2026-VIL-1166-MAD-ST
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SERVICE TAX High Court Cases

Service Tax - Exemption under Clause 12A of Mega Exemption Notification No.25/2012-ST to services provided to a governmental authority - Works contract services of construction of storage godowns were received by the Respondent, a public company established by the State Government with more than 99% equity participation, which procures paddy from farmers and distributes essential commodities through the Public Distribution System at subsidised rates - Appellant contended that the Respondent was not a governmental authority as it did not carry out any function entrusted to a municipality under Article 243W of the Constitution - Whether the Respondent qualifies as a governmental authority under Clause 2(s) of the Notification and is eligible for exemption under Clause 12A - HELD - To qualify as a governmental authority, the body should have been set up by an Act of Parliament or a State Legislature or established by the Government, there should be 90% or more participation by way of equity or control, and it should carry out any function entrusted to a municipality under Article 243W. The first two conditions are fully satisfied since the Respondent is established by the State Government with more than 99% participation by way of equity. The Respondent is formed not for profit making but to aid the State in its endeavour to alleviate urban poverty, safeguard the interest of the weaker section of society and provide for social and economic development planning. Its activity of procuring paddy, storing it and distributing it to the general public through Fair Price Shops at very low subsidised rates is certainly towards achieving the object of poverty alleviation and social and economic development planning. It therefore discharges some of the functions vested with a body under Article 243W - The Respondent qualifies as a governmental authority and is eligible for exemption under Clause 12A - The Writ Appeal is dismissed - Exemption under Clause 14(d) of Mega Exemption Notification No.25/2012-ST for post-harvest storage infrastructure for agricultural produce - Godowns were constructed in the major paddy growing districts primarily for storing the paddy procured from farmers, and the Appellant contended that the exemption was not available as the godowns could also be used for storing other commodities including cement - Whether construction of godowns which could later be used for storing other commodities is eligible for exemption under Clause 14(d) - HELD - The possibility of later usage of these godowns for storage of other commodities cannot be the determining factor. The primary test for eligibility is the objective, design and actual immediate use of the infrastructure at the time of its execution. If the godowns are built specifically to house essential commodities or agricultural produce such as paddy or rice for the public distribution system, they fulfil the criteria. The Department cannot deny an exemption based on hypothetical, future alternate uses - As long as the infrastructure fits the definition of post-harvest storage at the time of the service provision, subsequent or auxiliary changes in utilisation do not retroactively dissolve a valid statutory exemption. The Respondent had categorically stated that storage of other commodities happens only in Taluk godowns and that these godowns are used for post-harvest storage of agricultural produce. The Respondent operates under the control of the State Government primarily to execute public welfare functions such as food security and PDS distribution, which supports the non-commercial, public utility nature of the construction and protects it from being classified as a generic commercial warehouse - The Respondent is eligible to claim exemption under Clause 14(d), the order in original is set aside - The Writ Appeal is dismissed.
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