2022 (12) TMI 138 - AT - Service Tax

State Govt Construction Services for Non-Commercial Use Not Taxable: Appellate Tribunal Decision

The Appellate Tribunal CESTAT NEW DELHI held that construction services provided by a State Government Company for non-commercial/governmental purposes ... Eligibility for benefit of abatement under N/N. 15/2004- S.T. dated 10.09.2004 as amended by N/N. 19/2005- S.T. dated 07.06.2005 and N/N. 01/2006-S.T. dated 01.03.2006 - Composite services or not - construction services - construction of commercial and industrial buildings - civil structure services - construction of complex services - services to the non-commercial concerns - time limitation - HELD THAT:- The services in question were actually the work contracts as stands under Section 65 (105)(zzzza) of Service Tax Act. Hon’ble Apex Court in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT], it was held that: “there was no charging section specifically, prior 01.07.2007, for levying service tax only on works contracts, and measure of tax with service element derived from gross amount charged for works contract less value of property in goods transferred in execution of works contract. Section 65(105)(g), 65 (105)(zzd), 65(105)(zzh), 65(105)(zzq) and 65(105)(zzzh) ibid were not sufficient for levying Service Tax on indivisible composite works contracts. Exemption notifications for impugned services were immaterial, and had to be disregarded, since levy itself of Service Tax was non-existent, no question of any exemption would arise. Hence, we are of the opinion that the question of demanding service tax on such contracts does not at all arises.” These findings are sufficient for us to hold that the entire demand for the period prior to July 2007 is liable to be set aside. For the period post July 2007, works contracts could be changed only under “Works Contract Service” [Section 65 (105) (zzzza)] and there is no demand under this head at all. Therefore, the demand for this period also cannot be confirmed. Extended period of limitation - HELD THAT:- The demands also need to be set aside for the reason that the revenue has failed to produce any evidence to prove a positive act on the part of the appellant to have an intent to evade the payment of tax. The appellant rather is a government undertaking being managed by the Government Officers itself, there can be no intent to evade its own revenue. The extended period is therefore held to have been wrongly invoked by the adjudicating authority below. Demand for normal period - HELD THAT:- The admissions/undisputed facts on record are sufficient to show that the appellant has not provided any service at all. The services were being provided by the sub-contractor appointed by the appellant. In the said circumstances, the service tax liability cannot be fastened upon the appellant that too for such services which were purely for non-commerce/industry purposes - the services in question are alleged to involve both supply of goods and services and hence cannot be changed under CICS at any rate. The entire demand is held to have wrongly been confirmed. Once the very basis of confirmation of demand goes, the question of legality of enhancement and question of competence to enhance thereof without affording opportunity of hearing to the appellant becomes redundant. Similarly the question of invoking Section 80 waiving off the penalties of Section 70, 76 and 77 of the Finance Act, 1994, becomes redundant. No purpose left anymore for remanding the matter. The order of imposition of duty has been set aside as being not warranted for services being rendered for non-commerce purpose and otherwise were not reduced by appellant, question of remanding the matter does not arise - Appeal disposed off. Issues:- Taxability of construction services provided by the appellant- Validity of the demand raised by the department- Application of penalties and interest under the Finance Act, 1994- Legality of the corrigendum issued by the adjudicating authorityAnalysis:Taxability of Construction Services:The appellant, a State Government Company, was engaged in construction services for government departments through subcontractors. The services provided were for non-commercial purposes and involved construction of complexes with material. The Tribunal held that the services were not taxable as they were used for non-commerce/governmental purposes and were provided by subcontractors. Citing relevant legal precedents, the Tribunal concluded that the demand for the period prior to July 2007 and post that period could not be confirmed as the levy of service tax on such contracts was non-existent.Validity of Demand:The revenue failed to provide evidence of the appellant's intent to evade tax, considering it was a government undertaking managed by government officers. The extended period for demanding tax was deemed wrongly invoked. The undisputed facts showed that the appellant did not provide any services directly, as they were executed by subcontractors. The construction services were for non-commercial purposes, benefiting government entities like Nagar Pallika and Rajasthan Housing Boards. The demand for the normal period was held to be baseless, leading to the entire demand being set aside.Penalties and Interest:The Tribunal found no grounds for imposing penalties under Sections 70, 76, and 77 of the Finance Act, 1994, as the demand itself was deemed invalid. The question of waiving off penalties and interest became redundant once the demand was set aside.Legality of Corrigendum:The corrigendum issued by the adjudicating authority to enhance the demand without providing the appellant an opportunity to be heard was considered a violation of natural justice. The Tribunal held that converting non-taxable services to taxable ones and enhancing the demand without hearing the appellant was not justified. The order under challenge was set aside, with the appeal filed by the appellant allowed, and the appeal filed by the department partly allowed, rejecting the prayer for remand of the matter.This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal CESTAT NEW DELHI, providing a comprehensive overview of the legal reasoning and conclusions reached in the case.