Governmental authority exempt from reverse charge service tax under Notification 30/2012-ST lacking profit motive

CESTAT Hyderabad ruled in favor of appellant regarding service tax liability under reverse charge mechanism for works contract service. The tribunal held that the governmental authority could not be considered a business entity despite being a body corporate, as it lacked profit motive. Collection of processing charges or cost markup on medicines did not constitute business activity. Since the authority was not a business entity, Notification No.30/2012-ST requiring 50% service tax payment under reverse charge basis was inapplicable. The appeal was allowed, granting relief to appellant.

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Issues involved: Appeal against confirmation of demand of service tax and imposition of penalties under various sections of the Finance Act, 1994.

Summary:
1. The appeal was filed against the confirmation of demand of service tax and penalties imposed by the Commissioner (Appeals) on the Managing Director of APMSIDC for the period 2016-17.
2. The Original Authority confirmed the demand of service tax in respect of Works Contract Service received by APMSIDC from M/s Satya Sai Constructions, except for one work order not covered under the exemption notification.
3. The main submission of the Appellant was that APMSIDC, being a corporation registered under the Andhra Pradesh Public Societies Act, is not a business entity and therefore not liable to pay service tax under reverse charge mechanism.
4. The Adjudicating Authority extended the benefit of exemption to APMSIDC under Notification No.25/2012-ST for services provided to governmental authorities.
5. The Adjudicating Authority concluded that APMSIDC is covered under the definition of governmental authority and entitled to the exemption based on the nature of work performed and certain judgments.
6. The Appellant did not challenge the nature of service or their corporate status but contended that they are not a business entity and therefore not liable to pay service tax under reverse charge mechanism.
7. The Adjudicating Authority and the Commissioner (Appeals) did not establish that APMSIDC falls within the ambit of Notification No.30/2012-ST, making them liable to pay service tax on the Works Contract Service provided to them.
8. The Tribunal allowed the appeal, stating that APMSIDC, being a governmental authority and not a business entity, is not required to pay service tax on the Works Contract Service provided to them by M/s Satya Sai Constructions.

Separate Judgement: None.

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