2025 (2) TMI 799 - AT - Service Tax

Service tax demand of Rs.33 lakh set aside for road construction services under Notification 25/2012 exemption

M/s U.P. State Construction & Infrastructure Development Corporation Ltd. Versus Commissioner of Central Goods & Service Tax, Kanpur

The CESTAT Allahabad set aside a service tax demand of Rs.33,04,058/- against an assessee for road construction services. The tribunal held that amounts ... Short payment of service tax - amount received for construction of roads - Manpower Supply Service (on reverse charge basis) - Extended period of limitation. Whether the demand of service tax amounting to Rs.33,04,058/- on the amount received for construction of roads is valid under the applicable service tax exemption provisions? - HELD THAT:- There are several entries wherein amounts have been received towards construction of road. These funds have been received either from DRDA, Gorakhpur or Gorakhpur Development Authority, out of MP/MLA funds. It is found that entry 13(a) of Notification No.25/2012 dated 20.06.2012 grants exemption from payment of service tax on construction of road, bridge, tunnels or terminals for road transportation for use by general public. The said amount of Rs.2.20 crore having been received towards construction of road was exempted from payment of service tax. Therefore, the demand of Rs.33,04,058/- is liable to be set aside. Demand of service tax on availing Legal and Manpower Supply service - Extended period of limitation - HELD THAT:- A similar matter of limitation had come up for consideration before the Division Bench of this Tribunal in the case of G. D. Goenka Pvt. Ltd. [2023 (8) TMI 995 - CESTAT NEW DELHI]. In the said case, the demand had been raised consequent to audit. The extended period of limitation was invoked on the ground that under self assessment, the Appellant assessee was required to assess its own tax due on the services provided by it and file returns under Section 70. By claiming the wrong Cenvat credit, the Appellant willfully and deliberately suppressed the facts from the Department. The Division Bench referred to the decision of the Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company Vs. CCE, Mumbai [1995 (3) TMI 100 - SUPREME COURT] and made detailed observation for holding that extended period of limitation could not have been invoked. Thus, the Appellant’s case on limitation is squarely covered by aforesaid order of the Division Bench of the Tribunal. Respectfully following the aforesaid order, it is held that the demand of service tax (Rs.33,04,058/- as well as Rs.8,259/-) could not have been raised by invoking of extended period of limitation. As the demands itself are being set aside, penalties under Section 78(1) as well as Section 77(2) are also liable to be set aside. Conclusion - i) Exemption under Notification No.25/2012 is applicable to road construction projects funded by government bodies, negating the service tax demand. ii) Regular filing of service tax returns precludes the invocation of the extended period of limitation absent evidence of willful suppression. iii) Penalties cannot be imposed when the underlying tax demand is invalidated. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the demand of service tax amounting to Rs.33,04,058/- on the amount received for construction of roads is valid under the applicable service tax exemption provisions.Whether the demand of service tax on availing Legal and Manpower Supply services is sustainable, considering the revenue neutrality and limitation period.Whether the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994, was appropriate given the circumstances of the case.Whether the penalties imposed under Sections 78(1) and 77(2) of the Finance Act, 1994, are justified.ISSUE-WISE DETAILED ANALYSIS1. Demand of Service Tax on Construction of RoadsRelevant Legal Framework and Precedents: The legal framework involves the applicability of Notification No.25/2012 dated 20.06.2012, which provides an exemption from service tax for construction of roads, bridges, tunnels, or terminals for road transportation for use by the general public.Court's Interpretation and Reasoning: The Tribunal examined the entries in the appeal paper book that detailed the funds received for road construction. It found that the funds were indeed received for projects exempted under the specified notification.Key Evidence and Findings: The evidence included entries showing funds received from government bodies for road construction, which are exempt from service tax.Application of Law to Facts: The Tribunal applied the exemption notification to the facts, concluding that the demand for Rs.33,04,058/- was not sustainable.Conclusions: The demand for service tax on the amount received for road construction was set aside.2. Demand of Service Tax on Legal and Manpower Supply ServicesRelevant Legal Framework and Precedents: The demand was challenged on the grounds of revenue neutrality and limitation. The appellant argued that they were eligible for Cenvat credit, making the demand revenue neutral.Court's Interpretation and Reasoning: The Tribunal acknowledged the revenue neutrality argument but noted that some services were exempt from service tax, affecting the neutrality claim.Key Evidence and Findings: The appellant's regular filing of ST-3 returns and eligibility for Cenvat credit were considered.Application of Law to Facts: The Tribunal found that the demand was not entirely revenue neutral due to exempt services.Conclusions: The Tribunal focused on the limitation issue, determining that the demand was time-barred.3. Invocation of Extended Period of LimitationRelevant Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994, allows for an extended period of limitation in cases of fraud, collusion, willful misstatement, or suppression of facts.Court's Interpretation and Reasoning: The Tribunal referred to the Division Bench decision in G. D. Goenka Pvt. Ltd., emphasizing that regular filing of returns negates the presumption of willful suppression.Key Evidence and Findings: The appellant's consistent filing of returns was crucial in determining the absence of willful suppression.Application of Law to Facts: The Tribunal found that the extended period of limitation was improperly invoked.Conclusions: The Tribunal set aside the demand based on the improper invocation of the extended period of limitation.4. Imposition of PenaltiesRelevant Legal Framework and Precedents: Penalties under Sections 78(1) and 77(2) of the Finance Act, 1994, are contingent on the validity of the underlying tax demand.Court's Interpretation and Reasoning: Since the demands were set aside, the basis for penalties was nullified.Conclusions: The penalties imposed were also set aside.SIGNIFICANT HOLDINGSThe Tribunal established several core principles:Exemption under Notification No.25/2012 is applicable to road construction projects funded by government bodies, negating the service tax demand.Regular filing of service tax returns precludes the invocation of the extended period of limitation absent evidence of willful suppression.The responsibility for ensuring correct tax assessment lies with the Central Excise Officer, especially in a self-assessment regime.Penalties cannot be imposed when the underlying tax demand is invalidated.Final Determinations: The appeal was allowed, setting aside the service tax demands and penalties, with consequential relief granted to the appellant.