2019 (12) TMI 526 - AT - Service Tax

Tribunal overturns penalties, finds services exempt from Service Tax, emphasizes burden of proof

The Tribunal allowed the appeal filed by the Appellant, quashing the Original Order and setting aside the penalties imposed on the Appellant and its ... Erection and Commissioning Services - Burden to prove that the activity is taxable before considering the benefit of exemption notification - Site formation, Clearance, Excavation & Earthmoving activities - Demand of service tax - proviso to Section 73(1) of the Finance Act, 1994 - N/N. 17/2005-ST dated 07-06-2005 - extended period of limitation - HELD THAT:- On perusal of the Contract executed with M/s.Adhunik Infrastructures Pvt. Ltd (refer Annexure-11 of the Appeal Memorandum), it is found that the work order issued is principally for the construction of Road. Thus, we agree with the contention of the Appellant that the activities of ‘construction of Road’ gets covered under the statutory definition of “Commercial Construction Service” given under Section 65(105)(zzq) of the Finance Act, 1994 and is subjected to the levy of Service tax at appropriate rate. Based on the above, we hold the interpretation of the Original Authority in classifying the activities undertaken by the Appellant for M/s.Adhunik Infrastructures Pvt. Ltd. to be the taxable services under Section 65(105)(k) and 65(105)(zzzzj), to be erroneous and incorrect. Appellant has also drawn our attention to the provisions of 65(25b) of the Act wherein, the activity/service of ‘Commercial or Industrial Construction’ purposefully, excludes the services provided in respect of ‘construction of roads' from the very definition of ‘taxable service’ given under section 65(105) of the Act ibid - We are in total agreement with the Appellant’s contention that the taxable services defined under Section 65(25b) has categorically excluded the activities of ‘construction of road’ from the scope of levy of Service Tax. Even otherwise also, we find that the Activities relating to the ‘construction of road’ has been placed under the exemption notification No.17/2005-ST dated 07-06-2005 so as to grant benefit to the service providers from being taxed. Thus, the Appellant qualifies in its claim for the non-levy of Service Tax on such activity of construction of Road, rendered to M/s.Adhunik Infrastructures Pvt. Ltd. and accordingly, the SCN fails on this aspect. In the instant case, it is relevant to place here that first of all, there must be a ‘levy of Tax’ for anyone to claim the benefit of exemption from such ‘levy of Tax’. The Department could have come up with sufficient cause to inflict the levy of Tax on the activities undertaken by the Appellant- rather than seeking the Appellant to prove the cause of non-levy of Service tax. Moreover, the cause placed by the Department for the imposition of levy of Service tax cannot be a mere assertion based on the assumptions or presumptions envisaged in the SCN and instead, such assertions should be ‘beyond reasonable doubt’ to inflict the levy of Tax upon the Appellant herein - In the present case, the tax imposed on the activities undertaken by the Appellant ceases to have the essence of a Taxable Service, and therefore the rational connection between the Tax imposed and the person on whom it is imposed, ceases to exist. Extended period of limitation - HELD THAT:- The Revenue Department alleging the Appellant of the act of Non-disclosure of the events/affairs of their business and income made there from, is not acceptable. The Original Authority holding the Act of the Appellant as a ‘Suppression of Fact’ with an intention to evade the payment of Service Tax sounds hollow and is not admissible - The Proviso to the Section 73(1) of the Act attracting the extended period of limitation of 5 years is inapplicable and the demand of Service Tax in toto, proposed in the SCN and upheld in the Original Order is barred by limitation of time. As the entire demand of tax confirmed in the Original order being quashed on merits as well as the SCN being construed as barred by limitation of time, the imposition of penalty of ₹ 1,00,000/- on Shri Mahendra Kumar Gupta, Managing Director of the Appellant-Assessee under Section 78A of the Act, bears no strength to stand on its own and is thus, quashed herewith. Appeal disposed off. Issues Involved:1. Classification of services rendered by the Appellant.2. Levy of Service Tax on services rendered by the Appellant.3. Burden of proof regarding taxability or exemption from tax.4. Invocation of the extended period of limitation and imposition of penalties.Detailed Analysis:1. Classification of Services Rendered by the Appellant:The Original Authority classified the services provided to M/s. Adhunik Infrastructures Pvt. Ltd. as 'Supply of Manpower' and 'Supply of Tangible Goods' under Sections 65(105)(k) and 65(105)(zzzzj) of the Finance Act, 1994. However, the Tribunal found that the work order was principally for the construction of roads, which falls under 'Commercial Construction Service' as defined under Section 65(105)(zzq). The Tribunal agreed with the Appellant that the construction of roads is excluded from the levy of Service Tax under Section 65(25b)(iii) and Notification No. 17/2005-ST, thus rejecting the classification by the Original Authority.2. Levy of Service Tax on Services Rendered by the Appellant:The Original Authority upheld the demand for Service Tax on services rendered to M/s. AMR Constructions Pvt. Ltd. and other contractees, classifying them under 'Site formation, and clearance, excavation and earthmoving and demolition' services. The Appellant argued that these services were related to agriculture and water reservoirs, which are excluded from the levy of Service Tax under Section 65(97a). The Tribunal found that the Department failed to provide conclusive evidence to prove that the services were taxable and noted that the burden of proof lies with the Department to establish taxability. The Tribunal held that the services rendered were excluded from the levy of Service Tax.3. Burden of Proof Regarding Taxability or Exemption from Tax:The Tribunal emphasized that the burden of proof to establish taxability lies with the Revenue Department. The Department failed to provide material evidence to prove that the services rendered by the Appellant were taxable. The Tribunal cited several judgments, including Union of India v. Garware Nylons Ltd. and K. P. Varghese v. Income Tax Officer, to support the principle that the onus of proving taxability is on the Revenue.4. Invocation of the Extended Period of Limitation and Imposition of Penalties:The Tribunal found that the Department failed to prove any suppression of facts by the Appellant to justify invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994. The Appellant had disclosed all relevant information in their audited financial statements, which were available in the public domain and subject to periodic audits by the Revenue Officers. The Tribunal held that the demand for Service Tax was barred by limitation and quashed the imposition of penalties under Section 78 and Section 78A of the Act.Conclusion:The Tribunal quashed the Original Order dated 27-04-2018, allowing the appeal filed by the Appellant. The imposition of penalties on the Appellant and its Managing Director was also set aside. The Tribunal concluded that the services rendered by the Appellant were excluded from the levy of Service Tax, and the demand was barred by limitation.