Tribunal dismisses revenue's appeals, toll collection not taxable as Business Auxiliary Service

The tribunal dismissed the appeals filed by the revenue, holding that the respondents' toll collection activity did not constitute "Business Auxiliary Service" and was not subject to service tax. Additionally, the tribunal upheld the decision that the demands were time-barred in the case of M/s Ideal Road Builders Pvt. Ltd. The cross-objections were disposed of accordingly.

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Issues Involved:
1. Liability of service tax on toll collection under "Business Auxiliary Service".
2. Interpretation of agreements and rights to collect toll.
3. Application of statutory functions versus business activities.
4. Applicability of Circular No. 152/3/2012 ST dated 22.02.2012.
5. Time-barred demands and limitation period for raising demands.

Detailed Analysis:

1. Liability of Service Tax on Toll Collection under "Business Auxiliary Service":
The primary issue was whether the respondents' activity of toll collection falls under the category of "Business Auxiliary Service" as defined in Section 65(105)(zzb) of the Finance Act, 1994. The adjudicating authority had initially set aside the demand for service tax on the grounds that the respondents were not providing any service to NHAI/MSRDC but were collecting toll on their own account. The tribunal upheld this view, stating that the respondents were not acting as agents of NHAI/MSRDC and were not receiving any commission or remuneration from these entities. Instead, they had secured the right to collect toll through an auction and paid a fixed bid price irrespective of the toll collected, indicating that the toll collection was their own business activity and not a service rendered to NHAI/MSRDC.

2. Interpretation of Agreements and Rights to Collect Toll:
The agreements between the respondents and NHAI/MSRDC were scrutinized to determine the nature of the toll collection rights. The tribunal found that the respondents had acquired these rights through competitive bidding and were liable to pay a fixed amount to NHAI/MSRDC, regardless of the toll collected. This arrangement showed that the toll collection was not on behalf of NHAI/MSRDC but was a business activity undertaken by the respondents at their own risk and profit or loss. The tribunal concluded that the toll collection rights were purchased in an auction and did not constitute a service provided to NHAI/MSRDC.

3. Application of Statutory Functions versus Business Activities:
The tribunal examined whether the activities of NHAI/MSRDC could be considered as business activities. It was held that NHAI/MSRDC were performing statutory functions related to the development, maintenance, and management of national highways, which are not business activities. Consequently, any service rendered to these entities could not be classified as "Business Auxiliary Service". The tribunal cited several judgments supporting this view, including the cases of Commissioner of Service Tax Delhi vs. Intertoll ICS SE CONS O & MP Ltd. and M/s Swarna Tollway (Pvt.) Ltd. vs. CCE Guntur.

4. Applicability of Circular No. 152/3/2012 ST dated 22.02.2012:
The revenue relied on Circular No. 152/3/2012 ST, which stated that service tax liability arises on the commission or charges retained by an independent entity engaged by the SPV to collect toll. However, the tribunal found that this circular was not applicable in the present case because the respondents were not collecting toll on behalf of NHAI/MSRDC and were not retaining any commission or charges. The toll collection was their own income, and they were only liable to pay the bid amount to NHAI/MSRDC, which could not be considered as a commission or service fee.

5. Time-Barred Demands and Limitation Period for Raising Demands:
In the case of M/s Ideal Road Builders Pvt. Ltd. (IRBPL), the Commissioner (Appeals) had set aside the demand on the grounds of limitation, which was not challenged by the revenue in its appeal. The tribunal upheld this view, stating that the show cause notices for the later period were issued earlier, indicating that the revenue was aware of the facts. Therefore, the demands were time-barred, and the tribunal found that the Commissioner (Appeals) had rightly set aside the demand on this ground.

Conclusion:
The tribunal dismissed the appeals filed by the revenue, holding that the respondents' activity of toll collection did not fall under "Business Auxiliary Service" and was not liable to service tax. The tribunal also upheld the view that the demands were time-barred in the case of M/s IRBPL. The cross-objections were also disposed of accordingly.

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