2025 (9) TMI 128 - AT - Service Tax

Extended limitation wrongly invoked; demand set aside where appellant paid service tax with interest; Notifications No.30/2012 and No.11/2014 applied

M/s B.K. Agrawal Warehouse and Ingredients Private Limited Versus Commissioner, CGST & Central Excise, Indore

M/s B.K. Agrawal Warehouse and Ingredients Private Limited Versus Commissioner, CGST & Central Excise, Indore - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the show cause notice and demand invoking the extended period of limitation were maintainable in view of alleged suppression by the service recipient. 2. Whether services received for repair/maintenance of immovable property fall within the scope of 'works contract service' attracting Notification No. 30/2012-ST (50:50 liability) and, if so, how Notification No. 11/2014 (determination of value/abatement percentages) alters the apportionment of service tax liability between provider and recipient. 3. Whether the appellant was entitled to treat the services as input services for Cenvat credit purposes (including whether repair/renovation services are excluded as construction/original work) and whether payment under reverse charge was revenue-neutral. 4. Whether imposition of penalty was justified given the facts on record regarding maintenance of records, payment of tax and absence of mens rea. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Limitation and invocation of extended period Legal framework: The extended period for issuing demand is attracted only where there is suppression of facts or wilful evasion of tax; ordinary delays without proof of suppression cannot sustain invocation of extended limitation. Precedent Treatment: Appellant relied on tribunal/supreme court authorities (cited) to contend that mere non-payment where no concealment is shown does not permit extended limitation; the Court examined evidence rather than mechanically applying those authorities. Interpretation and reasoning: The Tribunal found no material evidence demonstrating suppression or deliberate concealment by the recipient. The appellant had ultimately discharged the tax liability with interest and did not maintain records omissions indicative of mens rea. The department failed to establish positive acts of concealment or fraudulent intent that would justify extended limitation. Ratio vs. Obiter: Ratio - extended period cannot be invoked in absence of evidence of suppression or deliberate evasion; Obiter - none significant on limitation beyond this factual application. Conclusion: Extended period was wrongly invoked; the show cause notice is barred by limitation and the demand based thereon cannot be sustained. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Characterisation as Works Contract Service and effect of Notifications No. 30/2012 and No. 11/2014 Legal framework: Notification No. 30/2012-ST (Entry No.9) apportions liability for the service portion in execution of works contracts as 50% payable by provider and 50% by recipient. Notification No. 11/2014 (amending valuation rules) prescribes that for works contracts not being original works (including maintenance/repair of immovable property) service tax is to be determined on 70% of the total amount charged (i.e. 70% taxable value). Precedent Treatment: Parties argued differing interpretations; the Tribunal did not adopt appellant's cited case law wholesale but interpreted the notifications conjunctively. Interpretation and reasoning: The Tribunal accepted that the services were works contract services for repair/maintenance. When Notifications 30/2012 and 11/2014 are read together, the taxable value for repair/maintenance is 70% of contract value and the share of tax liability must be apportioned accordingly - 70% of the contract value attracts service tax, and the apportionment between provider and recipient is 50:50 of that applicable service tax unless Notification 11/2014 indicates otherwise. The Court concluded that Notification 11/2014 changes the incidence by prescribing that, for repair/maintenance contracts, 70% of the contract value is the taxable portion and that balance 30% is not part of the service portion; read with 30/2012, the provider bears tax on the larger share (70%) and the recipient only on the remaining 30% (i.e., provider 70%/recipient 30% of total contract amount effectively). The department's calculation ignored Notification 11/2014 and therefore incorrectly demanded 50% of the total taxable value from the recipient without accounting for the 70:30 apportionment applicable to repair works. Ratio vs. Obiter: Ratio - where works contract relates to maintenance/repair, Notification 11/2014 must be applied with Notification 30/2012; consequence is that the recipient's share is limited to the 30% portion (as calculated from the valuation rule), and a demand based on 50% of full invoice value without applying the valuation abatement is unsustainable. Obiter - detailed mechanics of apportionment formulas beyond the facts need not be generalized. Conclusion: The departmental demand failed to take Notification 11/2014 into account; the confirmed demand calculation is unsustainable and set aside to that extent (cross-ref Issue 1 re limitation and penalty). ISSUE-WISE DETAILED ANALYSIS - Issue 3: Input service status / Cenvat credit and revenue neutrality Legal framework: Definition of 'input service' (post 01.04.2011) includes services used for modernization, renovation or repair of premises of the provider of output services, whereas original construction/works are excluded from input service definition. Precedent Treatment: Appellant relied on authorities about classification of repair/maintenance as input service; the Tribunal evaluated the nature of services on admitted facts (repairs not original construction). Interpretation and reasoning: The Tribunal accepted that services received were repairs/maintenance rather than original construction, and therefore fall within the scope of input services as defined. Consequently, payment of tax under reverse charge would be revenue-neutral where Cenvat credit is available and utilised by the recipient. This context undercuts the Department's contention about prejudice from RCM payment. Ratio vs. Obiter: Ratio - repair/maintenance services for the recipient's premises qualify as input services (per the statutory definition) and render RCM payment revenue-neutral when Cenvat credit is available; Obiter - specific accounting/crediting mechanics not adjudicated. Conclusion: The services qualified as input services; payment under RCM was revenue-neutral and does not justify treating the matter as tax evasion. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Penalty and allegation of suppression/record-keeping failures Legal framework: Penalty provisions presume culpability where there is suppression, concealment or wilful default; absence of evidence of mens rea or deliberate non-maintenance of records undermines penalty justification. Precedent Treatment: Department relied on absence of certain invoice disclosures and on the service provider's classification; the Tribunal required positive evidence of suppression. Interpretation and reasoning: The Tribunal found no evidence that the appellant wilfully suppressed facts or failed to maintain records in a manner amounting to culpable concealment. The appellant had paid the tax (albeit after assessment) with interest and there was no proof of deliberate evasion. Hence imposition of penalty was not justified. Ratio vs. Obiter: Ratio - penalty cannot be sustained without evidence of suppression or mens rea; Obiter - administrative lapses without concealment do not attract extended limitation or penalty. Conclusion: Penalty and extended-period consequences based on alleged suppression were unwarranted and set aside. OVERALL CONCLUSION Combined application of the valuation rule (Notification No. 11/2014) with apportionment Notification No. 30/2012 alters the proper calculation of recipient's liability for repair/maintenance works contracts; the department's demand ignored Notification No. 11/2014. There is no evidence of suppression or mens rea to justify invocation of the extended period or imposition of penalty. The show cause notice is barred by limitation and the confirmed demand is not sustainable; the appeal is allowed and the order under challenge is set aside.