Exemption for services to governmental authorities upheld for state established and wholly state owned bodies; revenue appeal dismissed

The issue concerns whether services provided to bodies established by the State Legislature or wholly state owned qualify as services to a "governmental authority" for exemption under entries 12 and 12A of Notification No.25/2012 ST. The appellate body applied the amended definition of "governmental authority" (considered by the Supreme Court) and treated the State Legislature established and 100% state owned corporations as governmental authorities; accordingly the exemption applies to services rendered to them. The revenue's appeal lacked merit and was dismissed.

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Issues: Whether the works contract services provided by the respondent to Bihar Police Building Construction Corporation (BPBCC) and Bihar Medical Services and Infrastructure Corporation Limited (BMSICL) for the period 2016-17 to June 2017 qualify for exemption under Notification No. 25/2012-ST dated 20.06.2012 (items 12/12A) as services to a "governmental authority".

Analysis: The Tribunal considered the documentary record (MOA/AOA, certificate of incorporation, CA certificate, agreement, 26AS, VAT certificate) establishing that BPBCC and BMSICL are wholly owned by the State Government and were set up by or are attributable to the State. The Tribunal examined the definition of "governmental authority" in clause 2(s) of Notification No. 25/2012-ST and the effect of the Clarification/Amendment (Notification No. 02/2014-ST) as interpreted by the Supreme Court in Shapoorji Pallonji & Co. Pvt. Ltd., including the disjunctive reading of sub-clauses and the purpose of widening the exemption scope. The Tribunal applied the temporal history of exemption (Notification No. 25/2012-ST; withdrawal and reinsertion via Notification No. 09/2016-ST and Section 102 of the Finance Act, 2014) to the contracts dated prior to 01.03.2015 and relevant dates, and matched the factual matrix of the works (construction of hospital and various civil structures) with the items (12/12A) of the Notification. On the facts, the Tribunal found the documentary evidence satisfied the statutory conditions for exemption for both recipients and that the exemption applied to the amounts received for the specified works; consequential demands, interest and penalties were therefore unsustainable.

Conclusion: The works contract services provided to BPBCC and BMSICL qualify for exemption under items 12 and 12A of Notification No. 25/2012-ST dated 20.06.2012; the demand of Service Tax of Rs. 2,39,39,196 and proposed interest and penalties are not sustainable and the appeal by revenue is dismissed (decision in favour of the assessee).

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