Bengaluru civic body has to pay service tax on computer education for students: K’taka HC

PTI, Dec 27, 2023, 2:00 PM IST

The High Court of Karnataka has held that the Bruhat Bengaluru Mahanagara Palike (BBMP) is liable to pay service tax on the computer education for students of economically weaker sections it had outsourced to a private agency.

Rejecting the contention of the civic body that it was exempted from paying service tax, the HC in its judgement said, “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.”

Vasundhara AGK of Synergy Computer Education, NH Muralidhar of Systel Infos and Amba Prasad NH of Suftpro Technologies, had filed petitions before the HC seeking a direction to the BBMP to pay the service tax. The petitions filed in 2015, were heard by Justice Suraj Govindaraj who gave a common judgement on the three petitions recently.

The BBMP had introduced a scheme to impart computer education to persons belonging to economically weaker sections. Three private institutions were hired for a period of three years to provide the services. The three institutes were paid Rs 3,500 for every candidate but the payments were not regular. The institutes had to approach the HC to get a direction for payment. Even after that, the BBMP paid only the fixed amount, but not the service tax. The BBMP claimed that it had received legal advice that it was not liable to pay service tax. The three institutes then approached the HC again.

In a claim before the HC, the BBMP said, ”whenever there is a local authority which is involved in a transaction service, there would be no service tax which is required to be paid and local authority is exempted from such service tax.” Sub-section (a) of Section 66D of Finance Act, 1994 was cited by the BBMP which exempted it from service tax.

The HC in its order, however, noted that BBMP would be exempted only if it had provided the service. “For that purpose, a service would be required to be provided by the government or local authority and it is the government or local authority which is required to receive the charges towards such service rendered as regards which there would be no service tax payable,” it said.

But in the present case, it was not the BBMP which had provided the service but the institutes. “Though at first blush it may appear that services are rendered by the Corporation to the concerned candidate but in effect what has occurred is the petitioners have rendered the services on behalf of the Corporation to such candidates as regards which the Corporation has made payment of monies to the petitioners. Thus, when the Corporation makes such payment on a transaction with the petitioners, the service providers would be the petitioners and those who avail the service would be the Corporation and as such, it cannot be said to be that services are provided by the Corporation,” the court added.

Allowing the petitions and directing the BBMP to pay the service tax to the three institutes, the HC said, “I am of the considered opinion that the present transaction would not come within the purview of sub-section (a) of Section 66D of Finance Act, 1994.”