2025 (12) TMI 1669 - AT - Service Tax

Works contract for water-supply pipelines under public scheme-tax exemption under Sl.12 Notification 25/2012-ST denied; demand upheld.

The dominant issue was whether works contract services provided to a statutory authority for laying pipelines and allied water-supply infrastructure under ... Levy of service tax - services provided to Noida for laying of pipelines under the Ganga Jal Water Scheme construction of underground reservoirs, ranney wells etc. - period of demand is prior and post to 01.07.2012 - exempt services or not - demand confirmed holding that these services are not exempted as per the N/N. 24/2009-ST dated 21.07.2009, 54/2010-ST dated 21.12.2010 and 31/2010-ST dated 22.06.2010 - Services provided for construction of electric substations and laying of cables - Time limitation - Levy of penalties u/s 77 (1)(b), 77 (1) (c) & 77 (2) for the Finance Act, 1994 - Demand for interest under section 75 of Finance Act, 1994. Levy of service tax - services provided to Noida for laying of pipelines under the Ganga Jal Water Scheme construction of underground reservoirs, ranney wells etc. - period of demand is prior and post to 01.07.2012 - exempt services or not - demand confirmed holding that these services are not exempted as per the N/N. 24/2009-ST dated 21.07.2009, 54/2010-ST dated 21.12.2010 and 31/2010-ST dated 22.06.2010 - HELD THAT:- Impugned order records that Work Contract Services provided to government authorities are exempt from payment of service tax but the said exemption is not applicable on certain specific work contract services. The services provided by the appellant to the Noida are not within the said category. Appellant has also relied upon the decision in the case of M/s Jyoti Buildtech (P) Ltd. Vs CCE & ST, Noida [2017 (3) TMI 1100 - CESTAT ALLAHABAD] to argue that these services are exempted from payment of service tax - there are no merits in the said submission for the reason that the said order has been passed following the decision of M/s Lanco Indian Hume Pipes Company Ltd. [2015 (9) TMI 479 - MADRAS HIGH COURT] for the period prior to 01.06.2007 and the demand has been set aside mainly on the ground of extended period of limitation. The services provided to the statutory authorities or government will not be exempt from payment of service tax, till it can be shown that the services provide are strictly falling within the purview of exemption notification. Appellant has in the present case in respect of the “work contract services” provided by them claimed exemption under various S No. of the exemption Notification No 25/2012-ST. These clause have been dealt by the impugned order and after examination of the specific activities and the clauses of the said exemption Notification have concluded that the exemption under that Sl No. 12 is not admissible. Services provided for construction of electric substations and laying of cables - HELD THAT:- On perusal of the notification, it is evident that the services provided in relation to construction, erection, commissioning and installation of water treatment, sewerage treatment all are exempt from the above notification and the impugned order itself has dropped the demand of Rs 2,09,73,235/- in respect of the services provided by the appellant to NOIDA and HUDA in respect of underground reservoir and rennywell. Time limitation - HELD THAT:- It is fact on record that in respect of certain services provided to GDA appellant had declared their tax liability under VCES and claimed the benefit under that scheme. However even while making declaration under the scheme they did not made a true and complete disclosure of their tax liability. If service tax was payable in respect of services provided to GDA then how can they entertain a bonafide belief that service tax is not payable on the similar services provided to NOIDA. It is settled principle in law that bonafide belief needs to be established and the reason for claiming such belief should be established by evidence - there are no merits in the submissions made in the appeal with regards to invocation of extended period of limitation. Extended period as per Section 73 (1) of the Finance Act, 1994 has rightly been invoked for making this demand. Levy of penalties u/s 77 (1)(b), 77 (1) (c) & 77 (2) for the Finance Act, 1994 - HELD THAT:- The appellant has in fact contravened the various provisions by not maintaining the records in prescribed manner, determining the and depositing the service tax by the due date and by not filing the appropriate returns declaring their correct service tax liability penalty under these provisions are justified and upheld. Penalties under Section 77 are not for the contumacious conduct but for the contravention of the provisions of statute and hence cannot be faulted. Demand for interest under section 75 of Finance Act, 1994 - HELD THAT:- Since appellants have not paid the service tax leviable by the due date the demand for interest under section 75 of Finance Act, 1994 is justified. There are no merits in this appeal - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the confirmed service tax demands on specified construction/works executed for governmental authorities (including pipeline-related water-supply works, electric sub-station construction, cable-laying, and construction of a store) were eligible for exemption under the cited exemption notifications, particularly the activity-specific exemption under Notification No. 25/2012-ST. (ii) Whether the demand raised for construction services provided to non-government entities (residential flats/offices) required further reduction/appropriation beyond what was already appropriated, based on alleged additional tax payments. (iii) Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 was correctly invoked, and consequently whether penalty under Section 78 and penalties under Section 77, and interest under Section 75, were sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Eligibility of the confirmed demands for exemption (including post-01.07.2012 exemption claims) Legal framework (as discussed by the Court): The Court examined the applicability of exemption Notification No. 25/2012-ST (including its requirement that exemption must be satisfied strictly and activity-wise), and proceeded on the basis that exemptions are not automatic for works executed for governmental/statutory bodies and must be demonstrated to fall within the notification's precise scope. The Court also treated the activity-wise nature of exemption as decisive, not the status of the recipient alone. Interpretation and reasoning: The Court accepted that governmental authorities may undertake both commercial and non-commercial activities, and therefore exemption under Notification No. 25/2012-ST cannot be claimed in a blanket manner merely because the recipient is a governmental authority. It held that exemption must be examined categorically activity-wise and by reference to the terms of the contract and the notification entry invoked. Applying this approach, the Court agreed with the finding that the specific confirmed activities did not satisfy the exemption entry relied upon (including the conclusion that exemption under the relied serial/entry was not admissible on the facts as examined by the adjudicating authority). For electric sub-station construction and cable-laying, the Court upheld the finding that the end-use was for a commercial concern (UPPCL) and therefore the non-commercial predicate for exemption was not met, supporting levy of service tax on those works. The Court also upheld taxability of construction of a store for keeping equipment, treating it as not qualifying as exempt merely because executed for a governmental authority. Conclusions: The Court upheld the confirmed service tax demands relating to the specified works executed for governmental authorities (including the electric sub-station/cable-laying work and the store construction), rejecting the exemption claims as not shown to fall strictly within the exemption notification conditions as applied to the particular activities. Issue (ii): Appropriation/adjustment of tax allegedly already paid against the confirmed demand for services to non-government parties Legal framework (as discussed by the Court): The Court addressed appropriation in the context of confirmed demand and the evidentiary requirement for credit/appropriation of tax already deposited, proceeding on the basis that any further reduction must be supported by proof of payment before the adjudicating authority. Interpretation and reasoning: The Court noted that the order under appeal had already appropriated the amount evidenced on record (including appropriation against the confirmed demand for the construction services to non-government parties). It treated the appellant's claim of having paid a higher/complete amount as a matter requiring documentary proof. The Court held that if the appellant asserts additional payment beyond what was appropriated, the appellant must produce evidence of deposit to the adjudicating authority for verification, and only then could the demand be modified to that extent. Conclusions: No modification was granted in appeal on appropriation beyond what was already appropriated; any further adjustment was made contingent on production and verification of proof of payment before the adjudicating authority. Issue (iii): Validity of invoking extended limitation; sustainability of interest and penalties Legal framework (as discussed by the Court): The Court examined Section 73(1) (extended period for fraud/suppression etc.), Section 75 (interest), Section 78 (penalty for suppression etc.), and Section 77 penalties for statutory contraventions. The Court also applied the principle that a plea of bona fide belief must be established by evidence and that exemptions/reliefs in fiscal matters are not based on equity. Interpretation and reasoning: The Court relied on factual findings showing that the appellant operated from premises other than the registered premises without informing the department, records were not available at the registered premises during search, and the registered premises were used by a related entity. These facts were treated as evidencing suppression/mis-declaration with intent to evade. The Court rejected the plea of bona fide belief as unsupported by evidence, emphasizing that bona fide belief is not 'blind belief' and must be substantiated. It further noted that the appellant had disclosed liability under a voluntary compliance scheme for similar activity for another authority, undermining the claim that it genuinely believed similar services for another authority were non-taxable. On this basis, the Court held invocation of the extended period was justified. Since non-payment/short-payment was upheld, interest under Section 75 was held mandatory. Penalty under Section 78 was upheld as justified by the established suppression with intent to evade. Penalties under Section 77 were upheld on the basis of contraventions (including failures relating to records, information, and compliance), with the Court holding that these penalties attach to statutory breaches and are not dependent on contumacious conduct. Conclusions: The Court upheld invocation of the extended period under Section 73(1), upheld interest under Section 75 as payable, upheld penalty under Section 78, and upheld penalties under Section 77 for the established statutory contraventions.