Tribunal Upholds Service Tax Demand on Works Contract Services; Exemption Claim Rejected

The Tribunal upheld the service tax demand on works contract services provided to a Defence PSU, rejecting the exemption claim based on the recipient's nature. The appellant was directed to make a 50% pre-deposit of the confirmed service tax demand, with the balance waived upon compliance, due to the appellant's conduct during the proceedings.

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Issues:
1. Service tax demand confirmation for works contract service.
2. Applicability of service tax on services rendered to Defence PSU.
3. Time-barred show cause notice and tax liability acknowledgment.

Analysis:

Issue 1: Service tax demand confirmation for works contract service
The appellant, who undertook works contract service for a Defence PSU, appealed against the confirmation of service tax demand of Rs. 20,48,456 along with penalties. The appellant argued that services to a Defence PSU should not be subject to service tax as only commercial or industrial construction is taxable. However, the Tribunal found no provision exempting Defence PSUs from service tax. As the appellant was registered for commercial or industrial construction services since 2005 and had admitted to tax liability previously, the confirmation of demand was deemed sustainable. The Tribunal directed the appellant to make a pre-deposit of 50% of the confirmed service tax demand, with the balance waived upon compliance.

Issue 2: Applicability of service tax on services rendered to Defence PSU
The appellant contended that services provided to a Defence PSU should not attract service tax. The Tribunal held that being a company incorporated under the Companies Act, the Defence PSU operates on a commercial basis and is liable to service tax. The appellant's argument that services to HAL should be exempt from tax was dismissed, emphasizing that HAL's commercial nature makes it subject to service tax. Abatement was granted for material supplied in the construction services provided to HAL.

Issue 3: Time-barred show cause notice and tax liability acknowledgment
The appellant claimed the show cause notice was time-barred as it was issued in 2012 for the period from 2007 to 2012. The Tribunal noted that the appellant, a registered service tax provider since 2005, had acknowledged the tax liability in previous statements. Despite opportunities, the appellant did not respond to the notice or appear before the authorities. The Tribunal held that the appellant's failure to engage in the proceedings did not warrant a complete waiver of pre-deposit, directing a 50% pre-deposit within eight weeks.

In conclusion, the Tribunal upheld the service tax demand on works contract services provided to a Defence PSU, rejected the exemption claim based on the recipient's nature, and required a partial pre-deposit due to the appellant's conduct during the proceedings.

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