2025 (11) TMI 370 - AT - Service Tax

Installation and commissioning of railway wagons held 'original works' under Notification No.25/2012-ST; s.78 penalty set aside; Rule 7C/s.70 fee upheld

CESTAT held the installation and commissioning work on railway wagons qualified as 'original works' under Notification No.25/2012-ST, exempting it from ... Exemption from levy of Service Tax as provided under Serial No. 14 (a) of N/N. 25/2012-ST dated 20.06.2012 - services rendered in installation and commissioning of wagons amounting to original work - invocation of extended period of limitation - Interest and penalty - HELD THAT:- From the definition of “Original Works”, it is found that all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable, fall within the ambit of 'original work’. On the basis of the above definition of “Original Works”, the work orders executed by the appellant are exmained and it is found that the activities undertaken by the appellant on the Railway wagons, to make them workable, come within the purview of ‘original works’ as defined under N/N. 25/2012-ST dated 20.06.2012. Thus, the activity undertaken by the appellant are exempted from payment of service tax - the services rendered by the appellant being 'Original Works' to Railways, are specifically exempted vide Service Tax Mega Exemption Notification No. 25/2012-S.T. dated 20.06.2012 - the demand of Service Tax along with interest confirmed in the impugned order is not sustainable and hence, set aside. The Commissioner of Central Excise, Raipur had initiated an inquiry against the appellant and issued two different show cause-cum-demand notices, considering the same activity undertaken by them as amounting to ‘manufacture’ and demanded central excise duty on them. However, pending finalization of the dispute, the appellant had opted for settlement of disputes under the SVLDRS Scheme, 2019, which was accepted by the Department. Thus, it is evident that assembly/commissioning of railway wagon at site has been considered by the Department itself as a ‘manufacturing process' resulting into manufacture of wagon as an excisable goods - in view of the fact that the contract for assembly/erection/commission of railway wagons by assembly of fabricated/pre-fabricated parts, had been considered as a ‘manufacturing process’ of excisable goods by the Department, it is opined that levy of Service Tax on the same activity is not permissible under the law. Invocation of extended period of limitation to demand Service Tax - HELD THAT:- Since it is a fact borne on record that the same activity as in the present case has been considered by the Department as a ‘process amounting to manufacture’, the submission advanced by the appellant in this regard agreed upon that the same cannot be construed as a service activity for demanding Service Tax on the same. Thus, it is clear that the entire activity undertaken by the appellant was known to the department and they have not suppressed any information from the Department. Consequently, there are no justification for invocation of the extended period of limitation for raising the demand of Service Tax against the appellant. Interest and penalty - HELD THAT:- As the demand of Service Tax against the appellant itself is not sustainable, the question of demanding interest or imposing penalty under section 78 of the Finance Act, 1994 does not arise - it is found that even though the appellant has filed returns, there has been delay on their part in filing the said returns. Accordingly, the levy of Late Fee under Rule 7C of the Service Tax Rules, 1994 read with Section 70 of the Finance Act, 1994 upheld. The demand of Service Tax, along with interest, confirmed against the appellant in the impugned order set aside - penalty imposed on the appellant under Section 78 of the Finance Act, 1994 is set aside - the levy of Late Fee under Rule 7C of the Service Tax Rules, 1994 read with Section 70 of the Finance Act, 1994 uphold. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether services rendered by undertaking upgradation, rehabilitation, renewal, assembly/erection and commissioning of railway wagons constitute 'original works' within the meaning of Rule 2A(Explanation 1)(a) of the Service Tax (Determination of Value) Rules, 2006 and thereby fall under the exemption in Sl. No. 14(a) of Notification No. 25/2012-ST (Mega Exemption Notification) for services to railways. 2. Whether the department validly invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 for the period October 2013 to June 2017 on the ground of suppression of facts or otherwise. 3. Whether the classification/characterisation of the same activity as 'manufacture' (central excise) in parallel proceedings and settlement under a legacy dispute resolution scheme bars or precludes levy of service tax on the same activity. 4. Whether interest and penalty under Section 78 of the Finance Act, 1994 are sustainable where the underlying service tax demand is held not sustainable; and whether late fee under Rule 7C/read with Section 70 is sustainable given delays in return filing. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation as 'Original Works' and entitlement to exemption under Sl. No. 14(a) of Notification No. 25/2012-ST Legal framework: Notification No. 25/2012-ST grants exemption for 'services by way of construction, erection, commissioning, or installation of original works pertaining to railways.' 'Original works' is defined by reference to Rule 2A of the Service Tax (Determination of Value) Rules, 2006, whose Explanation 1(a) includes (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land required to make them workable; and (iii) erection, commissioning or installation of plant, machinery or equipment or structures. Precedent treatment: The Tribunal noted an earlier decision of the Tribunal under identical facts reaching a similar conclusion (decision relied on by appellant). The order treats that prior Tribunal view as supportive and consistent with the present interpretation. Interpretation and reasoning: The Tribunal analysed the contractual descriptions (upgradation, rehabilitation, complete renewal of end wall, side wall and flooring, renewal of roof and body repair) and found these activities were additions/alterations aimed at making existing wagons workable. Applying the text of Explanation 1(a)(ii), such works fall within 'original works.' The Court expressly accepted the appellant's submission that, if a contract falls within the statutory definition of 'original work,' exemption under Sl. No. 14(a) follows. Ratio vs. Obiter: Ratio - where works involve additions/alterations to damaged or abandoned structures to make them workable (including upgradation/renewal/rehabilitation of wagons), they qualify as 'original works' within Rule 2A(1)(a)(ii) and are exempt under Sl. No. 14(a). Observational/supporting comment - citing tribunal precedent as corroborative rather than as binding higher-court authority. Conclusion: The services in question constitute 'original works' and are exempt from service tax under Sl. No. 14(a) of Notification No. 25/2012-ST; the demand of service tax is therefore unsustainable on merits. Issue 2 - Invoking extended period of limitation under proviso to Section 73(1) Legal framework: Proviso to Section 73(1) permits extended period where there is suppression of facts or fraud; normal limitation applies otherwise. Periodic returns filed by assessee engage expectations of departmental knowledge. Precedent treatment: The appellant relied on judicial authority (High Court) for the proposition that invocation of extended limitation is impermissible in pure statutory interpretation cases and where no suppression is established; the Tribunal considered these principles in assessing whether suppression existed. Interpretation and reasoning: The Tribunal found the department was aware of the appellant's activities (periodical ST-3 returns filed; departmental enquiries and seizures in related central excise proceedings; settlement under legacy scheme). The activity itself had been the subject of prior departmental scrutiny and not concealed. On those facts, there was no established suppression of facts with intent to evade tax; thus, extended limitation could not be invoked. The Tribunal expressly treated departmental knowledge and consistent filing as indications negating suppression. Ratio vs. Obiter: Ratio - extended period of limitation cannot be invoked where the activity was known to the department, returns were filed, and no suppression with intent to evade is proved; therefore demands raised solely by invoking extended limitation are unsustainable. Observational - comment that matters known to department and settled in another forum weigh against invoking extended limitation. Conclusion: Invocation of the extended period was unjustified; the demand confirmed on that extended limitation basis is unsustainable on limitation grounds. Issue 3 - Effect of parallel classification as 'manufacture' and settlement under legacy dispute resolution on service tax liability Legal framework: Tax liability depends on legal characterisation of activity as service or manufacture; mutually exclusive treatment may follow where an activity is properly classifiable as a process amounting to manufacture and excise duty is payable on goods produced. Precedent treatment: The Tribunal relied on the fact of departmental treatment in related central excise proceedings and the SVLDRS settlement as an admitted recognition by the department of the activity's character in that forum. Interpretation and reasoning: The Tribunal reasoned that where the department itself has considered the same activity as a manufacturing process resulting in excisable goods - and the assessee accepted settlement under the legacy scheme - the same activity cannot be recharacterised as a taxable service in subsequent proceedings. That departmental stance and the nature of the activity (assembly/erection/commissioning of wagons from fabricated parts) supported the conclusion that service tax levy on the same activity is impermissible. Ratio vs. Obiter: Ratio - where identical activity has already been treated as manufacture by the department (and settled under an appropriate scheme), the department cannot sustain a service tax demand on the same activity; such double characterization is not permissible. Observational - reliance on settlement under legacy scheme as evidentiary of departmental position rather than as estoppel doctrine per se. Conclusion: The prior departmental characterisation as manufacture and settlement under the legacy scheme reinforced the conclusion that service tax demand was not maintainable. Issue 4 - Consequences for interest, penalty and late fee Legal framework: Interest and penalty provisions apply where tax is legally payable and demand is sustainable; late fee under Rule 7C and Section 70 applies for delayed return filing. Precedent treatment: The Tribunal followed the standard approach that if the principal demand is set aside, consequential interest and penalty may not survive; administrative late fees for delayed returns may still be levied. Interpretation and reasoning: Because the principal service tax demand was set aside on substantive and limitation grounds, interest and penalty under Section 78 were held inapplicable. However, the Tribunal found factual delay in filing returns and thus upheld late fee under Rule 7C read with Section 70 as a separate, legally sustainable liability notwithstanding annulment of the main demand. Ratio vs. Obiter: Ratio - where the main tax demand is unsustainable, associated interest and Section 78 penalties do not survive; late fee for delayed filing may be upheld independently. Observational - specific imposition quantum not discussed in detail; only legal sustainment affirmed. Conclusion: Interest and penalty under Section 78 are set aside along with the principal demand; late fee under Rule 7C/Section 70 is upheld due to delay in filing returns. Inter-point cross-references 1. The conclusion on limitation (Issue 2) reinforces and independently supports the setting aside of the demand found unsustainable on merits (Issue 1); both lines of reasoning were relied upon to annul the demand. 2. The departmental prior treatment as manufacture (Issue 3) is relied upon both to negate the service character (Issue 1) and to demonstrate absence of suppression (Issue 2).