2026 (1) TMI 323 - AT - Service Tax

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 ... Non-payment of appropriate Service Tax - alleged undervaluation based on Sundry Debtors - demand under Point of Taxation Rules - disallowance of abatement under N/N. 01/2006‑ST - Service Tax on ROW reimbursements - Reverse charge mechanism - Time Limitation - Refund of service tax paid - HELD THAT:- The Service Tax liability in respect of the activities undertaken by the appellant has been in dispute and there was no uniform practice followed by the service providers. In some cases, the customers paid Service Tax and in some cases, the customers contended that the said activities were not liable to Service Tax and accordingly, had not paid Service Tax. It is on record that the appellant has been paying whatever Service Tax was being collected by them to the department and filing returns regularly. It is found that the liability of payment of Service Tax on the activity of laying of cables under or alongside roads has been clarified by C.B.E.C. vide Circular No. 123/5/2010‑TRU dated 24.05.2010, wherein it has been categorically clarified that no Service Tax is payable on such service. The demand of Service Tax has been confirmed under five different categories - However, it is found that the appellant has in fact received the entire consideration for the activity of laying of cables under or alongside roads, which has been clarified as an activity not liable to Service Tax vide the C.B.E.C. Circular. Hence, the entire demand confirmed in the impugned order under these specific categories are not liable to Service Tax, as all the amounts received by the appellant pertain to laying of cables under or alongside roads, which is not leviable to Service Tax as clarified by C.B.E.C. vide Circular No. 123/5/2010‑TRU. Accordingly, the entire demand of Service Tax confirmed in the impugned order is not sustainable and hence, the same is set aside. Time Limitation - HELD THAT:- The appellant have not suppressed any information from the Department. In fact, the demands have been raised and confirmed on the basis of information available in the records maintained by them. Thus, the demand confirmed, by invoking the extended period of limitation, is not sustainable. Refund of service tax paid - HELD THAT:- In the present case, it is found that the appellant has been collecting Service Tax from the clients in some cases and paying the Service Tax collected by them to the Department. Even though the said activity undertaken by the appellant is not liable to Service Tax as clarified by C.B.E.C. vide Circular No. 123/5/2010‑TRU, it is made clear that the appellant would not be eligible for refund of Service Tax paid by them, as they have already collected it from their clients and deposited the same in the government account. Interest and penalty - HELD THAT:- As the demand of Service Tax itself cannot be sustained, the question of demanding interest or imposing penalty thereon does not arise. The impugned order is set aside - appeal allowed. 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.