2026 (2) TMI 1079 - AT - Service Tax

Exemption for construction services upheld where work order reconciliation shows exempt supplies; tax, interest and penalties cancelled.

Demand for service tax on receipts for construction of road and canal works was set aside where the taxpayer reconciled Form 26AS entries with specific ... Exemption under Notification No.25/2012 ST (Sr. No.13(a) and 12(d)) - service tax demand based on third party Form 26AS / TDS data - reconciliation of receipts with work orders - confirmation of demand without examining taxability or exemption - penalty for suppression or willful misstatement - HELD THAT:- Admitted the fact that that Appellant has provided services of Road & Canal construction to Government and Local Authorities which were exempted from the levy of service tax under Sr. No. 13(a) and 12(d) of Notification No. 25/2012-ST dated 20.06.2012 respectively. The authorities below have confirmed/upheld the demand merely on the basis of reconciliation of value of service received for the work orders prior to the impugned period but failed to substantiate & without examining whether such services were taxable or exempt, confirmed the demand of service tax only on the basis of reconciliation of payment received as per Form 26AS statement. The impugned order and Order-In-Original suffers from various legal infirmities for which the same is liable to be set aside and the consequential demand of service tax is also liable to be set aside. The demand including interest under Section 75, penalty under Section 77 for ₹20,000/-, and late fee under Rule 7C for ₹60,000/- are also unjustified and are accordingly set aside. No ingredient of suppression, willful misstatement etc. with an intent to evade payment of Service Tax, and accordingly, the penalty imposed under Section 78 of the Finance Act, 1994 is set aside. Appeal is allowed in the above terms. Issues: (i) Whether the demand of service tax confirmed on receipts for FY 2015-16 and FY 2016-17 is sustainable where the services relate to construction of road and canal claimed to be exempt under Notification No. 25/2012-ST dated 20.06.2012; (ii) Whether interest, penalties and late fee levied under provisions of the Finance Act, 1994 and Rule 7C are sustainable.Issue (i): Whether the demand of service tax on receipts for FY 2015-16 and FY 2016-17 is sustainable when services relate to construction of road and canal exempted by Notification No. 25/2012-ST dated 20.06.2012.Analysis: The dispute concerns receipts reflected in Form 26AS for FY 2015-16 and FY 2016-17 and their linkage to work orders and execution dates. The authorities below confirmed part of the demand by treating certain receipts as taxable while dropping demand for amounts directly supported by work orders executed in the impugned years. The Tribunal examined the reconciliation submitted by the appellant showing that payments received against the Head Works Division, Agra Canal, Okhla New Delhi work order (WO No.54/SE-III/2014-15 dated 28.02.2015) were reflected in Form 26AS during the impugned years and that the services in question fall within the exemptions at Serial Nos. 12(d) and 13(a) of Notification No. 25/2012-ST dated 20.06.2012. The Tribunal found that the authorities below confirmed demand merely on the basis of Form 26AS reconciliation without adequately examining whether the services were taxable or exempt and without properly appreciating the reconciliation and work order documentation submitted by the appellant.Conclusion: The demand of service tax of Rs. 47,96,616/- confirmed by the authorities for FY 2015-16 and FY 2016-17 is set aside in favour of the assessee.Issue (ii): Whether interest under Section 75, penalties under Sections 77 and 78 of the Finance Act, 1994 and late fee under Rule 7C are sustainable.Analysis: The Tribunal assessed whether ingredients for imposition of penalties and interest were made out and whether there was suppression or willful misstatement with intent to evade tax. Having found that the demand itself was not sustainable and that there was no ingredient of suppression or willful misstatement, the Tribunal considered the justification for interest and penalties.Conclusion: Interest under Section 75, penalty under Section 77, penalty under Section 78, and late fee under Rule 7C are set aside in favour of the assessee.Final Conclusion: The Tribunal allowed the appeal, setting aside the confirmed service tax demand and all consequential interest, penalties and late fees, with the net legal effect that the proceedings did not result in any tax, interest or penalty liability against the assessee for the impugned period.Ratio Decidendi: Receipts for construction of road and canal services provided to government/local authorities, when established by reconciliation with work orders and evidence and falling within Serial Nos. 12(d) and 13(a) of Notification No. 25/2012-ST dated 20.06.2012, are exempt from service tax and cannot form the basis for confirming tax, interest or penalties where authorities fail to examine the exempt nature of the services.