Service tax demand set aside due to wrong classification and natural justice violation under Section 65(105)

The CESTAT Chandigarh allowed the appellant's appeal against service tax demand. The tribunal held that the Show Cause Notice (SCN) proposed classification under Commercial or Industrial Construction Service under Section 65(105)(zzq), but the adjudicating authority wrongly confirmed demand under Site Formation and Clearance, Excavation and Earthmoving and Demolition classification. This change violated natural justice principles. The tribunal further ruled that the services were properly classifiable as Works Contract Service under Section 65(105)(zzzza) of Finance Act, 1994, involving both goods supply and services. The impugned orders were set aside with consequential relief granted.

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Issues:
Change of name of Respondent; Classification of services under Commercial or Industrial Construction Service vs. Works Contract Service; Allegations in show cause notice; Sustainability of demand under site formation and clearance, excavation, and earthmoving and demolition; Interest and penalty imposition.

Analysis:
The judgment before the Appellate Tribunal CESTAT Chandigarh involved a miscellaneous application by the Department seeking a change of name of the Respondent from Commissioner, Chandigarh-I Central Revenue Building to "Commissioner of CGST, Central Revenue Building, Sector- 17C, Chandigarh." The Tribunal directed the Registry to make the necessary change. The appeals were taken up for final disposal, challenging orders dated 18.05.2012 and 30.04.2013 passed by the Commissioner of Service Tax. The appeals were consolidated due to the identical issue. The demands in question were Rs. 12,32,280/- for 2009-10 and Rs. 1,78,928/- for 2010-11, under Section 73 of the Finance Act, 1994, with a penalty imposed only for the latter period.

The facts of the case involved the Appellant providing construction services to Hindustan Petroleum Corporation Ltd. (HPCL) for earthwork. The Department issued show cause notices proposing demands, which were partially confirmed by the Commissioner under specific service categories. The Appellant challenged the orders, alleging they went beyond the show cause notice and classified services incorrectly under Section 65(97a) of the Act. The Appellant argued that the demand was unsustainable as it violated principles of natural justice. The Appellant contended that the services provided constituted works contract services involving both goods and services, citing relevant case law to support their position.

The Appellant further argued that the impugned orders should be set aside as the show cause notice did not dispute the supply of material along with services. The Appellant emphasized that once a service is classifiable as works contract service, it cannot be taxed under commercial and industrial construction service. Regarding interest and penalty, the Appellant asserted that if the tax demand is not sustainable, interest and penalty should not apply. The Department, represented by the Learned DR, reiterated the findings of the impugned order.

The Tribunal, after considering the submissions, found that the demand was incorrectly classified under site formation and clearance, excavation, and earthmoving and demolition, contrary to the show cause notice. The Tribunal agreed with the Appellant that the services rendered fell under works contract service, not commercial or industrial construction service, rendering the demand unsustainable. Relying on various decisions, the Tribunal held that the impugned orders were not sustainable in law and set them aside, allowing the appeals of the Appellant with consequential relief, if any, as per law.

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