No Service Tax Exemption to Civic Body on Payments Made For Obtaining Third Party Services: Karnataka HC [Read Order]

The Karnataka High Court has held that the civic body would not be exempted from the payment of service tax made for availing third-party services. The civic body Bruhat Bengaluru Mahanagara Palike (BBMP) availed the service of a third party to impart free computer education to persons belonging to economically weaker sections of the Society. The respondent – Corporation passed a resolution to introduce a Scheme to Start Computer Educational Institutes in Bangalore Mahanagara Palike area to provide free computer education to persons belonging to economically weaker sections of the Society. Pursuant thereto, the Corporation being satisfied with the qualification of the petitioner had entered into agreements in respect of different Assembly Constituencies for three years to provide the above services and consequently, issued a work order. The petitioners provided the services without any complaint from the respondent as regards which the petitioners were paid a sum of Rs.3,500/- per candidate. The respondent – Corporation not being regular in payment, the petitioners had to follow up for such payment. The petitioners had also called upon the respondent to make payment of service tax due on the amount to be paid by the respondent to the petitioner. When no action was taken, the petitioner filed for a mandamus seeking direction to the respondent to consider the representation that came to be allowed by way of order. Pursuant thereto, the respondent released the balance amount, however, did not make the payment of the service tax amount. Despite the petitioners having brought to the notice of the respondent that the petitioners have made part payment of the service tax amount, the respondent has refused to pay the service tax on the ground that the respondent had received legal advice/legal opinion that the respondent is not liable to make payment of service tax. The petitioners having only made payment of partial amount due to service tax, the Commissioner of Service Tax issued show cause notices calling upon the petitioners to make payment of service tax due which the petitioners have challenged by depositing the requisite amounts. The petitioners have rendered services to the students on behalf of the Corporation, no amounts having been collected from the students, and the payment towards such services has been made by the Corporation. The petitioners being a service provider and the Corporation being the service availed since the Corporation represents the students, it is a bounden duty on the part of the Corporation to make payment of service tax and it is for this reason that the service tax authorities have also initiated proceedings against the petitioners in which proceedings the petitioners have been unfortunately made to suffer on account of the inaction and/or illegal stand on part of the Corporation. Sri.B.V.Krishna, counsel for the respondent-Corporation contended that the respondent – Corporation is not liable to make payment of any service tax and in this regard, he relies upon Section 66D(a) of the Finance Act, 1994. It was found that the Corporation had entered into an agreement with the petitioners to render computer training to persons identified by the Corporation as regards which those persons did not make payment of money, but the payment was made by the Corporation to the petitioners. A single judge bench of Justice Suraj Govindaraj allowed the petitions and 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, that is to say, it is not exempted from service tax.” Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

No Service Tax Exemption to Civic Body on Payments Made For Obtaining Third Party Services: Karnataka HC [Read Order]

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No Service Tax Exemption to Civic Body on Payments Made For Obtaining Third Party Services: Karnataka HC [Read Order]

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