Bus operators' Adda Fees for infrastructure facilities subject to service tax under Section 65 despite sovereign authority claims

CESTAT Chandigarh held that appellant was liable for service tax on Adda Fees collected from bus operators for providing infrastructure facilities, as contractors with commercial motives cannot be equated to sovereign authorities. However, demands for manpower recruitment services were set aside due to lack of evidence and denial of natural justice. Service tax on rental income was rejected as the department failed to establish service provider-recipient relationship. Extended limitation period was not applicable except for Adda Fees, which was restricted to normal limitation period. Appeal partly allowed with remand to adjudicating authority.

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Issues Involved:
1. Demand of service tax on "Support Services of Business or Commerce" (Adda Fees).
2. Demand of service tax on "Manpower Recruitment and Supply Service".
3. Demand of service tax on "Renting of Immovable Property".
4. Demand of service tax on "Management, Maintenance and Repair Service".
5. Invocation of extended period for demand.
6. Entitlement to benefits of CENVAT credit and small-scale exemption.
7. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Demand of service tax on "Support Services of Business or Commerce" (Adda Fees):
The appellants were collecting Adda Fees from bus operators for providing infrastructure such as parking, roads, and ticket counters. The Department contended that these services constituted "Business Support Services" and were taxable. The appellants argued that the fees were a statutory levy under the Road Transport Corporation Act, 1950, and not for infrastructure support. The Tribunal found that the appellants were operating with a commercial motive and retaining the entire amount collected from bus operators, thus liable to pay service tax on Adda Fees. However, the demand was restricted to the normal period of limitation, and the appellants were entitled to the benefit of CENVAT credit.

2. Demand of service tax on "Manpower Recruitment and Supply Service":
The appellants provided manpower services to various entities but claimed they charged on a per-contract basis, not per-person. The Department relied on certain documents to establish the service tax liability, but these documents were not supplied to the appellants, denying them the opportunity to represent their case. The Tribunal held that the confirmation of demand on this count could not be sustained due to the lack of evidence and violation of natural justice principles.

3. Demand of service tax on "Renting of Immovable Property":
The Department demanded service tax based on miscellaneous income shown under the head "Rent" for the year 2010-11. The Tribunal found that the Department had not established the service provider, service receiver, service provided, and remuneration received, thus the demand could not be sustained. However, the demand for the amount already paid by the appellants before the issuance of the Show Cause Notice was confirmed along with interest.

4. Demand of service tax on "Management, Maintenance and Repair Service":
The appellants claimed that the work performed was related to roads and railways, exempt under Notification No.24/2009-ST. The Department did not counter this claim or establish the specific work undertaken. The Tribunal found that the demand could not be confirmed based on book entries alone and set aside the demand.

5. Invocation of extended period for demand:
The Tribunal found that the invocation of the extended period was not justified. The appellants had reasons to believe their activities were not taxable, supported by Tribunal and Commissioner (Appeals) decisions. The demand was primarily based on book entries without establishing the service details, thus the extended period could not be invoked.

6. Entitlement to benefits of CENVAT credit and small-scale exemption:
The Tribunal held that the appellants were entitled to the benefits of CENVAT credit and small-scale exemption under Notification No.06/2005-ST. These benefits could not be denied to them.

7. Imposition of penalties:
All penalties imposed under Sections 77 and 78 were set aside by the Tribunal.

Conclusion:
The appeal was partly allowed by way of remand to the Adjudicating Authority with specific directions:
(i) Confirming the service tax demand on Adda Fees for the normal period with entitlement to CENVAT credit.
(ii) Setting aside the demand on Manpower Recruitment and Supply Service and Management, Maintenance and Repair Service.
(iii) Confirming the demand on Renting of Immovable Property and Sale of Space for Advertisement along with interest, with the appellants required to pay interest if not paid earlier.
(iv) Setting aside all penalties.

(Order pronounced in the open court on 27/09/2024)

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