In a landmark judgment, the Supreme Court has ruled that services provided to the Indian Institute of Technology (IIT) and the National Institute of Technology (NIT) are exempt from service tax. This decision was reached after a meticulous interpretation of the terms “or” and a semicolon in the Mega Service Tax Exemption Notification released by the Department of Revenue in 2012.
The focal point of the case revolved around the service tax liability of M/s Shapoorji Pallonji and Company Pvt. Ltd. for contract works carried out for IIT-Patna and NIT-Rourkela. The 2012 Mega Service Tax Exemption Notification, which was subsequently amended in 2014, specified services that were exempted from service tax. As per this notification, services rendered to a “governmental authority” were exempt. The term “governmental authority” was defined as an entity:
(i) set up by an Act of Parliament or a State Legislature; or (ii) established by the Government, with 90% or more participation by way of equity or control, to execute any function entrusted to a municipality under Article 243W of the Constitution.
The High Courts of Patna and Orissa had previously determined that service tax was not applicable on contracts for IIT and NIT based on this definition. The Department, however, contested these rulings, asserting that an institute can only be deemed a “governmental authority” if it was established by a statute and maintained 90% or more government control.
In the judgment penned by Justice Datta, the Supreme Court delved into the significance of the word “or” between sub-clauses (i) and (ii) of the definition and the implications of the semicolon after sub-clause (i). The Court clarified that the term “or” in the definition cannot be interpreted as “and,” as suggested by the Department. The judgment stated,
“Going by the golden rule of interpretation that words should be read in their ordinary, natural, and grammatical meaning, the word “or” in clause 2(s) clearly appears to us to have been used to reflect the ordinary and normal sense, that is to denote an alternative, giving a choice; and, we cannot assign it a different meaning unless it leads to vagueness or makes clause 2(s) absolutely unworkable.”
Furthermore, the Court emphasized the importance of punctuation in legal interpretation. The deliberate use of a semicolon after sub-clause (i) was intended to distinguish it from sub-clause (ii). The Court observed,
“This essentially supports the only possible construction that the use of a comma after sub-clause (ii) relates it with the long line provided after that and, by no stretch of imagination, the application of the long line can be extended to sub-clause (i), the scope of which ends with the semicolon.”
Concluding its observations, the Supreme Court dismissed the appeals, thereby upholding the views of the High Courts of Patna and Orissa.
Case Title: Commissioner, Customs Central Excise and Service Tax, Patna v. M/s Shapoorji Pallonji and Company Pvt Ltd; Union of India v. M/s Shapoorji Pallonji and Company Pvt Ltd
