No Promissory Estoppel Involved In Grant Of Temporary Reprieve From Service Tax On Works Contract; Madras High Court

The bench of Justices S. Vaidyanathan and C. Saravanan observed that “works contract” services are “declared services” under the Finance Act, 1994 and thus, the services provided by the petitioners attracted service tax. While holding that only a temporary reprieve was given to the petitioners by virtue of the Mega Exemption Notification, the Court concluded that there was no promissory estoppel involved in the grant of such exemption. Thus, the bench upheld the Notification No.6/2015, withdrawing service tax exemption.

The petitioners are contractors, who were engaged by the Public Works Department of the State and Central Government for construction of school buildings. The Central Government issued the Mega Exemption Notification No.25/2012-Service Tax, dated 20.06.2012, exempting service tax on services in nature of works contract, provided to the Government, local or governmental authority. The said exemption was, thereafter, withdrawn by the Central Government through Notification No.6/2015-Service Tax, dated 01.03.2015. Subsequently, the Central Government reintroduced the said exemption. However, by an amendment made to the Mega Exemption Notification, the service tax exemption was restricted to contracts executed prior to 01.03.2015.

The petitioners filed writ petitions before the Madras High Court, challenging the Notification No.6/2015-ST, and the Show Cause Notices/ Orders issued to them levying service tax in light of the said Notification.

The petitioners, including M/s. Raju Construction, submitted before the High Court that the Government had granted exemption from service tax in public interest and thus, withdrawal of the Exemption Notification must also be in public interest. Pleading that there was no public interest involved in withdrawing the said exemption, the petitioner contended that the withdrawal was arbitrary and contrary to Articles 14 and 19 of the Constitution of India.

The bench observed that Chapter-V of the Finance Act, 1994 contains provisions for levy and collection of service tax on services. Further, Service Tax on “Works Contract Service” was introduced in the Finance Act with effect from 11.05.2007, and made liable to tax with effect from 01.06.2007.

The Court concluded that for the period between 01.06.2007 to 30.06.2012, i.e., before the Mega Exemption Notification came into effect, the petitioners were liable to pay service tax on the services rendered by them in relation to “works contract”.

Noting that “works contract” services are “declared services” under the Finance Act, the Court ruled that the services provided by the petitioners would have attracted service tax if a temporary reprieve was not given to them by virtue of the Mega Exemption Notification. Thus, it ruled that there was no promissory estoppel involved in the grant of such exemption.

Once the exemption was withdrawn by Notification No.6/2015-Service Tax, dated 01.03.2015, the petitioners became liable to service tax on the taxable services under Section 67 of the Finance Act, the Court noted.

The High Court further ruled that the issue whether public interest existed in withdrawing the exemption or not is not justiciable, unless such withdrawal is arbitrary or vitiated on account of malafide/ extraneous considerations. “High Court while exercising its jurisdiction under Article 226 of the Constitution of India does not sit in appeal over the decision of the Government to withdraw a Notification or an exemption. It is further a policy decision of the Government to withdraw the exemption”, the Court said.

The High Court added: “Withdrawal of exemption in public interest is a matter of policy. Courts cannot find fault with the policy decisions of the Government for all times to come, irrespective of the satisfaction of the Government that a change in the policy was necessary in public interest and therefore, the challenge to the Notification or the show cause notices, seeking to demand tax cannot be countenanced.”

Rejecting the arguments that some of the petitioners were illiterate and/or semi-literate and thus, were unaware of the amendments made in the Mega Exemption Notification, the Court ruled that the law presumes every citizen to know the law. It added that every citizen has to arrange its affairs in consonance with the law.

“Therefore, these petitioners cannot claim any concession based on the alleged ignorance. Cursory glance of some of the Show Cause Notices issued to the petitioners which have been challenged in the Writ Petitions in Table Nos.2 & 4 indicates that they are assessees not only under the provisions of the Income Tax Act, 1961 but also under the Tamil Nadu Value Added Tax Act, 2006 and Puducherry Value Added Tax Act, 2007. Apart from the above, some of these petitioners failed to register and pay service tax for the services rendered by them to the Government Authorities”, the bench ruled.

The Court thus upheld the Notification No.6/2015, which withdrew service tax exemption, and dismissed the challenge made by the petitioners to the Show Cause Notices.

Case Title: M/s. Raju Construction & Ors. versus The Government of India & Ors.

Citation: 2023 LiveLaw (Mad) 10

Dated: 30.11.2022

Counsel for the Petitioners: Mr. S. Rajasekar

Counsel for the Respondent: Ms. R. Hemalatha, Senior Standing Counsel; Mr. V. Ravi, Special Government Pleader

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