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Telangana High Court · body

2022 DIGILAW 223 (TS)

Meilsewmaytasbhel v. State of Telangana

2022-03-15

A.ABHISHEK REDDY

body2022
ORDER : 1. In all these writ petitions, the petitioners are aggrieved the action of the respondent authorities in seeking to recover the Service Tax amounts from the petitioners. Hence, they are taken up together and being disposed of by this Court. 2. For the purpose of disposal of the cases, the facts in W.P.No.10387 of 2020 are narrated hereunder. 3. The then Government of Andhra Pradesh has awarded the work of Pranahitha Chevella Lift Irrigation Scheme Link-II Package 7 now renamed as Kaleshwaram Project – Link-II – Package No.7. The nature of work included “Detailed investigation, designs and execution of lift irrigation scheme for drawl of 146.24 TMC of water from Medaram (v), Dharmaram (M), Karimnagar District to lift 32 TMC of water to drop in Kakatiya Canal and to facilitate to carry balance of 114.24 TMC water further with the components such as approach channel, CM & CD works, lifts, pressure mains and lined tunnels with all associated civil, hydromechanical and electro mechanical works, improvements and enhancing the capacity of existing Medaram Reservoir and improvements to Kakatiya Canal near Ragampet.” 4. Respondent No.2 vide letter dated 30.07.2008 has issued a letter of acceptance with respect to the subject works. A contract in the nature of EPC (Engineering Procurement and Construction) dated 17.11.2008 was executed between the respondent and the petitioner in respect of the work related to Pranahitha Chevella Lift Irrigation scheme Link-II – Package No.7 now renamed as Kaleshwaram Project – Dr.B.R.A. PCSS-Link II – Package No.7 main work. Accordingly, the petitioner has been carrying out the contractual work allotted to it in terms of the specifications and directions enumerated in the contract and the general instructions to the bidders. Clause 18.1(6) of the general instructions to the bidders enumerates on the recoveries of amounts from the running account bills of contractor are to be effected. The said clause as per the corrigendum No.5/2007-08, dated 22.05.2008 states that Service Tax would be recovered @ 4.12% on items applicable. The exemption of service tax for the Government irrigation works under Government of India notification No.41/2009-Service Tax dated 23rd October, 2009 and circular No.116/10/2009 dated 15th September, 2009, the respondents have illegally deducted amounts towards Service Tax @ 4.12% from the bills of the petitioner upto RA Bill No.44 and the same has been returned upon the representations of the petitioner that the subject works are exempted. Accordingly, the illegally deducted amounts were given to the petitioner in the RA Bill No.45 dated 29.11.2015. Thereafter, the subject work has been completed by the petitioner to the satisfaction of the Respondents as on 19th December, 2019, and necessary completion certificate has also been issued to the petitioner. The case of the petitioner is that the petitioner being exempted from paying any service tax in respect of the contract work, the respondents pursuant to clause 18.1 of the General Instructions to bidders has deducted service tax @ 4.12% from the running account bills of the petitioner. It is the specific grievance of the petitioner that the impugned letter has been issued proposing to effect the recovery of service tax for an amount of Rs.14.7329 crores and credit the same to the work. Hence, W.P. No.10387 of 2020 is filed. 5. A counter has been filed by respondent No.3 primarily contending that the Account General audit has raised audit para under Section-A & instructed to effect the recovery or the Service Tax payable by the petitioners as per the terms of the contract. It is further stated that though the circulars were issued by the Ministry of Finance, exempting EPC works meant for Government purposes from service tax, recovery was effected as per clause 18.1 of the Agreement and as per the instructions of Director of Works Accounts. It is further stated that even if the exemption is given to the Agency, as the provision towards service tax @4.12% was made separately in the sanction estimate, the amount has to be recovered and credited to the work and not to the contractor, as pointed out by the Principal Accountant General. That the petitioners having signed to the agreements are bound by the terms and conditions of the same, and therefore, they cannot seek any exception. That the petitioners can move the Tax authorities for refund of the Service Tax now sought to be recovered from them. Therefore, it is prayed to dismiss the writ petition. 6. The learned counsel for the petitioners has stated that the official respondents contrary to the notification and the clarifications issued by the Ministry of Finance, Government of India, are trying to deduct the amounts towards Service Tax for the project works completed by the petitioner. Therefore, it is prayed to dismiss the writ petition. 6. The learned counsel for the petitioners has stated that the official respondents contrary to the notification and the clarifications issued by the Ministry of Finance, Government of India, are trying to deduct the amounts towards Service Tax for the project works completed by the petitioner. Learned counsel has stated that on an earlier occasion, the official respondents by taking into consideration the very same Circulars and Clarifications issued by the Ministry of Finance, Government of India, have refunded the amounts which were deducted towards the Service Tax. Learned counsel has drawn the attention of this Court to the Circulars issued by the Ministry of Finance, Government of India, whereby a clarification has been issued stating that as the canal system built by the Government or under Government projects is not falling under commercial activity, the canal system built by the Government will not be chargeable to service tax. Learned counsel has stated that the petitioners are undertaking canal works for the Kaleshwaram Project on behalf of the Government and therefore the petitioners are also not bound to pay the service tax. That on an earlier occasion service tax deducted by the respondents was refunded vide memo bearing No.CE/Dr.B.R.A.PCSS/DEE-1/AEE-2/PKG-10/12, dated 16.02.2012, and contrary to their own memo, the official respondents are now again trying to recover the service tax amounts from the bills of the petitioners and therefore left with no other alternative, the petitioners have filed the present writ petitions. 7. Per contra, learned Special Government Pleader appearing on behalf of the Additional Advocate General has stated that an audit objection was raised by the Pay and Accounts Department and as per the directions of the Director of Works Accounts videEndt.No.DWA/HYD/SO-II/A9/2009-10/258/ Dt.09.10.2009, the impugned letters were issued to the petitioners. That the Service Tax payable by the petitioners will have to be recovered from the bills of the petitioners and in case, the petitioners claim any entitlement to the Circulars/Notifications issued by the Government of India, then the petitioners can approach the Service Tax authorities for refund of the recovered Service Tax. 8. Heard the learned counsel for the petitioners and the learned Special Government Pleader appearing on behalf of the learned Additional Advocate General for the respondents. Perused the material on record. 9. 8. Heard the learned counsel for the petitioners and the learned Special Government Pleader appearing on behalf of the learned Additional Advocate General for the respondents. Perused the material on record. 9. From a perusal of the documents, it is seen that the petitioners have been entrusted with the works of digging up the canal for the purpose of Kaleshwaram Project, as per the Articles of Contract, dated 17.11.2008. As seen from the documents filed by the petitioners, on an earlier occasion, the official respondents duly taking into consideration the exemption granted by the Ministry of Finance, Government of India, videNotification No.41/2009-Service Tax, dated 23.10.2009, have released the Service Tax amounts which were earlier recovered from the petitioners’ bills. Admittedly, the Government of India through the Ministry of Finance has issued the notification exempting the payment of Service Tax for certain works done by the Government or on its behalf. The relevant portion of the Notification No.41/2009-Service Tax, dated 23.10.2009, reads as under: Para I “G.S.R.(E) – In exercise of the powers conferred by subsection (1) of Section 93 of the Finance Act, 1994, (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service referred to in sub-clause (zzzza) of clause (105) of Section 65 of the said Act, in relation to execution of a works contract in respect of canals, other than those primarily used for the purposes of commerce or industry, from the whole of service tax leviable thereon under Section 66 of the said Act.” 10. As understood, the above notification makes it abundantly clear that the same is exempting the Service Tax for the canal works done by the government or on its behalf i.e., the petitioners. 11. A Circular No.116/10/2009-ST dated 15.09.2009 was issued by Government of India, Ministry of Finance, reads as under: “Thus the essence of the definition is that ‘commercial or industrial construction service’ is chargeable to service tax if it is used, occupied or engaged either wholly or primarily for the furtherance of commerce or industry. As the canal system built by the Government or under Government projects, is not falling under commercial activity, the canal system built by the Government will not be chargeable to service tax. As the canal system built by the Government or under Government projects, is not falling under commercial activity, the canal system built by the Government will not be chargeable to service tax. However, if the canal system is built by private agencies and is developed as a revenue generating measure, then such construction should be charged to service tax.” 12. Thereafter, the impugned letter has been issued ostensibly on the objections taken by the Director of Works Accounts. A perusal of the same shows the same is endorsed by the Director of Works Accounts as under: “Copy communicated to all the JDWAs/PAOs/APADs for information and necessary action and also instructed to observe the following points while admitting the bill. (a) Wherever Service Tax is loaded in the data, the Service Tax has to be credited to the work. (b) Wherever Service Tax already paid by the Agency/Firm/Contractor, the reimbursement of the same can’t be permitted and the agency/firm/contractor may be advised to claim reimbursement from the Service Tax authorities.” 13. Admittedly, in this case, there is no dispute that the petitioners have undertaken the work for digging up the canal system for the purpose of Kaleshwaram Project on behalf of the Government, which is admittedly not a commercial activity, and which is chargeable to service tax. Once the Government of India, through the Ministry of Finance, has granted the exemption to the work contracts in respect of canals and once the circular has been issued clarifying the same, the endorsement made by the Director of Works Accounts is without jurisdiction and contrary to the said exemption granted by the Government of India. Once the exemption of Service Tax has been granted by the Government of India, the question of deducting any amounts for the said purpose cannot be countenanced and the benefit of the exemption has to be extended without any condition. Moreover, it is stated that the Service Tax has been repealed and in its place G.S.T. has come into force. It is well settled principle of law that any endorsements or orders made by the officials/Departmental Heads cannot override the provisions of the Act/Rules/Circulars. 14. For the afore-stated reasons, the impugned orders are set aside and the official respondents are directed not to recover or deduct any amounts towards Service Tax pursuant to the endorsement of the Director of Works Accounts. 14. For the afore-stated reasons, the impugned orders are set aside and the official respondents are directed not to recover or deduct any amounts towards Service Tax pursuant to the endorsement of the Director of Works Accounts. At this stage, learned Special Government Pleader has expressed his apprehension that the subordinates or other Heads may be issued memo or departmental action may be initiated against them for not recovering/deducting the Service Tax as directed by the Director of Works Accounts. Even though the said apprehension is misplaced, however, having regard to the apprehension expressed by the learned Special Government Pleader and also to safeguard the Subordinate Officers, it is made clear that if any demand is raised by the authorities of the GST, then, the petitioners alone will be liable for payment of the demanded Tax and the Officers of the respondent Departments cannot be made liable or be prosecuted for not recovering the Service Tax amounts for the works undertaken by the petitioners which is impugned in the present writ petitions. 15. With the above observations, the writ petitions are allowed. 16. Miscellaneous petitions pending, if any, shall stand closed. There shall be no order as to costs.