Exemption for subcontracted works contract services survives when payment comes through an authorised sister concern, not directly from the recipient.

A subcontractor performing exempt works contract services for road and canal construction remains eligible for exemption where the main contractor's supply to governmental authorities is itself exempt, even if payment is made by the main contractor's sister concern. Notification No. 25/2012-ST, including entries 12 and 29(h), extends the exemption to such works contract services and to subcontractors supplying to a main contractor. Section 65B(44) of the Finance Act, 1994 does not require consideration to flow directly from the service recipient. A certificate confirming the work award and authorised payment arrangement was accepted as reliable, and the demand was therefore unsustainable.

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Issues: Whether a subcontractor providing exempt works contract services for construction of roads and canals to a main contractor, who is ultimately serving governmental authorities, is denied exemption merely because the consideration was received from the sister concern of the main contractor instead of the service recipient.

Analysis: The admitted facts showed that the appellant was a subcontractor executing canal and road works for the main contractors, whose own services were exempt when supplied to governmental authorities. Entry 12 and entry 29(h) of Notification No. 25/2012-ST extended the exemption to such exempt works contract services and to subcontractors providing works contract services to a main contractor. Section 65B(44) of the Finance Act, 1994 defines service as an activity carried out for another for consideration, and does not require that consideration must necessarily come directly from the service recipient. The record contained a certificate from M/s Jain Irrigation Systems Limited confirming that the work was awarded to the appellant and that its sister concern, M/s ECP Housing (India) Private Limited, was authorised to make payments. No contrary evidence was produced by the Department, and the certificate was accepted as reliable proof of the payment arrangement and the exempt nature of the service.

Conclusion: The appellant remained eligible for exemption notwithstanding receipt of consideration from the sister concern of the main contractor, and the demand was unsustainable.

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