In case related to Service Tax between Commissioner Customs Central Excise and Service Tax, Patna and M/s Shapoorji Pallonji (CA No. 3991/2023 dated 13th October, 2023), Hon'ble Supreme Court has defined the meaning of Government Authority interpreting the meaning of Semi-Colon for the purpose of Exemptions under Service Tax Law.
The decision of the Hon'ble Supreme Court will be relevant in GST Regime also, as definition of Government Authority in GST Exemption Notifications is same as of Exemption Notification in Service Tax Provisions.
Area Covered in the Article
2. Brief Facts of the Case & Main Question to Decide
Legal Definition of the Government Authority
Service Tax Exemption was like:
Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of.....
a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
Government Authority was defined in Exemption Notification as
"governmental authority" means an authority or a board or any other body;
(i) set up by an Act of Parliament or a State Legislature; or
(ii) established by Government,
with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.”
Brief Facts of the Case & Main Dispute to Decide
Brief Facts of the Case
Shapoorji Pallonji provided construction service to the IIT for construction of academic block. Question was whether IIT is covered in the definition of Government Authority.
Main Dispute
To decide whether IIT is covered in definition of Government Authority, it needs to be decided that whether condition of
"with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.”
is applicable to both the clauses of (i) and (ii) of Government Authority as defined above or just be applied to clause (ii).
Department alleged that this condition is applicable to the both the clauses, accordingly, IIT is not a Government Authority.
However, M/s Shapoorji Pallonji contested that this condition is only applicable to clause (ii) and not to clause (i) and since IIT is established by an Act of Parliament, hence IIT is a Government Authority.
Key Observations & Decision of Hon'ble Supreme Court
(Simplified based on our interpretation)
Key Observations of Hon'ble High Court on the matter
Hon'ble Patna HC has held that IIT is a Government Authority on the basis that the provisions contained in sub-clauses (i) and (ii) of the definition of Government Authority are independent disjunctive provisions and the expression “90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution” is related to sub-clause (ii) alone
because sub-clause (i) is followed by the punctuation “;” and then by the conjunction “or”.
According to the Hon'ble High Court, any authority set up by an Act of Parliament or by an Act of the State Legislature as envisaged in sub-clause (i), therefore, cannot be made subject to the condition of “90% or more participation by way of equity or control” and it is only an authority or a board or any other body established by the Government as envisaged under sub-clause (ii) that has to meet the requirement of governmental participation of 90% or more by way of equity or control.
Accordingly, IIT being an authority established by an Act of Parliament is a Government Authority and construction service to IIT is exempt.
Hon'ble Supreme Court Observations
It is stated that where the language of a statute is clear, the words are in themselves precise and unambiguous, and a literal reading does not lead to absurd construction, the necessity for employing rules of interpretation disappears and reaches its vanishing point.
The word “or” as well as the word “and” is a conjunction; and it is well known that a conjunction is used to join words, phrases, or clauses. On how the conjunctions “or” and “and” are to be read, guidance could be drawn from authoritative texts and judicial decisions.
As per Justice GP Singh’s Principles of Statutory Interpretation, the word “or” is normally disjunctive while the word “and” is normally conjunctive. In English law, the position is clear as crystal, as explained by Lord Scruton in Green vs. Premier Glynrhonwy Slate Co.15, that one does not read “or” as “and” in a statute unless one is obliged, because “or” does not generally mean “and” and “and” does not generally mean “or”. (Department requested that or should be read as and between clause (i) and (ii).)
When the meaning of the provision in question is clear and unambiguous by the usage of “or” in definition of Government Authority, there remains no force in the submission of the Department that “or” should be interpreted as “and”.
In the present case, the word “or” between sub-clauses (i) and (ii) indicates the independent and disjunctive nature of sub-clause (i), meaning thereby that “or” used after sub-clause (i) cannot be interpreted as “and” so as to tie it with the condition enumerated in the long line (i.e. 90%...) of definition of Government Authority which is applicable only to sub-clause (ii).
Important Observation
In the present case, the use of a semicolon is not a trivial matter but a deliberate inclusion with a clear intention to differentiate it from sub-clause (ii).
Further, it can be observed upon a plain and literal reading of clause 2(s) that while there is a semicolon after sub-clause (i), sub-clause (ii) closes with a comma.
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.
We are, therefore, of the opinion that the long line (condition of 90%..) of clause 2(s) governs only sub-clause (ii) and not sub-clause (i) because of the simple reason that the introduction of semicolon after sub-clause (i), followed by the word “or”, has established it as an independent category, thereby making it distinct from sub-clause (ii).
If the author wanted both these parts to be read together, there is no plausible reason as to why it did not use the word “and” and without the punctuation semicolon.
Merely because the statute does not yield intended or desired results, that cannot be reason for us to overstep and cross the Lakshman Rekha by employing tools of interpretation to interpret a provision keeping in mind its outcome. Interpretative tools should be employed to make a statute workable and not to reach to a particular outcome.
Accordingly, it was decided that condition of 90%....is not applicable to clause(i) of Government Authority that means any authority, body or anybody is established by an Act of Parliament, it automatically becomes Government Authority for the purpose of Exemption Notification.
Implication of Decision in GST Regime (including list of Exemptions available to Government Authorities)
In the Exemption Notification issued under GST i.e. N.No. 12/2017 C.T(Rate) as amended by N.No. 32/2017 dated 13.10.2017 also contains same definition for the Government Authority and Government Entity.
Due to this many Public Sector Entities like LIC, many Public Sector Banks, Telecom Regulatory Authority of India, Airports Authority of India etc. which are established by Act of Parliament will be covered in the definition of Government Authority & Government Entity.
Definition of Government Authority & Government Entity in GST :
Government Authority as defined in 2(zf) of the Notification:
Governmental Authority” means an authority or a board or any other body,-
(i) set up by an Act of Parliament or a State Legislature;or
(ii) established by any Government,
with 90per cent.or more participation by way of equity or control,to carry out any function entrusted to a Municipality under article 243 W of the Constitution or to a Panchayat under article 243 G of the Constitution.
Government Entity in 2(zfa) of the Notification:
Government Entity” means an authority or a board or any other body including a society, trust, corporation,
(i) set up by an Act of Parliament or State Legislature;or
(ii) established by any Government,
with 90per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.”.
Now as per the decision of Hon'ble Supreme Court any body set-up by an Act of Parliament will fall in the definition of Government Entity.
List of Various Key Exemptions Available in GST to Government Authority & Government Entity:
S.No. in Notification No. 12/2017 as amended | Description of the Service | |
3 | Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. | |
3A | Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent.of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution | |
4 | Services by governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution. | |
5 | Services by a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution | |
9C | Supply of service by a Government Entity to Central Government, State Government, Union territory, local authority or any person specified by Central Government, State Government, Union territory or local authority against consideration received from Central Government, State Government, Union territory or local authority, in the form of grants. | |
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Disclaimer: We have tried to simplify the Hon’ble Court Decision based on our understanding purely for academic purpose. In case, there is any mistake in understanding of the order, we are apologised to the Hon’ble Court.
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