The Karnataka High Court has ruled that the Bruhat Bengaluru Mahanagara Palike (BBMP) is obligated to pay service tax for the computer education provided to economically weaker students through outsourcing to a private agency. Dismissing BBMP’s claim of service tax exemption, the court emphasized that since the corporation availed the services of private entities for computer education, it is liable for service tax.

Petitioners Vasundhara AGK of Synergy Computer Education, NH Muralidhar of Systel Infos, and Amba Prasad NH of Suftpro Technologies sought direction from the HC for BBMP to pay the service tax. The BBMP, in a scheme to offer computer education to economically weaker sections, had engaged three private institutions for a three-year term. Despite payments made to these institutes, including Rs 3,500 per candidate, irregularities persisted.

The BBMP, claiming service tax exemption as a local authority, argued that it was not liable to pay service tax. However, the HC clarified that the exemption applies only when the government or local authority provides the service, and in this case, the institutes rendered the service on behalf of BBMP.

The court stated that when the BBMP makes payments to the institutes, the service providers are the institutes, and the BBMP is the service recipient. Consequently, the transaction does not fall under the exemption specified in Section 66D of the Finance Act, 1994.

In response, the HC directed the BBMP to pay the service tax to the three institutes. The court’s decision underscores the distinction between service providers and recipients, clarifying t

hat the BBMP is liable for the service tax in this context.

Source: PTI

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