Laying Down Of ‘Optical Fibre Cable Network’ Benefits Defence Forces; Such Services Are Exempted From Imposition Of Service Tax: Delhi HC
The Delhi High Court quashed an Advance Ruling and held that the work in the nature of laying down of ‘Optical Fibre Cable Network’ is in the nature of setting up a civil infrastructure so as to benefit the defence forces of this country in having a better communication network. The said services are exempted from imposition of services tax for the ultimate beneficiary being the Government of India.
The Petitioner approached the High Court seeking a direction to call for the records and set aside the Advance Ruling passed by the Respondent. The Petitioners also sought issuance of an Order to hold that the services provided by the Petitioner to Respondent No. 5 under purchase order are exempt from Service Tax being services provided to the Government of India.
The Division Bench comprising Justice Yashwant Varma & Justice Dharmesh Sharma said, “...the Defence Services, Government of India, is the beneficiary of the services provided by the petitioner through its subcontractors. It is but also apparent that the services provided by BSNL to theDoT by way of implementation of the Projectare also exempted from the applicable service tax in terms of Entry 12A of the “Mega Exemption Notification” dated 20 June 2012 read with Section 1023 of the Finance Act, 1994, and by the same logic the notional services provided by the petitioner to BSNL would also be exempt from the applicability of service tax, by virtueof Entry 29(h) provided under the said “Mega Exemption Notification” dated 20 June 2012”
Senior Advocate Tarun Gulati represented the Petitioner while CGSC Bhagvan Swarup Shukla represented the Respondents.
In 2013, the respondent No.5 herein i.e., Bharat Sanchar Nigam Limited [BSNL], in the capacity of an “implementing agency”, floated a tender to roll out an exclusive and dedicated Optical Fiber Cable Network to be owned and operated by the Defence Services under the ‘NFS2 Project’ in different regions of the country. The petitioner, a Government of India Enterprise managed to secure the tender for a portion of the work for the said Project (Package ‘C’: for Rajasthan, Uttar Pradesh and Uttarakhand circles) for installation of the optical fibre cable, as well as other services incidental thereto. Subsequent thereto, the BSNL raised a Purchase Order [PO] upon the petitioner herein, towards Supply of Material, NLD services, Access Services and Training, under the said Project, for an aggregate value of Rs. 14,48,60,76,007.Admittedly, clause (36) of the said PO specifically provided that Service Tax is not applicable on the said PO.
The Petitioner issued separate POs to various sub-contractors for carrying out a variety of work for the NFS Project, and charged applicable service tax on its invoices. However, the BSNL allegedly refused to pay the service tax amount charges on the said invoices on the ground that the services performed by the petitioner were eligible for exemption by virtue of a Specific Exemption provided under Entry 12A of the 2012 Mega Exemption Notification. Clouded with confusion regarding the issue of liability to pay service tax, the petitioner filed an application before the Customs Authority for Advance Rulings{Erstwhile Authority for Advance Rulings (Central Excise, Customs and Service Tax}. The Commissioner of Central Goods & Services Tax, Commissionerate Delhi South (Erstwhile Commissioner of Service Tax, Delhi-II) took a contradictory stand that the exemption provided under the Mega Exemption Notification shall not be applicable on the PO and accordingly, the Project work should be subject to service tax in terms of the relevant provisions of the Finance Act, 1994.
This advance ruling was mainly assailed on the ground that BSNL had floated the tender only in the capacity of an “implementation agency” which was receiving 7.5% as “implementation charges” for the NFS Project, and the ultimate beneficiary of which is the armed forces i.e., Ministry of Defence, Government of India.
The Bench noticed that the Government of India, rather than BSNL, is the “recipient of service” in this case and the 2012 notification wholly exempts certain taxable services from the service tax leviable under Section 66B of the Finance Act, 1994, vide afore-referred Entry 12A(a)which categorically exempts services provided to the government or a government authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industries or any other business or profession.
“Undoubtedly, the work in the nature of laying down of “Optical Fibre Cable Network” is in the nature of setting up a civil infrastructure so as to benefit the defence forces of this country in having a better communication network. The said services are clearly exempted from imposition of services tax for the ultimate beneficiary being the Government of India. Further, Entry 29 (h) of the aforesaid notification also provides that the sub-contractor providing services by way of works contract to another contractor providing works contract services are also exempt from imposition of service tax”, it said.
The petitioners also brought it to the Court’s notice that out of the 7 POs which were issued under the same tender floated by the BSNL, in respect of the PO which was issued to the petitioner in 2014, the impugned ruling had been pronounced, contrary to their over ruling in respect of another PO which was issued to one M/s Vindhya Telelinks Limited [VTL], wherein quite the opposite approach had been taken by the respondents inasmuch as a Refund Order had been issued to VTL in terms of Section 102 of the Finance Act, 1994.
On this aspect, the Bench said, “Evidently, the respondents have applied dual standards, resulting in differential tax treatment to similarly placed assesses without any rational basis. This discriminatory treatment violates the rights of the petitioner protected under Article 14 of the Constitution of India, 1950.”
Thus, allowing the Writ Petition, the Bench quashed the impugned advance ruling passed under Section 28E of the Customs Act, 1962. “The petitioner shall be entitled to claim consequential reliefs in light of the observations appearing hereinabove”, it held.
Cause Title: P.J. Dharmaraj v. Church of South India & Ors. [Neutral Citation: 2024 INSC 938
Appearance:
Petitioner: Senior Advocate Tarun Gulati, Advocates Rajat Bose, Ankit Sachdeva, Shohini Bhattacharya & Shruti Kulkarni
Respondents: CGSC Bhagvan Swarup Shukla,Senior Advocate Dinesh Agnani, Advocates Sarvan Kumar, SSC Harpreet Singh, Advocate Suhani Mathur, Leena Tuteja &. Ishita Kadyan
