2024 (1) TMI 1057 - AT - Service Tax

Railway cleaning services attract service tax despite genuine belief exemption under Section 67(2) Finance Act 1994

CESTAT Ahmedabad held that service tax is payable on cleaning services provided to railways, setting aside the Commissioner's order dropping the demand. ... Demand of Service Tax for extended period, not extending cum duty benefit - Imposition of penalties under Section 77 and 78 of the Finance Act, 1994 - demand in respect of services provided to Indian Railways - HELD THAT:- In the case of M/S. MUKESH KALWAY VERSUS COMMISSIONER OF CENTRAL EXCISE, BHOPAL [2017 (3) TMI 615 - CESTAT NEW DELHI], SAROVAR HOTELS PVT. LTD., VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX, HYDERABAD – IV [2018 (8) TMI 816 - CESTAT HYDERABAD] and M/S DYNAMIC ENTERPRISES VERSUS CCE & ST, JAIPUR [2018 (5) TMI 787 - CESTAT NEW DELHI], the Tribunal has held that service tax is payable in respect of cleaning services provided to railways. In view of above, there are no merit in the order of the Commissioner dropping the demand in respect of cleaning services provided to railways and the order to that extent is set aside and appeal of Revenue to that extent is allowed. Extended period of limitation - penalties - HELD THAT:- The Commissioner himself has held that no duty was payable in respect of the services provided to railways under the belief that the said services are not chargeable to tax for various reason cited in the impugned order. In those circumstances, it will not be out of place to hold that the assessee could also have harbored similar beliefs in respect of services provided to railways. Thus, extended period of limitation cannot be invoked in respect of the amount demanded as service tax in respect of supply of services of railways. Benefit of cum tax calculation for the purpose of demand - HELD THAT:- Section 67(2) of the Finance Act 1994 clearly stipulates that gross amount charged by service provider should be treated as inclusive of Service Tax payable. In the instant case, the entire calculation stand made on the basis of gross amount charged by the appellant and therefore, the benefit of cum tax has to be granted to the appellant. The appeal of revenue is partly allowed to the extent that the demand for the period within the limitation is up held in respect of the services provided to railways. No penalty under section 78 or 77 can be imposed in respect of this demand. Issues: Appeal against demand of Service Tax for extended period, not extending cum duty benefit, and Imposition of penalties under Section 77 and 78 of the Finance Act, 1994. Revenue appeal against dropping of demand in respect of services provided to Indian Railways.Summary:1. Service Tax Demand and Exemption: The appeal was filed against the demand of Service Tax for an extended period, not extending cum duty benefit, and imposition of penalties. The appellant provided cleaning, house-keeping, and manpower supply services to Indian Railways, Airport Authority, and SEZ Units. The original adjudicating authority partly confirmed the demand, granting exemption for services provided to Railways. Revenue challenged this exemption, arguing that the activities of Indian Railways cannot be considered non-commercial or non-industrial, thus not falling under the exemption criteria. 2. Benefit of Exemption and Legal Interpretation: Revenue contended that the cleaning services provided to Indian Railways were wrongly granted exemption. The argument was based on the definition of cleaning activity service under Section 65(24B) of the Finance Act, 1994. It was highlighted that the services provided to Railways were not covered under the relevant definitions and notifications, leading to the conclusion that the benefit of exemption was wrongly extended in the impugned order. 3. Extended Period of Limitation and Penalty Imposition: The appellant challenged the invocation of the extended period of limitation and the imposition of penalties under Section 77 and 78 of the Finance Act, 1994. The Commissioner's order did not provide specific reasons to substantiate the charges of invoking the extended period of limitation. It was argued that since no duty was found payable for services provided to Railways, similar beliefs could have been held by the appellant, thus the extended period of limitation could not be invoked for the demand of service tax related to services provided to Railways.4. Decision and Ruling: The Tribunal set aside the order of the Commissioner dropping the demand for cleaning services provided to Railways, allowing the appeal of Revenue in this regard. However, the Tribunal partly allowed the appeal of the appellant, granting the benefit of cum tax calculation and setting aside the extended period of limitation and penalties imposed. The demand was limited to the normal period of limitation, and no penalties were upheld for the services provided to Railways.5. Conclusion: The appeals were partly allowed, with the demand for services provided to Railways being upheld within the normal period of limitation, and penalties under Section 77 and 78 being set aside. The benefit of cum tax calculation was granted to the appellant, and the extended period of limitation invoked in the demand was also set aside.