Patna High Court Grants Relief to Cooperative Society, Rules Solid Waste Management Activity Exempt from BGST

A division bench of Chief Justice K. Vinod Chandran and Justice Partha Sarthy opined, “There is no supply of goods in the solid waste management disposal work awarded to the petitioner. In the above circumstances, the activity of the petitioner regulated by the work order produced as Annexure-5 and the consideration received for the same would be exempt from the BGST Act.”

“It is also crystal clear that on similar circumstances, by Annexure-6 order, the Appellate Authority had allowed the appeal in the case of a different assessee, who had been carrying on the very same work of solid waste disposal in the very same Municipality,” the bench added.

The petitioner had challenged an assessment order, as confirmed by the first Appellate Authority under the Bihar Goods and Services Tax Act, 2017 (BGST Act), through a writ petition. This was particularly significant since, at that time, the Tribunal under the BGST Act had not been constituted, and the petitioner was deprived of consideration in the second appeal, as provided for in the statute.

In accordance with the notification issued by the Government, during the pendency of the Tribunal's constitution, there was a stay of recovery on payment of 20 percent of the disputed amounts, as specified in the assessment order. However, in the case at hand, the petitioner contended that the levy was not sustainable based on the specific notification exempting the activity carried out by the petitioner. This activity involved the removal of solid waste, which was not considered a works contract, and there was no supply of goods as required by the definition of 'works contract' under the BGST Act.

The petitioner, a Cooperative Society registered under the BGST Act, had been issued a notice under Section 74, quantifying the demand for tax and penalty for the Assessment Year 2019-20, specifically covering the period from November 2019 to February 2020.

Notably, the tax levy had been proposed based on the deductions made by the Nagar Parishad, Jamalpur under the Income Tax Act. The assessee had contended that the mere deduction of tax on income, a direct tax, could not lead to the levy under the Goods and Services Tax Act being made, which was an indirect tax.

The assessee, admittedly, had not responded to the notices, and a series of orders were passed demanding the tax under the BGST Act.

The petitioner had then filed an appeal specifically pointing out Notification No. 12/2017 issued by the Government of India, granting exemption from payment of tax in relation to a function entrusted to a Municipality under Article 243W of the Constitution of India.

It had been argued that the invocation of jurisdiction under Section 74 was illegal, without authority, and wholly improper. However, the appeal had been dismissed by a series of orders, despite another assessee filing a similar appeal and having it allowed by the same Appellate Authority.

The counsel for the petitioner, Shri D.V. Pathy, had taken the Court through the notification issued by the Central Government, the specific work order issued to the petitioner by the Nagar Parishad, Jamalpur, produced as Annexure-5, and also the appellate order produced.

The Government Advocate, Shri Raghwanand, had pointed out that it was a works contract under which the tax had been levied under the BGST Act.

The contract awarded to the petitioner had specifically indicated that, for the eleven months under consideration, the petitioner had been given the work of collection and disposal of waste materials from each household, shop, and commercial center, as well as sanitation work of drainages/road in the specified seventeen wards of the Municipality.

Other conditions under which the sanitation work was to be carried out, including the management of solid waste, had also been specified in the work order. The work granted to the petitioner had to be tested with the exemption granted by the Central Board of Indirect Taxes and Customs of the Ministry of Finance, Government of India.

Referring specifically to the exemptions granted between the period of 01.07.2012 to 10.07.2014 and 11.07.2014 to 30.06.2017, as outlined in the circular dated 30.05.2018, the Court said that the work conducted by the petitioner had been exempt from tax under the BGST Act.

In light of these circumstances, the Court had set aside the assessment orders, demand notices, and a series of orders in appeal. The Court had directed the assessee-petitioner to furnish details of the tax deduction at source made by the Municipality under the Income Tax Act and provide evidence of the consideration for solid waste disposal work, on which tax deductions were applied under the Income Tax Act.

The Court ordered, “The assessee shall appear before the Assessing Officer within a month from the date of receipt of the certified copy of this judgment and produce materials in substantiation.”

"The Assessing Officer was instructed to consider the provided information and issue orders in accordance with the law, taking into account the declaration made herein regarding the non-exigibility of tax on solid waste management activities and sanitation work carried out at the instance of the State or local authorities," the Court further ordered, thereby allowing the writ petition.

Counsel/s for the Petitioner : Mr.D.V.Pathy, Advocate Mr. Hiren Karan, Advocate

Counsel/s for the State of Bihar: Mr.Raghwanand (GA-11) Mr. Pratik Kumar, AC to GA-11

Case Title: Mahavir Sharmik and Nirman Swalambi Sahkari Samiti Limited vs State of Bihar & Ors.

LL Citation: 2023 LiveLaw (Pat) 143

Case No.: CWJC No. 7635 of 2023