M/S Maytas-Meil-Abb-Aag(Jv) vs. State Of Telangana

Facts

The petitioners, contractors engaged in executing works for the Kaleshwaram Project (formerly Pranahitha Chevella Lift Irrigation Scheme) on behalf of the State of Telangana, challenged recovery notices issued by the Executive Engineer, Irrigation and CAD Department. These notices sought to recover amounts already paid to the petitioners towards Service Tax. The recovery was based on an endorsement by the Director of Works Accounts, which directed the deduction of Service Tax where it was loaded in the data or paid by the agency/firm. The petitioners contended that the works undertaken were for canals not primarily used for commerce or industry, and thus exempt from Service Tax as per Government of India notifications and circulars.

Held

The Court held that the impugned letters seeking recovery of Service Tax were arbitrary, illegal, and unconstitutional. It found that Notification No. 41/2009-Service Tax clearly exempted taxable services in relation to the execution of works contracts for canals, other than those primarily used for commerce or industry, from the whole of Service Tax. The Court also referred to Circular No. 116/10/2009-ST, which clarified that canal systems built by the Government are not commercial services and thus not chargeable to Service Tax. The endorsement by the Director of Works Accounts was deemed to be without jurisdiction and contrary to the exemption granted by the Government of India. The Court reasoned that once an exemption is granted, its benefit must be extended without condition. The Court set aside the impugned orders and directed the respondents not to recover or deduct any amounts towards Service Tax. The Court also addressed the apprehension of the Special Government Pleader regarding departmental action against subordinates, clarifying that if any demand is raised by GST authorities, the petitioners alone would be liable, and officers would not be liable for not recovering Service Tax on these works.

Key Issues

1. Whether the action of the respondents, specifically Respondent No. 3, in issuing impugned letters dated 30.06.2020 and 04.08.2020, seeking to recover amounts paid towards Service Tax, is arbitrary, illegal, and unconstitutional, particularly in light of Government of India notifications and circulars granting exemption? Petitioner's arguments: The petitioners argued that the works executed were for canals not primarily used for commerce or industry, and therefore, were exempt from Service Tax under Notification No. 41/2009-Service Tax dated 23.10.2009. They relied on Circular No. 116/10/2009-ST dated 15.09.2009, which clarified that canal systems built by the Government are not commercial services. The endorsement by the Director of Works Accounts, directing recovery, was contended to be without jurisdiction and contrary to the exemption granted by the Government of India. They also noted that Service Tax has been repealed and replaced by GST. Revenue's arguments: The judgment does not record specific arguments from the revenue or state respondents regarding their defense of the recovery notices.