributions from the corporate bodies, banks and other financial
institutions is a matter of record. The Goods and Services Tax,
2017 (for short 'the GST') in a supersession of Value Added Tax,
2005, which comes about on 01.04.2017. After the new regime
comes into existence i.e., GST, a notification is issued bearing
No.12/2017 by the Central Government exempting tax liability to
certain entities for supply of services. The said notification is
followed by the Government of Karnataka by the Finance
Department, in notification bearing No.32/2017 dated 13.10.2017
wherein, in the definition clauses, Clause (zfa) comes to be added.
The additions are as follows:
"FINANCE SECRETARIAT
NOTIFICATION (32/2017)
No. FD 48 CSL 2017 Bengaluru, dated :13.10.2017
In exercise of the powers conferred by sub-section (1)
of section 11 of the Karnataka Goods and Services Tax Act,
2017 (Karnataka Act 27 of 2017), the Government of
Karnataka, on being satisfied that it is necessary in the
public interest so to do, on the recommendations of the
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Council, hereby makes the following further amendments in
the notification, No.(12/2017) FD 48 CSL 2017, dated the
29th June, 2017, published in the Gazette of Karnataka,
Extraordinary, Part - IVA, Number 602, dated the 29th June,
2017, namely:
1. In the Table, -
(1) in serial number 5, in column (3), for the words
"governmental authority" the words "Central
Government, State Government, Union territory, local
authority or Governmental Authority" shall be
substituted;
(2) after serial number 9A and the entries relating
thereto, the following serial number and entries shall
be inserted namely: -
(1) (2) (3) (4) (5)
"9B Chapter Supply of service by a Nil Nil";
99 Government Entity to
Central Government, State
Government, Union
territory, local authority or
any person specified by
Central Government State
Government, Union territory
or local authority against
consideration received from
Central Government, State
Government, Union territory
or local authority, in the
form of grants.
(3) after serial number 21 and the entries relating thereto,
the following serial number and entries shall be
inserted namely: -
15
(4) after serial number 23 and the entries relating thereto,
the following serial number and entries shall be
inserted namely: -
(5) in serial number 41, for the entry in column (3), the
following entry shall be substituted namely: -
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"Upfront amount (called as premium, salami, cost,
price, development charges or by any other name)
payable in respect of service by way of granting of
long term lease of thirty years, or more) of industrial
plots or plots for development of infrastructure for
financial business, provided by the State Government
Industrial Development Corporations or Undertakings
or by any other entity having 50 per cent. or more
ownership of Central Government, State Government,
Union territory to the industrial units or the developers
in any industrial or financial business area.";
2. in paragraph 2, for clause (zf),the following shall
be substituted, namely: -
"(zf) "Governmental Authority" means an authority or
a board or any other body, -
(i) set up by an Act of Parliament or a State
Legislature; or
(ii) established by any Government,
with 90per cent, or more participation by way of
equity or control, to carry out any function
entrusted to a Municipality under article 243 W
of the Constitution or to a Panchayat under
article 243 G of the Constitution.
(zfa) "Government Entity" means an authority or a
board or any other body including a society,
trust, corporation,
(i) set up by an Act of Parliament or State
Legislature;
or
(ii) established by any Government,
with 90per cent. or more participation by way of
equity or control, to carry out a function
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entrusted by the Central Government, State
Government, Union Territory or a local
authority."
(Emphasis supplied)
The Clause (zfa) in the definition clause defines a
'Government Entity'. A 'Government Entity' means an authority or
a board or any other body including a society, trust, corporation,
set up by an Act of Parliament or State Legislature or established by
any government with 90% or more participation by way of equity or
control, to carry out the functions entrusted to it by the
Governments, Union Territory or a local authority. It is again a
matter of record that the Society is controlled by the State
Government and funded inter alia by the State Government.
Therefore, undoubtedly the petitioner fits into the definition of
Clause (zfa) - a 'Government Entity'. Entry No.9B in the afore-
quoted notification also describes a 'Government Entity'. On a
coalesce of the definitions noted hereinabove, what would
unmistakably emerge is, the petitioner is a 'Government Entity'.
12. I now deem it appropriate to notice the law as considered
by the Apex Court or the High Courts, whereby, it is held that the
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exemption clause would become applicable to the entities
completely controlled by the government. A division bench of the
High Court of Patna in the case of SHAPOORJI PALOONJI &
COMPANY PRIVATE LIMITED V. COMMISSIONER, CUSTOMS,
CENTRAL EXCISE AND SERVICE TAX1, holds as follows:
".... .... ....
11. It is undisputed that the Indian Institute of
Technology, Bihta, Patna, whose academic block was
to be constructed by the petitioner, was set up by an
Act of Parliament, i.e., Indian Institutes of Technology
Act, 1961 (59 of 1961) as an institute of national
importance under article 248 of the Constitution of
India read with Seventh Schedule, List I. As per the
definition of Governmental Authority as amended on
January 30, 2014, an authority or board or any other
body set up by an Act of Parliament or State
Legislature is a Governmental Authority. Therefore,
the notification dated June 20, 2012, exempts the
activity of construction undertaken by the petitioner
from payment of service tax.
12. However, the arguments of Mrs. Nivedita
Nirvikar, learned counsel for respondent No. 1, is that
only an authority with 90 per cent. or more
participation by way of equity or control to carry out
any function entrusted to a municipality under article
243W of the Constitution alone is the Governmental
Authority, entitled to exemption from benefit of
service tax. Such provision in the notification dated
January 30, 2014 is applicable to both parts of clause
1
2016 SCC OnLine Pat 1602
19
2(s) and not to sub-clause (ii) of clause 2(s) alone of
the said notification.
13. We have heard learned counsel for the parties and
found the arguments raised by Mrs. Nivedita Nirvikar are not
sustainable in law. The Governmental Authority as defined in
the notification dated January 30, 2014, means an authority
or a board or any other body set up by an Act of Parliament
or State Legislature. The provisions contained in sub-clause
(i) and sub-clause (ii) of clause 2(s) are independent dis-
conjunctive provisions and the expression "90 per cent or
more participation by way of equity or control to carry out
any function entrusted to a municipality under article 243W
of the Constitution" is related to sub-clause (ii) of clause 2(s)
alone. The clause (i) is followed by ";" and the word "or".
Therefore, each of the sub-clauses is independent provision.
The condition of 90 per cent or more participation by way of
equity or control to carry out any function entrusted to a
municipality under article 243W of the Constitution is
relatable to only sub-clause (ii) of clause 2(s). It means that
an authority established by Government should have 90 per
cent or more participation by way of equity or control to
carry out any function entrusted to a municipality under
article 243W of the Constitution to be eligible for exemption.
The authority set up by an Act of Parliament or State
Legislature is not and cannot be made subject to the
condition of 90 per cent or more participation by way of
equity or control to carry out any function entrusted to a
municipality under article 243W of the Constitution. Thus,
the construction activity undertaken by the petitioner
in respect of the academic block of the institute-
respondent No. 4, is exempt from payment of service
tax in terms of notification, dated June 20, 2012 as
amended.
14. Thus, the service tax paid either by the
petitioner or respondent No. 4 and collected by
respondent No. 1, cannot be levied or collected as it is
not chargeable levy. Consequently, the direction
contained in the communication dated September 5,
2014 (annexure 5), is quashed.
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15. At this stage, another argument advanced by Mrs.
Nivedita Nirvikar, needs to be discussed. She argues that the
petitioner shall not be entitled to refund of the service tax as
it would be a case of undue enrichment. We do not find any
merit in this argument as well. The payment of service tax
has not been made by the numerous consumers and
collected by the petitioner. It is paid by the petitioner
alone. The petitioner is entitled for the reimbursement
of the amount of service tax by respondent No. 4 in
terms of the letter of award of contract. Such payment
of service tax by the petitioner is not indirect
collection of taxes but the direct payment by the
petitioner. Therefore, it is not a case of undue
enrichment."
(Emphasis supplied)
The said judgment was tossed by the Department of Central
Excise before the Apex Court. The Apex Court in terms of the
judgment rendered in the case of COMMISSIONER, CUSTOMS,
CENTRAL EXCISE AND SERVICE TAX V. SHAPOORJI
PALLONJI & CO. (P) LTD.2, dismisses the appeal, upholding the
order passed by the division bench of the High Court of Patna. The
Apex Court held as follows:
".... .... ....
37. 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
2
(2024) 3 SCC 358
21
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 redefined with a purpose to make the
clause workable in contradistinction 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.
38. 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
22
"governmental authority" would certainly be defeated.
As discussed earlier, the purpose for which
"governmental authority" was redefined 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 243-W 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 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 [Shapoorji
Paloonji & Co. (P) Ltd. v. CCE, Customs & Service Tax,
2016 SCC OnLine Pat 1602] , [Shapoorji
Pallonji v. Union of India, WP (C) No. 17188 of 2015,
order dated 5-2-2018 (Ori)] 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."
(Emphasis supplied)
Therefore, on a plain consideration of the notifications and the
definition and description of the 'Government Entity', the exemption
23
that is granted of tax liability indicated in the notification is
undoubtedly applicable to the petitioner, as the Apex Court
considers the effect of exemption to a 'Government Entity'. The
case therein was whether the exemption notification to educational
institution would become applicable to the respondents. It held
that it did applicable.
13. A coordinate bench of this Court was answering an issue
whether the Nirmithi Kendra would be a 'Government Entity' under
the provisions of the Right to Information Act, 2005. The
coordinate bench after considering the entire spectrum of the law,
in the case of PIO & THE PROJECT DIRECTOR NIRMITI
KENDRA V. STATE INFORMATION COMMISSIONER3, holds as
follows:
".... ... ....
8. The short question that would arise for
consideration in the present matter is:
"Whether the Nirmiti Kendra would be a
Public Authority in terms of Section 2(h) of the
Right to Information Act, 2005?"
..... ....... .......
3
2025 SCC Online Kar 17662
24
13. The above would indicate that the control
and supervision of the Nirmiti Kendra is by
Government Officers, the funding is from HUDCO,
which is again a Government entity, and contracts are
issued by the government for the works done. There is
a preference for the Nirmiti Kendra to carry out works
of the Government.
14. Section 2(h) of the Right to Information Act is
reproduced hereunder for easy reference:
Section 2. Definitions. In this Act, unless the
context otherwise requires,
(h) "public authority" means any authority or body or
institution of self-government established or constituted--
(a) by or under the Constitution;
(b) by any other law made by Parliament;
(c) by any other law made by State Legislature;
(d) by notification issued or order made by the
appropriate Government, and includes any--
(i) body owned, controlled or substantially
financed;
(ii) non-Government organisation substantially
financed, directly or indirectly by funds provided by the
appropriate Government;
15. A perusal of Section 2(h) of the RTI Act, would
indicate that it is not only funding, but also control, which
would have to be considered to determine whether it is a
public authority or not.
16. Insofar as control is concerned, the above extracts
make it clear that, firstly, Nirmiti Kendras were established
on the recommendation of the Rural Development and
25
Panchayat Raj Department. A working committee
comprising Government Officers was created,
comprising Secretaries, Chief Engineers, etc., to
supervise the working of the Nirmiti Kendra.
17. The general body of the Nirmiti Kendra
consists of all the top officers of each District, and the
day-to-day activities of the Nirmiti Kendra are run by
officers belonging to the State Government, many of
whom belong to the Indian Administrative Service and
the Karnataka Administrative Service. Thus, it is clear
that Nirmathi Kendra is under the complete control of
Government servants.
18. Insofar as the funding is concerned, as
observed supra, the funding is by HUDCO, Government
organisations, and financial institutions, and these
funds are used for the implementation of public works.
Thus, not only is the funding provided by the
Government, but the works carried out by Nirmathi
Kendra are also considered Government works.
19. I answer the question framed by holding
that, a Nirmathi Kendra would be a public authority in
terms of Section 2(h) of the RTI Act."
(Emphasis supplied)
The coordinate bench holds that Nirmithi Kendras are public
authorities and cannot escape diligence of information. The said
judgment is only relied to notice that the Nirmithi Kendras like the
petitioner in the case at hand, are a public authority as it is the
observation of the coordinate bench and the petitioner is a
'Government Entity'. It is further germane to notice two of the
26
judgments rendered by this Court and one by coordinate bench
interpreting the word 'public servant' qua the employees of Nirmithi
Kendra. The coordinate bench of this Court in the case of G.
KRISHNEGOWDA VS. STATE OF KARNATAKA reported in 2021
SCC OnLine Kar 15332, holds that a Project Director working in
Nirmithi Kendra is a 'Public Servant', within the meaning of 'Public
Servant' as defined under Prevention of Corruption Act, 1988. The
said judgment is followed by this Court in the case of V.
KRISHNAREDDY Vs. STATE in Crl.P.No.685/2022, disposed
on 02.08.2022, again holding that an employee of Nirmithi Kendra
to be a public servant. Though the Nirmithi Kendras are registered
under Karnataka Societies Registration Act, 1960, jurisprudence is
replete holding that the employees of the Nirmithi Kendras to be
the public servants and Nirmithi Kendra itself being amenable to the
provisions of the Right to Information Act, 2005.
14. In the light of the afore-quoted law declared by the Apex
Court and granting exemption from tax liability upon the
Government Entities, it becomes germane to notice the impugned
27
action. On 07.07.2021, the fourth respondent communicates to the
petitioner demanding tax on certain premise or observations as the
case would be. The observations relevant are as follows:
".......
It is noticed from the documents furnished to
this office that M/s Bagalkot Nirmithi Kendra is
established not by an Act or Parliament or State
Legislature but by the Government of Karnataka Order
No.G.O.110.RDP.ADP.47.NK:89, BANGALORE, DATED
05.03.1990 and based on the order is registered under
the Societies Act. Regarding 90% or more
participation by way of equity or control, neither
government nor private organization have invested in
the entity as capital and in the absence of capital there
is no question of equity participation. However, the
entire establishment amount has been provided by
Government and M/s.Bagalkot Nirmithi Kendra is
100% controlled by Government. No work is carried
out without the consent and approval of the
government and all the activities are controlled by
Chairman-Deputy Commissioner, Executive chairman-
Chief Executive Officer of Zilla Panchayat, The Deputy
Secretary, Zilla Panchayat, The Executive Engineer,
Zilla Panchayat, The District Welfare Officer, The Chief
Planning Officer, Z.P, Director, Bagalkot, Director
KARNIK, Bangalore, Representatives from Engineering
College, Lead Bank Officer, The General Manager,
District Industries Centre, representative of NGO
Agency, a leading architect and three representatives
nominated by the Chairman as per the copy of
Memorandum of Association furnished. Further as per
para 8(c) of the byelaws the number of members of
the society is limited to 20, with Individuals @ 20%,
Institutions @ 20% and Ex-officio members at 60%.
As such it appears that the participation of 90% or
more by way of government control is not being
fulfilled as the ex-officio members are only 60% of the
28
members presuming that the ex-officio members are
government officials."
(Emphasis added)
Upon the aforesaid audit, a communication dated 17.08.2021
is sent by the Commissioner of the Central Tax. The
communication reads as follows:
".... .... ....
With kind reference to the above, your attention is
invited that the officers of Central Goods and Service Tax,
Dharwad Audit Circle have been conducting GST Audit on the
records of M/s Bagalkot Nirmithi Kendra (hereinafter referred
to as the "Tax payer"). During the course of Audit the
officers have noticed certain discrepancies in discharging of
the tax liability and the observations are communicated. One
of the major observation conveyed is that the Tax payer has
been availing ineligible exemption benefit from payment of
tax in terms of Notification No.32/2017-Central Tax (Rate)
dated 13.10.2017(Copy enclosed for kind reference). The
gist of the observation is furnished as under for your kind
information and requested to take urgent action in the
matter
2. The Notification No.32/2017-Central Tax (Rate)
dated 13.10.2017 was issued amending the Notification No.
12/2017-Central Tax(Rate) dated 28.06.2017 by substituting
the words "Governmental authority" as "Central
Government, State Government, Union territory, local
authority or Governmental Authority" for the services listed
at SL.No 5 of Notfn. No 12/2017, but has not changed the
conditions specified. Also, the Notification No. 32/2017-
Central Tax(Rate) dated 13.10.2017 at para (ii)(zf) and
ii(zfa) have defined the Governmental Authority/entity as;
29
(zf) "Governmental Authority" means an authority or a
board or any other body,
(i) Set up by an Act of Parliament or State Legislature,
or
(ii) Established by any Government,
With 90 percent or more participation by way of
equity or control, to carry out any function
entrusted to a Municipality under article 243W of
the Constitution or to a Panchayat under article
243G of the Constitution,"
(zfa) "Government entity" means on authority or a
board or any other body including a society,
trust, corporation,
(iii) Set up by an Act of Parliament or State Legislature;
or
(iv) Established by any Government.
With 90 percent or more participation by way of
equity or control, to carry out function entrusted by
the Central Government, State Government, Union
Territory or a local authority."
4. It is noticed from the documents furnished to this
office that M/s Bagalkot Nirmithi Kendra is established not by
an Act of Parliament or State Legislature but by the
Government of Karnataka Order No.G.O 110 RDP ADP 47
NK:59, BANGALORE, DATED 05.03.1990 and based on the
order is registered under the Societies Act. Regarding 90%
or more participation by way of equity or control, neither
government nor private organization have invested in the
entity as capital and in the absence of capital there is no
question of equity participation.
Further as per para 8(c) of the byelaws the number of
members of the society is limited to 20 with the following
rating,
Individuals @ 20%,
Institutions @ 20% and
Ex-officio members at 60%
30
As per the rules and regulations of the Kendra, the
control, administration and management of the affairs of the
Kendra shall vest in a governing body, which has the
following members:
No Governing body Members Represented by
1 Chairman Deputy Commissioner
2 Executive Chairman Chief Executive Officer of Zilla
Panchayat, Bagalkot
3 Member Secretary Deputy Secretary, Zilla
Panchayat, Bagalkot
4 Member Executive Engineer, Zilla
Panchayat, Bagalkot
5 Member District Welfare Officer
6 Member Chief Planning Officer, Z.P.
Bagalkot
7 Member Director, KARNIK, Bangalore
8 Member Representative from
Engg.College/Polytechnic
Bagalkot
9 Member The Lead Bank Officer,
Bagalkot
10 Member The General Manager, District
Industries Centre, Bagalkot
11 Member A Representative of NGO
agency
12 Member A leading architect
13 3 Member Three representatives from the
to category of Individual
15 members to be nominated by
the chairman which can be Ex-
officio, Entrepreneurs, and the
Volunteers
As such it appears that the participation of 90%
or more by way of government control is not being
fulfilled as the ex-officio members are only 50% of the
members presuming that the ex-officio members are
government officials
31
5. The auditors contended that M/s Bagalkot
Nirmithi Kendra was not set up by an Act of
Parliament/Legislature or established by any
Government with 90% or more participation by way of
equity or control and furthermore, the Tax payer is
neither carrying out any of the activity/functions
entrusted to a municipality as listed in entry no. 2 of
12th Schedule of the Notification.
6. The observations were forwarded to the tax payer
viz., M/s Bagalkot Nirmithi Kendra and requested to
discharge their GST liability along with applicable interest
and penalty, In reply, the Authorised signatory has furnished
his reply to this Department by e-mail or 26.07.2021 stating
that M/s. Bagalkot Nirmithi Kendra fits in to the definition of
Government entity and has also relied on a High Court
Judgement to substantiate their interpretation. It is
submitted that the High Court Judgement relied upon
is with regards to an appeal made to the Hon'ble High
Court, wherein a case of corruption was booked
against the Project Director of M/s. Bagalkot Nirmithi
Kendra and it was submitted to the Hon'ble Court that
M/s. Bagalkot Nirmithi Kendra is not a Government
Entity and as such the Anti Corruption Bureau does not
have any rights to book a case against a non-
governmental authority. However, the Hon'ble Court
has dismissed the petition on the grounds that the
accused is performing duties which are public in
nature. The Hon'ble Court has not commented on the
taxability of the Tax pay under GST laws. More so, in
the given circumstances of taxability of the activity
undertaken by Nirmithi Kendra, ratio of the Hon'ble
High Court Order has no relevance.
7. Sir, as per the MOA copies, the Deputy
Commissioner of the District is the Chairman of the
Governing Body constituted and without the approval of the
Deputy Commissioner, the financial transactions are not
carried out. It is pertinent to inform to your kindself
that the Department of CGST after much deliberations
has come to a conclusion that the activities
undertaken by the Nirmithi Kendra clearly fit into the
definition of supply and are rightly taxable. As
32
ascertained, various other Nirmithi Kendras
constituted and undertaking similar activities in
different parts of the State of Karnataka have been
discharging their GST liability and filing the statutory
returns. In spite of written communication and
appraisal of the provisions of Act and
Rules/Notification provisions to the concerned, if the
GST liability is not discharged by M/s. Bagalkot
Nirmithi Kendra, unnecessary interest and penalties
are likely to add up to the GST liability which will
become an additional financial burden on the Kendra,
In view of the above facts enumerated, it is requested
to look into the matter with diligence and necessary
directions may be issued to the Project Director to
discharge the liabilities at the earliest."
(Emphasis added)
When the statutory notification is read in conjunction
with the elucidation of the Apex Court as to what would
constitute the government entity, the entire edifice of the
impugned action tumbles down. The petitioner's entitlement
to exemption emerges not as a matter of judicial indulgence
but as a clear command of law. This is brought to the notice of
the fourth respondent, who declines to accept that the petitioner is
a Government Entity, which in the considered view of this Court is
an error. Merely because other Nirmithi Kendras are paying tax, it
would not mean that the petitioner would also become liable to pay
tax. Thus, in the unambiguous language of the notification,
33
read along side the elucidation by the Apex Court, the High
Court of Patna and this Court, the petitioner's status as a
'Government Entity' stands firmly and incontrovertibly
established. The petition thus, deserves a full and complete
success.
15. For the aforesaid reasons, the following:
ORDER
a. The writ petition is allowed.
b. The impugned communication dated 07.07.2021, stands
quashed.
c. All consequential actions taken, if any taken or to be
taken, pursuant to the impugned communication are held
to be unsustainable and therefore, obliterated as nullity in
law.
Sd/-
(M.NAGAPRASANNA)
JUDGE
nvj
CT:SS
