Construction services to National Physical Laboratory deemed taxable as commercial concern despite government ownership

CESTAT New Delhi held that construction services provided to NPL (National Physical Laboratory) constituted taxable CICS as NPL was deemed a commercial concern engaged in measurement, calibration, testing, and consultancy services on payment basis, not qualifying as governmental authority under exemption notification. The tribunal confirmed service tax liability on renting immovable property post-merger, allowed composition scheme benefits despite procedural lapses, and partially remanded the matter regarding extended limitation period for the first show cause notice while confirming remaining demands and penalties. The case involved issues of commercial vs non-commercial construction, pre-merger liability exclusion, VAT-paid goods exclusion, and penalty imposition under extended limitation provisions.

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Issues Involved:
1. Whether NPL can be considered as a commercial concern/government authority.
2. Whether the demand raised on the appellant for the period prior to merger can be excluded from computation of tax liability.
3. Whether the value of goods transacted on payment of VAT needs to be excluded and benefit of the Exemption Notification can be extended.
4. Whether the extended period was rightly invoked and whether penalty could be imposed.

Summary:

1. Commercial Concern/Government Authority:
The Commissioner found that NPL, engaged in activities like measurement, calibration, testing of devices/instruments, and scientific and technical consultancy services on a payment basis, is a commercial concern. NPL was registered with the service tax department for providing scientific and technical consultancy services. Thus, the construction services provided by the appellant to NPL up to 30.06.2012 qualified as taxable service under CICS. Post 01.07.2012, the service rendered by the appellant was a 'declared service' u/s 66E of the Finance Act. The Commissioner held that NPL was not a 'governmental authority' under the Exemption Notification as it was not set up by an Act of Parliament or a State Legislature.

2. Demand Prior to Merger:
The Commissioner found that the amount of rent received from immovable property prior to the merger of the appellant with M/s. N.N. and Company could not be assessed in the hands of the assessee. However, post-merger, the appellant was liable to pay service tax on renting of immovable property as the threshold exemption was not available.

3. Exclusion of VAT Paid Goods:
The Commissioner held that the benefit of Notification No. 12/2003-ST could not be extended to the appellant due to the lack of documentary evidence regarding the purchase of materials and VAT payment for the NPL project. However, the appellant was allowed the benefit of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, and was liable to pay service tax at specified rates for the relevant periods.

4. Extended Period of Limitation and Penalty:
The Commissioner invoked the extended period of limitation u/s 73(1) of the Finance Act, stating that the appellant had willfully and deliberately suppressed facts to evade tax. However, the Tribunal found that the necessary ingredients for invoking the extended period of limitation, namely willful suppression of facts with intent to evade payment of service tax, did not exist. The Tribunal cited various judgments, including those from the Supreme Court and Delhi High Court, to support this view. As a result, the extended period of limitation could not be invoked for the first show cause notice dated 21.04.2014.

Conclusion:
The Tribunal remitted the matter to the assessing officer to calculate the demand covered by the first show cause notice that falls within the extended period of limitation, excluding this demand and consequential penalty from the total demand confirmed by the Commissioner. The rest of the demand confirmed by the Commissioner was upheld. The appeal was allowed only to the extent indicated above.

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