Court upholds constitutionality of service tax on construction for educational institutes

The court upheld the constitutionality of clause 13(c) of Notification No.25/2012 Service Tax, which imposed service tax on construction services provided to charitable educational institutes. The court found that the clause did not violate constitutional rights and was a valid exercise of delegated legislation. The exemption provided for buildings owned by entities registered under Section 12AA of the Income Tax Act primarily for religious use was deemed constitutional. As the petitioner failed to show arbitrariness or discrimination, the court dismissed the petition.

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Issues:
Challenge to constitutionality of clause 13(c) of Notification No.25/2012 Service Tax dated 20.6.2012.

Analysis:
The petitioner, an association of private unaided technical institutions, challenged the constitutionality of clause 13(c) of the notification dated 20.6.2012, which imposed service tax on construction services provided to charitable educational institutes. The petitioner argued that the clause discriminated between religious and educational charitable institutes registered under Section 12AA of the Income Tax Act, 1961, without any reasonable classification. The petitioner sought a declaration that the clause was unconstitutional and a direction to exempt contractors providing construction services to the petitioner from paying indirect tax.

The notification exempted services provided by entities registered under Section 12AA of the Income Tax Act primarily for religious use by the general public from service tax. The court emphasized that a law can only be struck down if it lacks legislative competence or violates fundamental rights guaranteed by the Constitution. The court cited the principle that a law cannot be declared unconstitutional solely based on being unjust or harsh unless it violates constitutional rights. The court noted that the impugned notification was a beneficial exemption granted under legislative competence and did not violate Article 14 of the Constitution.

The court held that the notification was not beyond statutory competence and was a valid exercise of delegated legislation. The court found that the exemption provided under clause 13(c) for buildings owned by entities registered under Section 12AA of the Income Tax Act predominantly for religious use by the general public was not unconstitutional. The court concluded that since the petitioner failed to demonstrate arbitrariness, discrimination, or violation of Article 14, the petition lacked merit and was dismissed.

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