2023 (10) TMI 748 - SC - Service Tax

Term 'or' in Clause 2(s) of Mega Service Tax Exemption Means Alternatives, Not Combined Conditions

The SC held that the term 'or' in clause 2(s) of the Mega Service Tax Exemption Notification must be given its ordinary, disjunctive meaning, indicating ... Definition of 'governmental authority' under the Exemption Notification - service tax exemption for services provided to government, local authority or governmental authority - Clarification Notification widening the scope of exemption - disjunctive reading of the conjunction 'or' in statutory/subordinate legislation - role of punctuation (semicolon/comma) as an aid to statutory construction - strict/plain literal interpretation of exemption notifications where no ambiguity existsDefinition of 'governmental authority' under the Exemption Notification - Clarification Notification widening the scope of exemption - disjunctive reading of the conjunction 'or' in statutory/subordinate legislation - role of punctuation (semicolon/comma) as an aid to statutory construction - service tax exemption for services provided to government, local authority or governmental authority - strict/plain literal interpretation of exemption notifications where no ambiguity exists - Whether IIT Patna and NIT Rourkela fall within the definition of 'governmental authority' in clause 2(s) of the Exemption Notification as amended by the Clarification Notification and are therefore entitled to exemption from service tax on construction services. - HELD THAT: - The Clarification Notification amended clause 2(s) to expand the class of entities covered by the exemption. The amended provision sets out two alternatives in sub-clauses (i) and (ii) joined by the conjunction 'or', followed by a long qualification beginning with 'with 90% or more participation...'. Applying ordinary grammatical meaning and established principles of statutory construction, the Court held that the conjunction 'or' is disjunctive and the punctuation (notably the semicolon after sub-clause (i) and the comma after sub-clause (ii)) indicates that the long qualification applies to sub-clause (ii) alone. Reading 'or' as 'and' would nullify the evident purpose of the Clarification Notification to widen the exemption and would resurrect the unworkability that the amendment sought to cure. Where the text is clear and unambiguous, the Court must give effect to the plain words; accordingly the long qualification of 90% participation does not apply to entities falling under sub-clause (i) (i.e., bodies set up by Act of Parliament or a State Legislature). The Court further held that there was no ambiguity warranting application of the rule favouring the revenue in interpreting exemption notifications. Applying this construction, institutions established by Parliament under the Indian Institutes of Technology Act, 1961 and the National Institutes of Technology Act, 2007 qualify under sub-clause (i) and are covered by the exemption for services provided to a 'governmental authority', entitling relevant service providers or subcontractors to the benefit of the Exemption Notification. [Paras 24, 27, 28, 30, 34]The definitions in the Clarification Notification are to be read disjunctively; entities set up by an Act of Parliament fall within clause 2(s)(i) and are covered by the service tax exemption, and the High Court orders granting refund are upheld.Final Conclusion: The appeals are dismissed. The High Court decisions holding that the educational institutions established by Parliament qualify as 'governmental authority' under the amended definition and are entitled to the service tax exemption are upheld; no costs. Issues Involved:1. Whether IIT Patna and NIT Rourkela qualify as 'governmental authority' under the Mega Service Tax Exemption Notification No. 25/2012.2. Whether the service tax paid by SPCL for construction services at IIT Patna and NIT Rourkela should be refunded.Issue-Wise Comprehensive Details:1. Definition of 'Governmental Authority':The core issue revolves around whether IIT Patna and NIT Rourkela fall under the definition of 'governmental authority' as per the Exemption Notification. The Exemption Notification under clause 2(s) initially defined a 'governmental authority' as a board, authority, or body established with 90% or more government participation and set up by an Act of Parliament or State Legislature to carry out functions under Article 243W of the Constitution. The Clarification Notification amended this definition to include bodies set up by an Act of Parliament or State Legislature or established by the government with 90% or more participation by way of equity or control.2. Interpretation of the Notification:The appellants argued that both sub-clauses (i) and (ii) of clause 2(s) should be read conjunctively, meaning that even statutory bodies must have 90% or more government participation. However, the Court disagreed, stating that the word 'or' between sub-clauses (i) and (ii) indicates an alternative, making them independent and disjunctive. The Court emphasized that the semicolon after sub-clause (i) and the comma after sub-clause (ii) support this interpretation, meaning the 90% participation requirement applies only to sub-clause (ii).3. Applicability to IIT Patna and NIT Rourkela:The Court found that IIT Patna and NIT Rourkela, being established by Acts of Parliament, qualify as 'governmental authorities' under sub-clause (i) of the amended clause 2(s) without needing to meet the 90% government participation requirement. Consequently, the construction services provided to these institutions are exempt from service tax.4. Refund of Service Tax:Given the classification of IIT Patna and NIT Rourkela as 'governmental authorities,' the Court upheld the High Court judgments directing the refund of service tax paid by SPCL. The Court rejected the appellants' argument that SPCL's services were provided to NBCC and not directly to IIT Patna, noting that the Exemption Notification also covers services provided by subcontractors.Conclusion:The Supreme Court upheld the High Court judgments, affirming that IIT Patna and NIT Rourkela qualify as 'governmental authorities' under the Exemption Notification, and thus, the service tax paid by SPCL for construction services is refundable. The appeals were dismissed, and the judgments and orders were upheld without any order for costs.