Strict construction of tax exemptions leads to service tax on street-light maintenance and reimbursement by the recipient.

An exemption notification for management, maintenance or repair of roads was construed strictly, and street-light maintenance was held not to fall within it by implication; service tax was therefore payable during the relevant period. The Court further held that, once the service provider had discharged the tax, the incidence lay on the recipient of the taxable service, so the municipal corporation was liable to reimburse the tax paid. The decision emphasises that constitutional references to municipal functions do not enlarge a tax exemption beyond its plain wording.

---

---

Issues: (i) Whether service tax was payable during the relevant period on maintenance of street lights. (ii) If service tax was payable, whether the same could be recovered from the municipal corporation as recipient of the service.

Issue (i): Whether service tax was payable during the relevant period on maintenance of street lights.

Analysis: The exemption notification relating to management, maintenance or repair of roads was construed strictly. The expression used in the notification did not expressly cover maintenance of street lights, and such a service could not be included by implication. The later notifications and the departmental affidavit also indicated that no exemption applied to street-light maintenance during the relevant period. The statutory functions of municipalities and the reference to street lighting in the constitutional scheme did not enlarge the exemption beyond its plain terms.

Conclusion: The issue is decided in favour of the petitioners on the point that no exemption was available, and service tax was payable on maintenance of street lights during the relevant period.

Issue (ii): If service tax was payable, whether the same could be recovered from the municipal corporation as recipient of the service.

Analysis: Once service tax had been paid by the service provider, the burden of the tax fell on the recipient of the taxable service. The municipal corporation did not dispute that, if tax was payable, reimbursement would follow. On that basis, the tax incidence could not remain with the petitioners who had discharged it in the first instance.

Conclusion: The issue is decided in favour of the petitioners, and the municipal corporation is liable to reimburse the service tax paid.

Final Conclusion: The writ petitions succeed on the substantive controversy, with the Court holding that no exemption covered street-light maintenance and that the service-tax burden must be borne by the recipient.

Ratio Decidendi: An exemption notification must be construed strictly, and a service not expressly covered by its terms cannot be brought within it by implication; where service tax is paid by the service provider, the incidence of the tax is borne by the recipient of the taxable service.

---