2024 (10) TMI 1400 - AT - Service Tax

Cable laying services under NOFN project denied service tax exemption under Notification 25/2012-ST despite government ownership

CESTAT New Delhi denied service tax exemption under Notification No. 25/2012-ST for cable laying services under NOFN project. The appellant provided ... Service Tax Exemption under Notification No. 25/2012-ST denied - Demand of Service Tax along with interest and imposed penalty - amount on providing services of laying of cable, under or alongside road, under NOFN project - as per Respondent amount was neither shown by the appellant in their ST-3 returns nor had any service tax been paid by them on such services provided by them to M/s BSNL (BBNL) - appellant submitted that the appellant had rendered services to BBNL/BSNL towards execution of the NOFN project, which are exempt from service tax by virtue of Sl. No. 12 of Notification No. 25/2012-ST dated 20.6.2012 Whether the appellant is eligible for the exemption under Notification 25/2012-ST dated 20.06.2012? - Even though BSNL is wholly owned by the Government, but it is a State-run Telecom company, whose primary objective is to increase sales revenue with focus on subscriber retention & acquisition by way of strengthening marketing, quality of service and customer delivery. Consequently, any activity undertaken for BSNL would also be for the same purpose, viz., expanding its subscriber base and increase revenues. Therefore, it cannot be said that the NOFN project (now known as Bharat Net project) aimed at bringing broadband connectivity to the Gram Panchayats was only towards planning for economic and social development. Such network was laid in recognition of the fact that expansion was important to increase their subscriber base, thus providing an opportunity to increase their revenues. Hence, the activity undertaken by the appellant is for use for commerce. The term ‘Commerce’ as understood by layman refers to the activity of buying and selling goods and services, between businesses or individuals, and can occur domestically or internationally. Commerce is a key component of the economy, encompassing various activities such as trade, logistics, advertising, customer interactions, & also includes different channels like traditional retail, online transactions (e-commerce), and wholesale trade etc. As in Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers [2019 (11) TMI 1824 - SUPREME COURT] held that a straight-jacket formula cannot be adopted in every case and the broad principles which can be curled out for determining whether an activity or transaction is for a commercial purpose would depend on facts and circumstances of each case. In the instant case, it stands established that the appellant undertook the activity of laying cables for M/s BSNL, which was for the purpose of providing broadband connectivity was for connecting the areas of India for the purpose of increasing their business, sales revenue which would clearly fall within the ambit of commerce. Scope of Notification no. 25/2012-ST dated 20.06.2012 - We note the Notification exempts a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession. The term used in the said notification is that ‘other than commerce, industry or any other business or profession’, which is required to be interpreted strictly, as held consistently by the Hon’ble Supreme Court. Exemption notification should not be liberally construed and the beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise at all by implication. We hold that the appellant is not entitled to the benefit of the Notification no. 25/2012-ST dated 20.06.2012. We find no infirmity in the impugned order. Eligibility of benefit of cum-duty - It is seen from the show cause notice that the appellant had vide their letter submitted that neither had they collected/received the service tax from M/s BSNL(BBNL) on account of providing the service of laying cable, under or along side the road under NOFN project or did they deposit any service tax. In this context, we note non-recovery of service tax is an offence under Sec 73 of the Act. Tribunal in M/s Panther Detective Services V. Commissioner of Central Excise, Kanpur [2006 (7) TMI 15 - CESTAT, NEW DELHI] held that the only relief in regard to valuation that the appellants would be entitled to treat the total receipts as inclusive of service tax. It was accordingly ordered that the Revenue shall recompute the tax amount in these appeals treating the total receipts as cum-tax. We also take note of the Supreme Court’s decision in the case of Commissioner of Central Excise V. Maruti Udyog Ltd. [2002 (2) TMI 101 - SUPREME COURT] wherein the Court granted the cum-duty benefits to the assessee. The Hon’ble Court noted that the service tax is on the value of taxable services rendered and therefore service tax has to be collected on that value only and the value of taxable services cannot be said to include the tax also. The Court went on to note that the Finance Act, 2006 inserted clause 2 to Sec. 67 with effect from 18.04.2006 provides that where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged. We find it appropriate to remand the matter to the original authority for recalculation of the demand extending the benefit of cum-tax on the gross amount charged by the appellant. Accordingly, the penalty under section 78 would be appropriately recalculated, based on the demand. Issues Involved:1. Eligibility for Service Tax Exemption under Notification No. 25/2012-ST.2. Classification of BSNL as a 'Governmental Authority'.3. Interpretation of 'Commerce' in the context of the exemption notification.4. Applicability of cum-duty benefit for the appellant.Issue-wise Detailed Analysis:1. Eligibility for Service Tax Exemption under Notification No. 25/2012-ST:The primary issue addressed in the judgment is whether the appellant, M/s Mangal Trading Company, is eligible for an exemption from service tax under Notification No. 25/2012-ST. The appellant argued that their services of laying cables for the NOFN project should be exempt as they were provided to a governmental authority and were not intended for commerce, industry, or any other business or profession. The exemption under the notification applies to services provided to the Government, a local authority, or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works meant predominantly for non-commercial use.2. Classification of BSNL as a 'Governmental Authority':The appellant contended that BSNL qualifies as a 'governmental authority' since it is a 100% Government of India-owned Public Sector Undertaking. The definition of 'governmental authority' includes entities set up by an Act of Parliament or established by the government with 90% or more participation by way of equity or control. The appellant argued that BSNL's role in developing telecommunication networks aligns with functions entrusted to a municipality under Article 243W of the Constitution. However, the tribunal found that despite BSNL being wholly owned by the government, it operates as a state-run telecom company with objectives focused on increasing sales revenue and subscriber base, which does not align with the definition of a governmental authority for the purposes of the exemption.3. Interpretation of 'Commerce' in the Context of the Exemption Notification:The tribunal examined whether the NOFN project, aimed at providing broadband connectivity to Gram Panchayats, was intended for commerce. It was determined that the project was designed to expand BSNL's subscriber base and increase revenues, thus constituting a commercial activity. The tribunal referred to various legal precedents to interpret 'commerce' as activities involving buying and selling goods and services, which in this case included expanding BSNL's network for commercial gain. Therefore, the services provided by the appellant were deemed to be for commerce, disqualifying them from the exemption.4. Applicability of Cum-duty Benefit for the Appellant:The appellant requested the benefit of cum-duty, arguing that they did not collect or receive service tax from BSNL for the services provided. The tribunal acknowledged that non-recovery of service tax is an offense but noted precedents where the total receipts were treated as inclusive of service tax. Following this reasoning, the tribunal remanded the matter to the original authority for recalculation of the demand, extending the benefit of cum-tax on the gross amount charged by the appellant. Consequently, the penalty under section 78 would also be recalculated based on the revised demand.Conclusion:The tribunal upheld the impugned order, denying the exemption under Notification No. 25/2012-ST due to the commercial nature of the activities undertaken for BSNL. However, the tribunal allowed the appeal to the extent of recalculating the demand with the cum-duty benefit, remanding the matter for appropriate adjustments.