Service tax on consideration for laying road-side cables under CBEC Circular 123/5/2010-TRU; demands set aside, refund denied

Service tax demand on amounts treated as consideration for laying cables under/alongside roads was examined; applying CBEC Circular No. 123/5/2010-TRU clarifying non-taxability of such activity, the tribunal held the entire consideration related to a non-taxable service, rendering all demands across the invoked service categories unsustainable, and the demand was set aside. Invocation of the extended period was rejected because there was no suppression and the demand was based on recorded data, making the time-barred portion unsustainable. Refund of tax already paid was denied on unjust enrichment since the assessee had collected service tax from clients and merely remitted it to the exchequer. Interest and penalties were consequently not leviable, and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether consideration received for the activity of laying of cables under or alongside roads was liable to Service Tax for the period covered, and consequently whether demands confirmed under multiple heads could survive when all receipts related to that activity.

(ii) Whether invocation of the extended period of limitation was sustainable where the demand was raised from the assessee's own records and there was no suppression of facts.

(iii) Whether interest and penalty could be sustained once the underlying Service Tax demand was held unsustainable; and whether any refund could be claimed for tax already paid where the assessee had collected such tax from clients and deposited it with the Government.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Taxability of receipts for laying of cables under or alongside roads; effect on demands confirmed under various heads

Legal framework (as applied in the judgment): The Court applied the Board clarification stating that laying of cables under or alongside roads is "not a taxable service" and treated it as determinative of taxability for the relevant period. The Court further treated the clarification as clarificatory and therefore applicable retrospectively to the period in dispute.

Interpretation and reasoning: The Court recorded that the appellant's receipts underlying the confirmed demands (raised under five categories such as alleged undervaluation, point of taxation, denial of abatement, ROW reimbursements, and reverse charge) pertained entirely to the activity of laying of cables under or alongside roads. Since that activity stood clarified as not liable to Service Tax, the Court held that the categorisation adopted in the impugned order could not create taxability when the foundational activity itself was not taxable. On that basis, it concluded that none of the components of the confirmed demand could survive.

Conclusion: The entire Service Tax demand confirmed under all the specified heads was held not sustainable and was set aside because all amounts received related to laying of cables under or alongside roads, an activity held not leviable to Service Tax as per the applied clarification.

Issue (ii): Sustainability of extended period of limitation

Interpretation and reasoning: The Court found, on the facts recorded, that there was no suppression of information by the assessee. It noted that the demands were raised and confirmed based on information available in the assessee's own maintained records and that the assessee had been filing returns regularly. On these findings, the Court held that the necessary basis to invoke the extended period was absent.

Conclusion: Invocation of the extended period of limitation to confirm the demand was held unsustainable.

Issue (iii): Consequences for interest, penalty, and refund of tax already paid

Interpretation and reasoning: Having set aside the tax demand itself, the Court held that the demand for interest and the imposition of penalty could not stand. Separately, the Court addressed the situation where Service Tax had been collected from clients in some cases and deposited with the Government, notwithstanding the activity being non-taxable. It expressly clarified that the assessee would not be eligible for refund of such tax paid, because it had already been collected from clients and deposited into the Government account.

Conclusion: Interest and penalty were set aside as consequential to the setting aside of the tax demand; and refund was denied for Service Tax already paid where it had been collected from clients and deposited with the Government.

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