TaxTMI 
TaxTMI 
2025 (5) TMI 1027
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....7 and 2017-18 (upto June 2017). 2. Petitioner has further prayed for granting any other relief(s) to which the petitioner is otherwise found entitled to. Brief facts of the case of the petitioner 3. The petitioner is a government company. It is engaged in construction of bridges and roads in the State of Bihar. One of the main objects for which the petitioner company has been incorporated are inter-alia, to construct, execute, carryout, improve, work, develop, administer, manage, control or maintain in Bihar and elsewhere all types of bridges, roads and other structures, works and conveniences pertaining to bridge including approach roads to bridges and river training works. Further the main object of the company is to levy and collect toll on passengers and goods on the use of the bridges, bridge works, roads and approach roads to bridges which are vested in the corporation or are on lease, with the corporation for a period and at the rates to be decided by the Corporation. 4. The other objects of the petitioner-company is to invite tenders, enter into negotiations, contract for and in relation to the construction, execution, carrying out, equipment, improvement, manag....
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.... (b) Thereafter, administrative approval is granted by the State Government of Bihar with estimated cost of the project and the duration by which the project is to be completed. (c) Thereafter, tenders are invited from eligible bidders for undertaking the construction of bridges and roads. (d) Upon Selection, an agreement is entered into with them to undertake construction of roads and bridges. (e) Funds are granted by the State Government of Bihar for the construction of roads and bridges. (f) After the completion of the contract, the bridges and roads, as the case may be, constructed is handed over to the State Government of Bihar. (iv) That Section 66 B of the Finance Act, 1994 inter-alia provides that there shall be levied tax referred to as the "Service Tax" on value of all services other than those specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. (v) That Section 66D of the Act provides for a negative list of services. All other services other than the one mentioned in the negative list of services are....
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....ishment cost as a result whereof the petitioner-company was suffering loss. In such circumstance, the cabinet took a decision that a centage charge of 12.5% would be paid to the petitioner-company on account of the actual amount spent on the construction work and on 100 crores or above turn over. It is the case of the petitioner that it was paid a sum equivalent to 13.5% of the cost of the work done, to meet the cost of establishment. The centage in respect of cost of work done above 100 crores would be 12.5%. It is to meet the cost of the establishment, therefore, it would not fall within the ambit of taxable service as defined in the Act. According to the petitioner, reimbursement of expenditure is not service as provided in the Act. In this regard, the petitioner relies upon the definition of taxable service as provided in Section 65 (105) of the Act. According to him, by no stretch of imagination, it would fall within the meaning of word "service" as defined under Section 65B (44) of the Act. 11. As regards the issue of toll collection, it is the case of the petitioner that it has been authorized to receive toll charges on use of bridges and roads. Reliance is placed on the ....
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..... 14. It is submitted that as per sub-section (zzzza) of the Section 65 (105) of the Act, works contracts in respect of roads, bridges, tunnels, etc. are excluded from the meaning of taxable service. As per Section 66D(a) of the Act which comprises negative list, services by Government or a local authority is exempt from Service Tax. Further, as per sub-section (26A) of Section 65B of the Act, the word "Government" has been interpreted. As per the said provision, the word "Government" means by purposive interpretation to include those entities whether created by statute or otherwise, the accounts of which are required to be kept in accordance with Article 150 of the Constitution of India. 15. It is submitted that in absence of any willful attempt to evade tax, the imputation of allegation of evasion of tax with the willful attempt does not seem to be justified. It is submitted that the noticee being a constituent of the government, cannot be expected to have been any attempt, much less deliberately or willfully to evade tax. The Order-in-Original dated 28.03.2024 (Annexure-P2) 16. It appears on going through Annexure-P2 that the respondent no. 2 verified the available r....
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....able service i.e. provision of day to day technical/administrative support regarding collection of toll charges. The amounts received by the petitioner has been held to be in the nature of taxable value towards rendering of services related to engaging vendors/contractors for toll collection and associated activities. The respondent no. 2 has taken a view that the petitioner had received 15% centage against the collection of toll but has not paid any service tax on the amount retained by the petitioner for rendering the said service. Petitioner has not paid service tax on centage received for getting the bridges/roads constructed by contractors. 18. Having said so, the respondent no. 2 has recorded its view with regard to levy of service tax on toll collection by any agency which is being reproduced hereunder:- "In so far as levy of service tax on service by way of access to a road or bridge on payment of toll charges was concerned, same was covered under negative list [Sub section (h) of section 66D of Finance Act 1994] and accordingly not chargeable to service tax. However, toll collection by any agency on behalf of an agency authorized to levy toll was a taxable serv....
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....breach of agreement by the contractors and its arrangement is to ensure timely completion of work. In most of the cases, penalty deducted is waived or refunded on extension of contract completion period. However, no supporting documents were furnished in respect of the same." 22. From perusal of contracts of M/s BRPNNL, it is found that in respect of above, provision has been made under the head Liquidated Damages for delay' wherein it has been mentioned that in case of delay in completion of services, a liquidated damages not amounting to penalty equal to 0.05% of the contract price per day subject to a maximum 5% of the contract value will be imposed and shall be recovered from payments due/performance security. Section 66E (e) of the Finance Act, 2012 states that the following shall constitute declared services, namely:- (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" Whether the petitioner/BRPNNL is a government or governmental authority. 23. The contention of the petitioner that they are government/governmental authority has been rejected by the respondent no. 2 and upon scrutiny of balance-sh....
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....ribed in Mega Exemption Notification No. 25/2012-Service Tax dated 20.06.2012 as under: (s) "governmental authority" means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution. On the above issue, it is also relevant to point out here the guidelines issued by the Chairman, CBEC, Department of Revenue, Ministry of Finance, New Delhi in the "Taxation of Service: An Education Guide". It is pertinent to mention here that the objectives of this Guide are to mitigate the litigations. The relevant guidelines mentioned in the Guide are as under: 2.4.8 What is a local authority? Local authority is defined in clause (31) of section 65B and means the following:- A Panchayat as referred to in clause (d) of article 243 of the Constitution. A Municipality as referred to in clause (e) of article 243P of the Constitution. A Municipal Committee and a District Board, legally entitled to, or entrusted by the Gove....
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....icipation by way of equity or control by Government; and carries out any of the functions entrusted to a municipality under article 243W of the Constitution. The noticee produced a Sankalp letter dated 05.11.1974 Issued by the order of Governor of Bihar vide which it has been decided to establish Bihar Rajya Pul Nirman Nigam Ltd. as a Public Limited Company. Furthermore, MEMORANDUM AND ARTICLES OF ASSOCIATION produced by the noticee states that it has been incorporated under the Companies Act, 1986. Further, in Books of Accounts, it has been mentioned that 100% share is owned by State Government. In the Profit & Loss Accounts of the noticee, they have shown Revenue from Operation from Centage from Toll collection; Centage from Construction of roads & bridges. Now I have to examine here whether the main work of Bihar Rajya Pul Nirman Nigam Limited from which they receive Centage; "To Levy and collect toll on passengers and goods on the use of bridges, bridge works, roads and approach roads to bridges which are vested in the corporation or are on lease, with the Corporation for a period and at the rates to be decided by the Corporation" & "to act a....
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....uding street lighting, parking lots, bus stops and public conveniences. 18. Regulation of slaughter houses and tanneries. On going through the Article 243W, I find that the main work of the noticee from which are sole source of their income; which are reflected in their Profit & Loss Accounts do not fall under Article 243W. Hence, in view of the above, I find that Bihar Rajya Pul Nirman Nigam Ltd. do not fulfil the criteria laid down in the definition of Governmental Authority and hence I find that the noticee do not fall under the definition of Government/Local Authority/Governmental Authority for claiming exemption from service tax. Liability of service tax on the services provided in lieu of fee 24. The respondent no. 2 further proceeded to consider the issue of liability of service tax on the services provided in lieu of fee charged by government or a local authority. In this regard, the views of the respondent no. 2 are as under:- "8. Services provided by way of construction, erection, commissioning, Installation, completion, fitting out, repair, maintenance, renovation, or alteration of,- (a) a road, bridge, tunnel, or termin....
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....nce covered in this entry. 4.8.2 Are collection charges or service charges paid to any toll collecting agency also covered? No. The negative list entry only covers access to a road or a bridge on payment of toll charges. Services of toll collection on behalf of an agency authorized to levy toll are in the nature of services used for providing the negative list services. As per the principle laid down in sub section (1) of section 66F of the Act the reference to a service by nature or description in the Act will not include reference to a service used for providing such service." 9.1.1 What is the scope of the clause (1) of section 66F: 'Unless otherwise specified, reference to a service (hereinafter referred to as the "main service") shall not include reference to a service which is used for providing the main service" This rule can be best understood with a few illustrations which are given below Provision of access to any road or bridge on payment of toll' is a specified entry in the negative list in section 66D of the Act. Any service provided in relation to collection of tolls or for security of a toll road would be In the na....
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....clause of mega exemption notification, as amended and also under the negative list under Section 66D as claimed by the noticee. Consequently, I find that centage charges received by the noticee are not exempted under above clause of Mega Exemption Notification and negative list. 14. In view of facts narrated supra, I find that the noticee is liable to pay service tax of Rs. 38,79,23,782/- on consideration received in the form of Centage for the period April, 2015 to June, 2017." Payability of tax on the penalty 25. Regarding payability of tax on the penalty deducted from the contractors for the period from April, 2015 to June, 2017, the respondent no. 2 has recorded his views as under:- "15. Now I proceed to decide whether the Penalty deducted from the Contracts for the period from April, 2015 to June, 2017 is taxable or not. 16. It has been alleged in the instant Show Cause Notice that from perusal of contracts of M/s BRPNNL, it is found that in respect of above, provision has been made under the head Liquidated Damages for delay' wherein it has been mentioned that in case of delay in completion of services, a liquidated damages not amounting t....
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....ty. 7.1.4 In this background a reasonable view that can be taken with regard to taxability of liquidated damages Is that where the amount paid as 'liquidated damages' is an amount paid only to compensate for injury, loss or damage suffered by the aggrieved party due to breach of the contract and there is no agreement, express or implied, by the aggrieved party receiving the liquidated damages, to refrain from or tolerate an act or to do anything for the party paying the liquidated damages, in such cases liquidated damages are mere a flow of money from the party who causes breach of the contract to the party who suffers loss or damage due to such breach. Such payments do not constitute consideration for a supply and are not taxable." Further, I have also gone through the Final Order No. 50898/2023 dated 06.07.2023 of CESTAT, Principal Bench, New Delhi which is on the similar issue in which the Hon'ble CESTAT held that "13. In view of the aforesaid decisions of the Tribunal and the Circular, it is not possible to sustain the view taken by the Commissioner that since the task was not completed within the time schedule, the appellant agreed to tolerate the....
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....ed by government having 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution of India would be eligible for exemption. It is submitted that in the case of Shapoorji Paloonji (supra) construction activity undertaken by the petitioner in respect of the academic block of the Institute (respondent no.4 in the said case ) was taken as exempted from payment of service tax in terms of notification dated 20th June, 2012 as amended. 30. It is submitted that the judgment of this Court in Shapoorji Paloonji (supra) was subject matter of challenge before the Hon'ble Supreme Court in Civil Appeal. The judgment of the Hon'ble Patna High Court has been upheld by the Hon'ble Supreme Court. It has been held that a perusal of the exemption notification would reveal that the exemption therein was only extended to those entities, viz. board or authority or body, which fulfilled the three requisite conditions, i.e. (a) having been established with 90% or more participation by way of equity or control by government, (b) set up by an Act of the parliament or a State Legislature, and ....
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....on Notification No. 25/2012-ST dated 20.06.2012 it will not qualify as a "Governmental Authority". It is submitted that nature of services rendered by the petitioner to Government of Bihar is not covered under scope of Article 243W of the Constitution of India. 35. Learned ASG submits that the petitioner has not assessed its due liability of service tax and did not deposit the same on the relevant dates. The matter came to the knowledge of the department of CGST and CX only when investigation against the petitioner had been initiated on the basis of 3rd party data shared by the Income Tax Department. The noticee also not filed ST-3 return during the relevant period and hence not declared actual taxable value and not paid the applicable Service Tax. In these circumstances, the adjudicating authority found that the noticee had willfully suppressed the facts of its taxable value from the department with an intention to evade the payment of service tax. The noticee never sought any clarification from the department or entered into any correspondence regarding taxibility or otherwise of the services rendered by them. The noticee did not respond despite several letters issued by the d....
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....of roads and bridges in the State of Bihar. 39. Learned ASG submits that before adjudication, the opportunity of personal hearing was given to the assessee and the adjudicating authority has passed the impugned order after due consideration of the submissions made on behalf of the petitioner. The respondent no. 2 has, in paragraph '3' of the impugned order dated 28.03.2024, clearly recorded that the date of personal hearing was given to the noticee to appear before the adjudicating authority in person or through authorized representative on 19.01.2023, 09.01.2024 and 15.02.2024. The noticee appeared on 15.02.2024 and submitted their defence reply dated 04.01.2023. They further submitted their reply dated 13.02.2024. Thus, the adjudicating authority has passed the impugned order after giving appropriate opportunity of hearing to the petitioner and the entire submissions of the petitioner has been considered by the adjudicating authority in detail. It is his submission that in this case no jurisdictional error has been committed by the respondent no. 3, hence the present writ application is not fit to be entertained. 40. In course of hearing of the writ application, learned ASG....
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....others Vs. Greatship (India) Limited reported in (2022) 17 SCC 332. In the said case, the Hon'ble Supreme Court has held that no valid reasons have been shown by the assessee to bypass statutory remedy of appeal. The Hon'ble Supreme Court has held that there is a consistent view of the Hon'ble Supreme Court that when there is an alternate remedy available, judicial prudence demands that court refrains from exercising its jurisdiction under constitutional provisions. The Hon'ble Supreme Court has followed United Bank of India Vs. Satyawati Tondon reported in (2010) 8 SCC 110; Titaghur Paper Mills Co. Ltd. Vs. State of Orissa reported in (1983) 2 SCC 433; CCE Vs. Dunlop India Ltd. reported in (1985) 1 SCC 260 and Punjab National Bank Vs. O.C. Kirshnan reported in (2001) 6 SCC 569. Consideration Bihar Rajya Pul Nirman Nigam Limited (BRPNNL)-A Public Limited Company incorporated under the provisions of the Companies Act, 1956 does not fall within the meaning of word "Government", "Local Authority" and "Governmental Authority". 43. The respondent no. 2 has considered the submissions of the petitioner that the BRPNNL being a governmental authority would be entitled for exemption....
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....d with 90% or more participation by way of equity or control by Government and set up by an Act of Parliament or a State Legislature to carry out any function entrusted to a municipality under Article 243-W of the Constitution. 47. Clause 2 (s) of the Exemption Notification underwent an amendment vide Notification dated 30.01.2014 (hereinafter called 'Clarification Notification'). This amendment, redefining "governmental authority", sought to broaden the scope of the exemption. The amended definition of the "governmental authority" in clause 2 (s) reads as under:- "2 (s) "governmental authority" means an authority or a board or any other body- (i) set up by an Act of Parliament or a State Legislature; or (ii) established by Government, with 90% or more participation by way of equity or control by Government and set up by an Act of Parliament or a State Legislature to carry out any function entrusted to a municipality under Article 243-W of the Constitution." 48. The Hon'ble Division Bench of this Court in the case of Shapoorji Pallonji (supra) has considered the amended definition of the word "governmental authority" and held that as per de....
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....vernmental authority" had fallen for consideration in the following facts of the said case:- (i) the petitioner in the said case being a Limited Company was engaged in the business of works contract. (ii) the Indian Institute of Technology -respondent no.4 being a body incorporated by the Institutes of Technology Act, 1961 appointed National Building Construction Corporation Limited (respondent no. 3) as a consultant for construction of its academic building project at Bihta, Patna. (iii) The petitioner Shapoorji Pallonji and Company was appointed as contractor for construction of academic complex of Indian Institute of Technology, Bihta, by NBCC vide letter of award dated 20th December, 2012. In terms of the letter of award, the petitioner registered itself with the service tax authority and started payment of service tax. (iv) The Indian Audit and Account Department raised audit objection on 30th June, 2015 to the effect that service provider undertaking construction activity of educational institutions are not required to pay service tax. In terms of the audit objection, the petitioner claimed that service tax is not payable by the petitioner ....
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....by the State government. In paragraph '5' of the Order-in-Original (Annexure-P2), the respondent no. 2 has recorded as under:- "5. It is admitted fact that * The noticee is having a dedicated work force of technical/professional expertise as Senior Project Engineer, Project Engineer & Junior Engineer in Divisions for technical assistance to contractors and supervise the concerned work and monitoring for quality control and proper progress of the project, as per guidelines of the approved DPR and condition of agreement with the contractors. (Reference: Reply to Q. 18 at the time of investigation). * The noticee is engaged in providing technical assistance with the help of their professionally qualified work force. Construction activities are carried out by successful bidders/contractors and their professionally qualified work force provide technical assistance to contractors/vendors and other authorities for successful execution of project as per the guidelines/specification given in DPR. (Reference: Reply to Q. 27 at the time of investigation). * The source of income of the noticee to maintain the work force of technical expertise providing techn....
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.... their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act." 56. In the case of Shapoorji Paloonji (supra), it has been noticed by the Hon'ble Division Bench that vide Notification No.6/2015 Service Tax, dated 1st March, 2015, amending the Notification dated 20th June, 2012, item nos. (a), (c) and (f) of Entry 12 as reproduced above, stands omitted. While in the case of Shapoorji Paloonji (supra), the contract for construction was granted to the petitioner on 20th December, 2012 and prior to that the Notification dated 20th June, 2012 had been issued and the same had taken effect from 1st July, 2012, in the case of present petitioner, apart from the fact that the petitioner does not come within the meaning of governmental authority, the petitioner has not been awarded any contract by the government during the relevant period which is financial year 2015-16, 2016-17 and 2017-18 (upto June, 2017). The 'Modus Operandi' of the petitioner which this Court has taken note of from the written submissions of the petitioner clearly shows that the petitioner invites tenders from the eligible bidders for undertaking construction of roads and....
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....above clause of Mega Exemption Notification, as amended and also under the negative list under Section 66D as claimed by the noticee. In fact a reading of the Circular No. 192/02/2016-Service Tax dated 13.04.2016 would show that even the government/local authority is liable to pay service tax, if they received fee, consideration for performing such activities. 60. In our considered opinion, unless the petitioner is able to demonstrate by cogent evidence that it is engaged in providing services by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a road or bridge for use by the general public, it would not be possible to hold that its activity would be exempted under clause 13(a) of the Mega Exemption Notification. We cannot lose sight of the findings recorded by the respondent no. 3 that in the profit and loss account, the petitioner has shown revenue from operation from centage, from toll collection; centage from construction of roads and bridges. 61. As regards the invocation of extended period of limitation for demand in terms of proviso to Section 73 (1) of the Finance Act, 1994, we find t....
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.... with intent to evade Service Tax. (v) I also find that the above discussed commission and omission on the part of the Noticee would not have come to the Notice of the Department if the department had not initiated the investigation on the basis of 3rd Party data shared by Income Tax Department against them and the taxable amount received from various clients in lieu of services would have escaped the assessment and must have resulted into non-payment of service tax. Thus, I find that the act of noticee tantamount to suppression of facts. They have willfully suppressed the facts from the department and contravened the various provisions of the Act only with intent to evade payment of Service Tax for the relevant period. Thus, I am of the view that the extended period as envisaged under proviso to Section 73 (1) of the Finance Act, 1994 is rightly invoked for their act of suppression with sole intent to evade the Service Tax payment which is liable to be recovered from them. (vi) In this regard, it is pertinent to highlight here the relevant Paras of the observations of the Hon'ble Supreme Court of the judgment dated 12/05/2009 in Civil Appeal No. 3527/2009 (UO....
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....ed, held by the Swadeshi Cotton Mills, vest in the Central Government under Section 3 of the Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986 (hereinafter referred to as "the said Act"). The other subsidiary question was whether the immovable properties, namely the bungalow No. 1 and the Administrative Block, Civil Lines, Kanpur have also vested in the Government. This Court finds that this judgment has no application to the issue involved in this writ petition. 66. In the case of Northern Operating Systems Pvt. Ltd. (supra), the facts of the case may be noticed in paragraph '2' of the judgment as under:- "2. The assessee was registered with the Revenue, as a service provider under the categories of "Manpower Recruitment Agency Service", "Business Auxiliary Service", "Commercial Training and Coaching Service", "TTSS", "Telecommunication and Legal Consultancy Service", etc. under the Finance Act, 1994 (hereafter "the Act"). Following an audit of the records by the Revenue's officials, proceedings were initiated against the assessee alleging non-payment of service tax concerning agreements entered into by it with its group com....
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....n of their deputation or secondment. Furthermore, in view of the above discussion, the invocation of the extended period of limitation in both cases, by the Revenue is not tenable." 72. This Court finds that in the present case, the petitioner has not preferred a statutory appeal. On facts also, the present case stand on a completely different footing. 73. In the case of Pushpam Pharmaceuticals Company (supra), the facts were as under:- "2. The appellant manufactured an item falling under Tariff Entry 14-E as well as another item under Item 68. The item under Item 68 was fully exempt from payment of duty. The value of items manufactured under Tariff Item 14-E in each year was less than Rs 5 lakhs. Notification No. 111 of 1978 was issued on 9-5-1978 exempting the turnover of goods manufactured under Item 14-E if it was below Rs 5 lakhs. Therefore, the appellant surrendered its licence and it was cancelled. Notices were, however, issued because if the turnover of the two items, i.e., exempted under Item 68 for the years in dispute was clubbed together with turnover of Item 14-E, then it exceeded Rs 5 lakhs and the goods became liable to duty. The Department invoked ext....