Laying Down Optical Fibre Cables To Enhance Communication Network For Defence Forces Is Exempt From Service Tax: Delhi High Court

The Delhi High Court recently declared that Telecommunications Consultants India Limited, a central public sector undertaking which secured a Project floated by BSNL for laying down Optical Fibre Cable Network, is exempt from service tax since the service is in the nature of setting up a civil infrastructure so as to benefit the defence forces in having a better communication network. A division bench of Justices Yashwant Varma and Dharmesh Sharma observed, “The said services are clearly exempted from imposition of services tax for the ultimate beneficiary being the Government of India.” In doing so, it cited a Mega Exemption Notification dated 20 June, 2012, which wholly exempts certain taxable services from the service tax leviable under Section 66B of the Finance Act, 1994. Entry 12A(a) thereof 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. In the case at hand, BSNL had issued a Purchase Order, clause (36) whereof provided that Service Tax is not applicable on the said PO. However, the Customs Authority for Advance Rulings took a contradictory stand, holding that BSNL does not qualify under the definition of “Government” under the Mega Exemption Notification and accordingly, the Project work should be subject to service tax. Aggrieved, Telecommunications Consultants approached the High Court which held, “...it is manifest that the Government of India, rather than BSNL, is the “recipient of service” in this case. In other words, the Defence Services, Government of India, is the beneficiary of the services provided by the petitioner through its subcontractors.” Court also noted that the services provided by BSNL to the Department of Telecommunications by way of implementation of the Project are also exempted from service tax in terms of Entry 12A. “By the same logic the notional services provided by the petitioner to BSNL would also be exempt from the applicability of service tax, by virtue of Entry 29(h),” it said. Entry 29(h) 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. Accordingly, the petition was allowed and petitioner was declared entitled to claim consequential reliefs. Appearance: Sr. Advocate Tarun Gulati with Advocates Rajat Bose, Ankit Sachdeva, Shohini Bhattacharya and Shruti Kulkarni for Petitioner; CGSC Bhagvan Swarup Shukla with Advocate Sarvan Kumar for UOI; SSC Harpreet Singh with Advocate Suhani Mathur and Sr. Advocate Dinesh Agnani with Advocates Leena Tuteja and Ishita Kadyan for BSNL. Case title: Telecommunications Consultants India Limited v. UoI & Ors.Citation: 2024 LiveLaw (Del) 1329 Case no.: W.P.(C) 3016/2019Click Here To Read/Download The Order

Laying Down Optical Fibre Cables To Enhance Communication Network For Defence Forces Is Exempt From Service Tax: Delhi High Court

Kapil Dhyani

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