2025 (4) TMI 246 - AT - Service Tax

Service tax exemption denied for agricultural authority under Notification 25/2012-ST following Supreme Court precedent

M/s UP Cooperative Cane Unions Federation Ltd. Versus Commissioner of Central Excise & CGST, Lucknow

CESTAT Allahabad rejected appellant's claim for service tax exemption as governmental authority under Notification No.25/2012-ST, following SC precedent ... Recovery of service tax with interest and penalty - governmental authority - exemption from payment of service tax under Sl.No.39 of Notification No.25/2012-ST - extended period of limitation - HELD THAT:- The claim of the appellant that they are a governmental authority and exempt from payment of service tax under Sl.No.39 of Notification No.25/2012-ST needs to be rejected for the reason that the issue involved is no longer res-integra in view of the decision of Hon’ble Supreme Court in the case of M/s KRISHI UPAJ MANDI SAMITI [2022 (2) TMI 1113 - SUPREME COURT], wherein it was held that 'it is to be noted that on and after 1-7-2012, such activities carried out by the Agricultural Produce Market Committees is placed in the Negative List. If the intention of the Revenue was to exempt such activities of the Market Committees from levy of service tax, in that case, there was no necessity for the Revenue subsequently to place such activity of the Market Committees in the Negative List. The fact that, on and after 1-7-2012, such activity by the Market Committees is put in the Negative List, it can safely be said that under the 2006 circular, the Market Committees were not exempted from payment of service tax on such activities.' There are no merits in the submissions that the services provided by the appellant under the category of agricultural extension services. The term ‘agricultural extension services’ has been defined under Section 65B(4) of the Finance Act. It means ‘application of scientific research and knowledge to agricultural practices through farmer education or training’. Impugned order has concluded that appellant is not providing any such services which are so defined by way of application of scientific research and knowledge to agricultural practices through farmer education or training. Invocation of extended period of limitation - penalty - HELD THAT:- Appellant have never disclosed the facts in relation to provisions of these services to the department, and had not reflected the same in ST-3 returns which was filed by the appellant. Further though they got themselves registered for payment of service tax under the category of “Renting of Immovable Property”, they deliberately never provided any information in respect of these services. They have in their returns deliberately suppressed the gross value of consideration received with intention to evade payment of service tax. In absence of provisions of any such information, the charge of suppression against the appellant is maintainable and as the same resulted in non-payment of the service tax due, the intend to evade payment of taxes was also there. It is not even the case of the appellant that they were under a bonafide belief that these services were not due in respect of these amounts calculated and if such relief existed with on the basis of the same, as there are merits in invocation of extended period, the penalties imposed under Section 78 is justifiable, in view of the decision of Hon’ble Supreme Court in the case of Union of India v. Rajasthan Spinning & Weaving Mills [2009 (5) TMI 15 - SUPREME COURT]. However the quantum of penalty shall be re-determined on the basis recomputed tax demand. Conclusion - i) The appellant's services are taxable under the Finance Act, 1994, and not exempt as 'agricultural extension services' or as a government authority. ii) The extended period of limitation is applicable due to suppression of facts. iii) Penalties under Sections 77 and 78 were justified based on the appellant's conduct. The Tribunal allowed the appeal in part, remanding the case to the original authority to recompute the tax demand after allowing the cum tax benefit, as the appellant had not collected service tax separately from their service recipients. ISSUES PRESENTED and CONSIDEREDThe Tribunal considered the following core legal questions:1. Whether the demand of Service Tax amounting to Rs.2,11,84,995/- is sustainable under the provisions of the Finance Act, 1994.2. Whether the interest demanded under Section 75 of the Finance Act, 1994, for non-payment of Service Tax is appropriate.3. Whether the extended period of limitation for recovery of Service Tax under the proviso to Section 73(1) of the Finance Act, 1994, is applicable.4. Whether the penalty imposed under Section 78(1) of the Finance Act, 1994, is justified.5. Whether the demand for interest amounting to Rs.15,850/- under Section 75 of the Finance Act, 1994, is sustainable.6. Whether the penalty of Rs.10,000/- under Section 77(1)(a) of the Finance Act, 1994, is justified.ISSUE-WISE DETAILED ANALYSISIssue 1: Demand of Service TaxRelevant Legal Framework and Precedents: The Tribunal examined the definition of 'service' under Section 65B(44) of the Finance Act, 1994, and the applicability of the Negative List of Services under Section 66D. It also considered the Mega Exemption Notification No.25/2012-ST.Court's Interpretation and Reasoning: The Tribunal found that the appellant's activities, including earning commission from fertilizers, insecticides, and agricultural equipment, and service charges from IFFCO/KRIBHCO, constituted taxable services. The appellant's claim that these services were exempt as 'agricultural extension services' was rejected as the activities did not involve applying scientific research and knowledge to agricultural practices through farmer education or training.Key Evidence and Findings: The Tribunal noted that the appellant's services were primarily coordination and facilitation for their member societies and not direct services to farmers. The Tribunal also referenced the Supreme Court's decision in Krishi Upaj Mandi Samiti, which clarified that only statutory activities with fees deposited into the government treasury are exempt.Application of Law to Facts: The Tribunal applied the legal definitions and precedents to conclude that the appellant's services were taxable and not exempt under the claimed categories.Treatment of Competing Arguments: The Tribunal dismissed the appellant's argument that they were a government authority exempt from service tax, citing the Supreme Court's decision in similar cases.Conclusions: The Tribunal upheld the demand for Service Tax on the appellant's services.Issue 2: Demand for InterestThe Tribunal confirmed the demand for interest under Section 75 of the Finance Act, 1994, as the appellant had delayed the payment of service tax.Issue 3: Extended Period of LimitationThe Tribunal found that the appellant had suppressed material facts by not reporting the correct taxable value in their returns and not providing relevant notifications for exemptions. Thus, the invocation of the extended period of limitation under the proviso to Section 73(1) was justified.Issue 4: Penalty under Section 78(1)The Tribunal upheld the penalty under Section 78(1) due to the appellant's intent to evade tax, as evidenced by the suppression of facts and incorrect returns.Issue 5: Demand for Interest of Rs.15,850/-The Tribunal confirmed the interest demand for late payment of service tax during April to September 2016.Issue 6: Penalty under Section 77(1)(a)The Tribunal upheld the penalty of Rs.10,000/- for non-compliance with statutory requirements.SIGNIFICANT HOLDINGSThe Tribunal established that:- The appellant's services were taxable under the Finance Act, 1994, and not exempt as 'agricultural extension services' or as a government authority.- The extended period of limitation was applicable due to suppression of facts.- Penalties under Sections 77 and 78 were justified based on the appellant's conduct.The Tribunal allowed the appeal in part, remanding the case to the original authority to recompute the tax demand after allowing the cum tax benefit, as the appellant had not collected service tax separately from their service recipients. The original authority was directed to complete this within three months.