Court grants interim injunction against demanding service tax, citing sovereign function exemption, sets aside previous order.

The court granted an interim injunction, restraining the respondents from demanding service tax from the contractor for a specified period. The appellant's argument that the contracts involved sovereign functions exempt from service tax was considered, and the court found that the appellant had a prima facie case for interference with the previous order. The court set aside the previous order, allowed the writ appeal, and closed the connected civil miscellaneous petition without awarding costs.

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Issues Involved:
1. Inclusion of service tax in tender conditions.
2. Applicability of service tax on works contracts with the government.
3. Reimbursement of service tax paid by the contractor.
4. Interim injunction against the demand for service tax.
5. Sovereign functions and exemption from service tax.

Detailed Analysis:

1. Inclusion of Service Tax in Tender Conditions:
The appellant, a contractor, argued that the tender conditions did not include service tax. The contracts specified that the contractor's rates were inclusive of sales tax but did not mention service tax, which was in effect from 01.04.2015 to 30.06.2017. The appellant contended that they did not quote rates including service tax, which was later demanded by the respondents.

2. Applicability of Service Tax on Works Contracts with the Government:
The appellant entered into contracts with the Government of Tamil Nadu and other authorities. Initially, works contracts to the government were exempt from service tax under Notification No. 25/2012. However, this exemption was withdrawn effective 01.04.2015, making contractors liable to pay service tax. The appellant received a demand for Rs. 1.39 crore for service tax on various contracts executed during 2015-2017.

3. Reimbursement of Service Tax Paid by the Contractor:
The appellant paid the demanded service tax but sought reimbursement from the government, arguing that the service tax was not collected from the government or the Tamil Nadu Housing Board (TNHB). The appellant filed a writ petition seeking to quash the notification dated 01.03.2015 and to direct the respondents to grant exemption or reimburse the service tax and interest already paid.

4. Interim Injunction Against the Demand for Service Tax:
The appellant sought an interim injunction to restrain the respondents from demanding service tax for non-commercial works contracts. The writ court initially declined to grant the injunction, noting that the exemption was only for the government and not for private individuals. The court observed that the appellant should pay the service tax and seek reimbursement from the state government.

5. Sovereign Functions and Exemption from Service Tax:
The appellant argued that the contracts involved sovereign functions of the state, such as constructing court buildings and school buildings, which should not be liable for service tax. The court acknowledged that the appellant did not collect service tax from the government and was compelled to pay it and seek reimbursement, which had not been granted yet.

Judgment:
The court found that the appellant made a prima facie case for interference with the writ court's order. The court noted that the appellant was compelled to pay service tax without collecting it from the government, which was against the intention of not taxing sovereign functions. The court set aside the writ court's order and granted an interim injunction, restraining the respondents from demanding service tax from the appellant for the specified period. The writ appeal was allowed, and the connected civil miscellaneous petition was closed. No costs were awarded.

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