The Karnataka High Court observed that Service Tax exemption under section (a) of Section 66D of the Finance Act,1994 would be applicable only if the Government or local authority provides the service and also receive the charges towards such service.

The Court held thus in a batch of writ petitions challenging the order passed by Bruhath Bangalore Mahanagara Palike.

A Single Bench of Justice Suraj Govindaraj observed, “I am of the considered opinion that the present transaction would not come within the purview of sub-section (a) of Section 66D of Finance Act, 1994. The matter would have been different if the concerned candidate paid the money to the Corporation, then the Corporation would not be required to make payment of any service tax on that amount. However, so long as the payment is made by the concerned candidate to the petitioners or by the Corporation to the petitioners, the service provider being the petitioners, there is an obligation on part of the petitioners to collect the service tax from the payee and be remitted to the concerned department.”

The Bench said that the stand taken by the Corporation that it is exempted from making payment under Section 66D of Finance Act is of no avail.

Senior Advocate Jayakumar S. Patil appeared for the petitioners while Advocate B.V. Krishna appeared for the respondent.

In this case, the respondent Corporation had passed a resolution to introduce a scheme to start Computer Educational Institutes in Bangalore Mahanagara Palike area to provide free computer education to the persons belonging to economically weaker sections of the society. Pursuant thereto, the Corporation being satisfied with the qualification of the petitioner/candidate, had entered into agreements in respect of different Assembly Constituencies for a period of three years to provide the above services and consequently, issued a work order. The candidates provided the services without any complaint from the Corporation as regards which they were paid a sum of Rs. 3,500/- per candidate. The Corporation not being regular in payment of monies, the candidates had to follow up for such payment.

They also called upon the corporation to make payment of service tax due on the amount and when no action was taken, the candidates filed pleas for a mandamus seeking direction to the corporation to consider the representation which was allowed by way of an order. Thereafter, the corporation released the balance amount, however, did not make the payment of service tax amount. Despite the candidates having brought to the notice of the corporation that they have made part payment of service tax amount, the corporation having refused to pay the service tax on the ground that it had received legal advice/legal opinion it is not liable to make payment of service tax. The Commissioner of Service Tax issued show cause notices calling upon the candidates to make payment of service tax due to which they had challenged by depositing the requisite amounts. This aspect was also brought to the knowledge of the corporation and it was called upon to make payment of the amounts. As the same was not paid, the candidates approached the High Court.

The High Court in view of the above facts noted, “Though at first blush it may appear that services are rendered by the Corporation to the concerned candidate but in effect what has occurred is the petitioners have rendered the services on behalf of the Corporation to such candidate as regards which the Corporation has made payment of monies to the petitioners. Thus, when the Corporation makes such payment on a transaction with the petitioners, the service providers would be the petitioners and the service availer would be the Corporation and as such, it cannot be said to be that services are provided by the Corporation.”

The Court further held that the Corporation availing the services of the petitioners to render computer education to persons belonging to economically weaker section as regards which the Corporation has made the payment of monies to the petitioners would be amenable to service tax i.e., it is not exempted from service tax.

“On enquiry as to the basis of legal opinion said to have issued to the Corporation, Sri.B.V.Krishna, learned counsel for Corporation submits that said basis is Section 66D of the Finance Act. If that be so, having dealt with the issue above, the legal opinion is also misplaced. Hence, it would not come to the rescue of the Corporation”, said the Court.

Accordingly, the High Court allowed the writ petitions.

Cause Title- Vasundhara A.G.K. v. The Bruhath Bangalore Mahanagara Palike (Neutral Citation: 2023:KHC:45982)

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