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2017 DIGILAW 71 (JK)

University of Jammu v. Rakesh Constructions

2017-02-16

ALOK ARADHE, N.PAUL VASANTHAKUMAR

body2017
Judgment N. Paul Vasanthakumar, C.J.—Heard Mrs. Aruna Thakur, learned counsel for the appellant in L.P. Appeal Nos.24 and 34 of 2016 and Mr. R. Koul, learned counsel for the appellant in L.P. Appeal No.16/2016 as also Mr. Anuj Sawhney, learned counsel for the appellant in L.P. Appeal No.22/2016. 2. These L.P. appeals are preferred against a common order made by the Writ Court in OWP Nos.1140/2003 and 441/2004 dated 11.03.2016. LPAOW Nos.24/2016 and 34/2016 have been preferred by the University and its officer, challenging the order of the Writ Court so far as directing the University to release the withheld amount in favour of the writ petitioners within a period of four weeks, while as LPAOW Nos.16/2016 & 22/2016 have been preferred by the writ petitioners against not ordering interest on the withheld amount as the same has been disallowed by the Writ Court. 3. The case of the petitioners in both the writ petitions before the Writ Court was that their proprietary concerns were allotted different construction works without their being any stipulation for payment of sums on account of any service taxes, duties, levies chargeable from the contractor in NIT or contract agreement. The proprietary concerns executed various works duly allotted by the University authorities. Insofar as the contract works pertaining to writ petitioner in OWP No.1140/2003, the same commenced on 06.01.2002 and was completed on 06.06.2003. When the final bills were raised by the writ petitioner the payments were not released withheld by the University stating that in terms of State Government’s circular dated 07.06.2003 the Drawing and Disbursing Officer has been directed to deduct the service tax from the contractors on the gross value of the works executed by them. Hence the amount was withheld on account of service tax. It was contended by the writ petitioner that the contract works having been already allotted and completed and final bills raised, there was no justification to withhold the balance amount. It was further contended by the writ petitioner that the University itself by communication dated 22.06.2002 admitted that service tax has not been charged from the contractor as no such condition was incorporated either in the Notice inviting tenders are in the contract agreements. It was further contended by the writ petitioner that the University itself by communication dated 22.06.2002 admitted that service tax has not been charged from the contractor as no such condition was incorporated either in the Notice inviting tenders are in the contract agreements. The Writ Court taking note of the fact that payments have been released in full without withholding any amount on account of service tax on earlier contracts during the same period and University having admitted by communication dated 22.06.2002 that service tax was not being charged from the contractors for the contracts before 01.02.2002, allowed the writ petition with the directions as stated above against which the University and its Officer have preferred L.P. Appeal Nos.24/2016 and 34/2016. The writ petitioners feeling aggrieved by not allowing them interest on the withheld amount preferred LP appeal Nos.16/2016 and 22/2016. 4. Mrs. Aruna Thakur, learned counsel appearing for the University contended that the learned Single Judge has not appreciated the fact that the State Government has issued SRO 257 dated 23.07.1997, SRO 119 dated 01.04.1999 and SRO 137 dated 28.04.2000 ordering deduction of service tax from the gross value of works executed by the contractors and the fact that appellant–University was under a statutory obligation to deduct the service tax being Drawing and Disbursing authority. It is further contended that despite their being a arbitration clause in the contract agreement, the writ petitions have been entertained. It was further contended that the Writ Court has not taken into account the fact that service tax withheld was for future contracts. 5. We have considered the rival submissions. 6. It is not in dispute that the contracts were allotted and were completed before the date of issue of SRO 137 dated 27.01.2000 and the payments were made before 22.06.2002. The non-communication of the SRO is the stand of the University due to which the service tax was not deducted for the payments made after 22.04.2000. The same is reflected in the communication addressed by the University of Jammu to the Finance Minister of the State dated 22.06.2002. The said communication reads thus:— “Hon’ble Finance Minister, J&K Govt. Civil Secretariat, Srinagar (Kashmir). Sir, The State Government have issued SRO 137 dated 27-4-2000 under which the service tax was levied upon the supplies and work contracts etc. The University did not receive a copy of the said SRO. The said communication reads thus:— “Hon’ble Finance Minister, J&K Govt. Civil Secretariat, Srinagar (Kashmir). Sir, The State Government have issued SRO 137 dated 27-4-2000 under which the service tax was levied upon the supplies and work contracts etc. The University did not receive a copy of the said SRO. However, the then Executive Engineer had written three/four letters to the Finance Department, Civil Secretariat, Jammu/Srinagar in this behalf but nothing was heard till date. The photocopies of the said letters are enclosed herewith. Due to non receipt of SRO and not having full information, charging of service tax could not be incorporated in the works contract agreement as well as in the NIT. The University has, therefore, made payments and also released the deposits to the contractors on completion of works without deduction of service tax. As pointed out by ‘on spot’ Audit Party, one copy of the said SRO has now been collected from the concerned office for our reference and records purpose. On receipt of the said SRO, the matter was discussed by the Registrar and the Executive Engineer with the Hon’ble Vice- Chancellor and it was decided that the deduction on account of service tax be made effective w.e.f. 1.2.2002 on all ongoing and future contracts. Besides this, the relevant clause regarding deduction of service tax has been incorporated in the works contract agreement as well as in the NIT. As regards recovery of service tax on the works completed before 1.2.2002, the office is not in a position to recover the same as necessary clause was neither incorporated in the works contract agreement made with the contractor not in the NIT. The undersigned, therefore, request you to kindly grant exemption towards payment of Service Tax by the contractor prior to 1.2.2002 as a special case However, the University has adopted the SRO w.e.f. 1.2.2002. Thanking you, Yours faithfully Sd/- (Inder Singh) Joint Registrar” 7. On a perusal of the above communication it is evident that the University did not receive the copy of the said SRO for which the Executive Engineer had written three/four letters to the Finance Department but nothing was heard. Due to non-receipt of SRO and not having full information, charging of service tax could not be incorporated in the works contract agreement as well as in the NIT due to which the payments were released. Due to non-receipt of SRO and not having full information, charging of service tax could not be incorporated in the works contract agreement as well as in the NIT due to which the payments were released. Only during the audit one copy of the SRO was received and thereafter the matter was discussed by the Registrar and the Executive Engineer with the Vice Chancellor and it was decided that deduction of service tax be made with effect from 01.02.2002 on all ongoing and future contracts and the relevant clause regarding deduction of service tax has been incorporated in the works contract agreement as well as in the NIT. Insofar as recovery of service tax on the works completed before 01.02.2002, the University is not in a position to recover the same as the necessary clause was neither incorporated in the works contract agreement nor in the NIT, therefore, request was made to grant exemption towards payment of service tax by the contractor prior to 01.02.2002 as a special case i.e. before the date of adoption of the SRO by the University. 8. When the learned counsel appearing for the University was asked a specific question as to whether any order rejecting the request of exemption from the Government was received by the University, learned counsel fairly submitted that no rejection order was received by the University till date. Thus it is evident that the exemption as sought for due to non-communication of the SRO as well as adoption of SRO by the University, is a reason for not deducting the service tax on the payments already made. Hence withholding the service tax for the works already completed for which bills are payable or withholding the amount from future bills, is unjustified and contrary to the stand of the University taken in the communication addressed to the Finance Minister dated 22.06.2002. In such circumstances the learned Single Judge was fully justified in ordering release of the withheld amount. The learned Single Judge also granted liberty to the University to recover the amount of service tax from the writ petitioners with regard to the earlier contract, if recoverable, by following due process of law. Thus the right of the University to recover the service tax, if found payable by the Finance Department of the State, is protected. The learned Single Judge also granted liberty to the University to recover the amount of service tax from the writ petitioners with regard to the earlier contract, if recoverable, by following due process of law. Thus the right of the University to recover the service tax, if found payable by the Finance Department of the State, is protected. As such there is no merit in the appeals preferred by the University and the same are dismissed. 9. Insofar as the LP Appeals preferred against not granting interest on the withheld amount are concerned, the liability to pay the sales tax as per the SRO though not disputed, the non communication of SRO and non-incorporation of clause in the works agreement or NIT, for which exemption is sought for by the University, the exemption order having not been passed by the Government, the University was in a way justified in not releasing the amount. Having regard to the release of amount now ordered by the Court, we are of the view that the appellants are not justified in demanding interest on the withheld amount, as such, said appeals are also dismissed. 10. As ordered by the learned Single Judge, the amount be released within a period of four weeks from the date of receipt of copy of this order.