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Commissioner, Customs Central Excise and Service Tax, Patna vs M/s Shapoorji Pallonji and Company Pvt Ltd and Ors.

Civil Appeal · 2023 INSC 910Decided 13 Oct 2023
Civil Appeal No. 3992 of 2023
S. Ravindra Bhat · Dipankar Datta

Background

Under a service tax exemption notification, construction services provided to a "governmental authority" for an educational institution were exempt from service tax. Shapoorji Pallonji, a construction contractor, had built facilities for IIT Patna and NIT Rourkela and paid service tax, which it later sought to have refunded, arguing both institutions qualified as "governmental authorities" under the (amended, broadened) definition in the notification. The Patna High Court and the Orissa High Court both ruled in the contractor's favour and ordered refunds; the tax department and Union of India appealed to the Supreme Court.

Decision Breakdown

The Supreme Court examined the amended definition of "governmental authority," which covers any board/authority/body set up by an Act of Parliament or a State Legislature, or established by government with 90% or more equity/control participation, to carry out functions of the kind entrusted to municipalities. The Court held there was no genuine ambiguity in this definition and that IIT Patna and NIT Rourkela plainly satisfied it, so the two High Courts had correctly extended the exemption and refund to the construction services rendered for them. The Court rejected the revenue's argument (based on the precedent in Dilip Kumar) that any ambiguity in a tax exemption clause must be resolved in favour of the revenue, holding that principle simply doesn't apply where the wording is clear, even if the resulting exemption turns out to be broader than the tax department would like. Both appeals were dismissed, with no order as to costs.

Lesson Learnt

When a tax exemption notification's wording is clear, courts will apply it as written even if it ends up covering more entities (here, IITs and NITs) than the tax department expected: the "resolve ambiguity in favour of revenue" rule only kicks in where real ambiguity exists, not merely because an outcome enlarges the scope of relief.

Official source (sci.gov.in)View Judgment (PDF)

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