Services supplying water through operated tubewells to municipalities qualify for exemption under Entry 25.

The Appellant provided operation and maintenance services for high-quality treated drinking-water plants/Nalkoops to Jalkal Vibhag and various Nagar Nigams and Jal Sansthan in Uttar Pradesh during the financial year 2015–16.

She claimed that the services were exempt under Serial No. 25 of Mega Exemption Notification No. 25/2012-ST, dated 20 June 2012, and stated that she had neither collected service tax nor obtained service-tax registration.

On the basis of third-party information obtained from the Income Tax Department, the Department treated the receipts of ₹1,09,42,587 as taxable and issued a show-cause notice proposing service tax of ₹15,86,675, with interest and penalties.

The adjudicating authority confirmed the demand ex parte and imposed penalties under Sections 77 and 78 of the Finance Act, 1994.

On appeal, the Commissioner (Appeals) accepted the exemption for services provided to the Kanpur and Lucknow Jalkal Departments, but upheld a proportionate demand of ₹5,06,990 concerning services rendered to Nagar Nigam, Gorakhpur, Varanasi Jal Sansthan and Allahabad Jal Sansthan, on the ground that the Appellant had not produced documents establishing the nature of those services.

The Appellant challenged that order before the Tribunal.

Whether the Appellant’s operation and maintenance of Nalkoops and treated drinking-water plants for Government/local-authority bodies constituted services covered by Serial No. 25(a) of Mega Exemption Notification No. 25/2012-ST.

Whether the proportionate service-tax demand of ₹5,06,990, along with consequential interest and penalties, was sustainable where the services provided to the different public authorities were substantively the same.

The Tribunal applied Serial No. 25(a) of Mega Exemption Notification No. 25/2012-ST, which exempts services provided to the Government, a local authority or a governmental authority by way of carrying out any activity relating to functions ordinarily entrusted to a municipality, including water supply, public health, sanitation, conservancy, solid-waste management, and slum improvement or upgradation.

The applicable service-tax liability, interest and penalties were otherwise proposed under the Finance Act, 1994, including Sections 77 and 78, read with the relevant provisions of Sections 142 and 174 of the CGST Act, 2017.

No judicial precedent was relied upon or discussed.

The Tribunal examined the actual nature of the activities rather than treating the receipts as taxable merely because they appeared in third-party income-tax data.

The work involved operating Nalkoops and treated drinking-water plants for public authorities, with remuneration fixed per Nalkoop, per shift and per day.

It therefore concluded that the consideration was received for operation connected with the supply of water.

Since water supply is expressly identified as a municipal function under Serial No. 25(a) of Notification No. 25/2012-ST, the services provided to the Kanpur and Lucknow Jalkal Departments, as well as to the Nagar Nigam and Jal Sansthan authorities at Gorakhpur, Varanasi and Allahabad, fell within the exemption.

The absence of separate work orders for some recipients did not justify denying the exemption where the nature of the services was established from the overall record and was materially identical across the recipients.

It consequently set aside the surviving demand of ₹5,06,990 and allowed the appeal with consequential relief, if any, in accordance with law.