2025 (4) TMI 1654 - AT - Service Tax

Levy of service tax - works contract service or not - amounts received under contracts for supply of materials and equipment for rural electrification works - amounts received under contracts for erection testing commissioning of electrical goods and civil construction of control room buildings for rural electrification works - HELD THAT - N/N. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A) wherein services provided to government/local authority/governmental authority by way of construction erection or commissioning installation completion fitting out repair maintenance renovation or alteration of civil structures or any other original works meant predominantly for use other than in commerce industry or any other business or profession are exempted. Admittedly the services provided by the assessee are meant for use other than in commerce industry or any other business or profession to the State Government under the Central Government scheme of Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). In these circumstances the services provided by the assessee are not taxable services - thus no Service Tax is payable by the assessee for the said services. Conclusion - i) Service Tax demand on supply contracts was rightly dropped. ii) Service Tax demand on erection commissioning testing and civil construction contracts was not sustainable due to exemption notification. The appeal filed by the Revenue deserves no merit and therefore the same is dismissed. Accordingly the appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the amounts received under contracts for supply of materials and equipment for rural electrification works attract Service Tax liability.
• Whether the amounts received under contracts for erection, testing, commissioning of electrical goods and civil construction of control room buildings for rural electrification works attract Service Tax liability.
• Whether the exemption under Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A) applies to the services rendered by the assessee under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme, thereby exempting such services from Service Tax.
• Whether the Revenue was justified in invoking the extended period of limitation for the demand of Service Tax for the period 2009-10 to 2013-14.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Service Tax liability on supply contracts (Contract Nos. 1, 2, and 3)

Relevant legal framework and precedents: Service Tax is not leviable on pure supply of goods as per the Service Tax law prevailing during the relevant period. Service Tax is applicable only on services and not on goods. Freight and insurance charges may attract Service Tax if they constitute a service component.

Court's interpretation and reasoning: The Tribunal noted that Contract Nos. 1, 2, and 3 were purely for supply and delivery of materials and equipment at site for rural electrification works. The contractors were required only to supply materials procured from approved suppliers and manufacturers. There was no service component involved in these contracts, and freight and insurance charges were inclusive of Service Tax if applicable.

Key evidence and findings: The work orders and the nature of activities clearly indicated that these contracts were limited to supply of goods without any erection, installation, or commissioning services.

Application of law to facts: Since these contracts involved only supply of goods, no Service Tax was payable on the amounts received under these contracts.

Treatment of competing arguments: The Revenue contended that all contracts were related and thus the entire amount should be liable to Service Tax under 'erection, commissioning and installation' service. The Tribunal rejected this contention for the supply contracts, holding that supply of goods alone does not attract Service Tax.

Conclusions: The demand of Service Tax on Contract Nos. 1, 2, and 3 was rightly dropped by the adjudicating authority and upheld by the Tribunal.

Issue 2: Service Tax liability on erection, testing, commissioning and civil construction contracts (Contract Nos. 4, 5, and 6)

Relevant legal framework and precedents: Service Tax is leviable on erection, commissioning and installation services as per the relevant Service Tax provisions. However, Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A) provides exemption from Service Tax on services provided to government/local authority/governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of civil structures or any other original works meant predominantly for use other than in commerce, industry or any other business or profession.

Court's interpretation and reasoning: The Tribunal examined whether the exemption notification applied to the services rendered under these contracts. It was undisputed that the services were provided for rural electrification under a Central Government scheme (RGGVY) to the State Government of Sikkim and were meant predominantly for use other than commerce, industry or any other business or profession.

Key evidence and findings: The nature of contracts involved erection, testing, commissioning of electrical goods and civil construction of control room buildings at site. The services were rendered to a governmental authority under a government scheme aimed at rural electrification.

Application of law to facts: The Tribunal held that the exemption under Notification No. 25/2012-S.T. applied to these services as they were provided to a governmental authority and related to original works meant predominantly for non-commercial use.

Treatment of competing arguments: The Revenue argued that since all contracts were related, the entire amount should be liable to Service Tax. The Tribunal rejected this, emphasizing the exemption notification and the nature of the services.

Conclusions: The Tribunal held that no Service Tax was payable on the erection, commissioning, testing and civil construction services under these contracts.

Issue 3: Applicability of exemption under Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A)

Relevant legal framework and precedents: Notification No. 25/2012-S.T. exempts from Service Tax the services provided to government/local authority/governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of civil structures or any other original works meant predominantly for use other than commerce, industry or any other business or profession.

Court's interpretation and reasoning: The Tribunal found that the services rendered by the assessee were under the RGGVY scheme, a Central Government initiative for rural electrification, and were provided to the State Government of Sikkim. The works were for use other than commerce, industry or any other business or profession.

Key evidence and findings: The contracts and the nature of the project clearly indicated the services were for rural electrification and for government use.

Application of law to facts: The exemption notification was applicable, and therefore, the services were not liable to Service Tax.

Treatment of competing arguments: The Revenue's contention to treat all contracts as a composite contract liable to Service Tax was rejected.

Conclusions: The exemption notification applied, exempting the services from Service Tax liability.

Issue 4: Invocation of extended period of limitation for Service Tax demand

Relevant legal framework and precedents: The extended period of limitation under Service Tax law can be invoked in cases of willful suppression of facts or fraud.

Court's interpretation and reasoning: The Tribunal did not specifically elaborate on the extended limitation issue but implicitly rejected the Revenue's demand by dismissing the appeal, indicating no merit in the extended period invocation.

Key evidence and findings: No evidence of suppression or fraud was indicated in the judgment.

Application of law to facts: The extended period invocation was not sustained.

Treatment of competing arguments: The Revenue's reliance on extended limitation was not accepted.

Conclusions: The demand raised by invoking extended limitation was not upheld.

3. SIGNIFICANT HOLDINGS

"The activity of rural electrification is not liable to be taxed in terms of Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A), wherein services provided to government/local authority/governmental authority by way of construction, erection or commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of civil structures or any other original works meant predominantly for use other than in commerce, industry or any other business or profession, are covered."

"Admittedly, the services provided by the assessee are meant for use other than in 'commerce, industry or any other business or profession', to the State Government under the Central Government scheme of Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). In these circumstances, we find that the services provided by the assessee are not taxable services."

Core principles established include:

• Pure supply of goods contracts do not attract Service Tax.
• Services provided to governmental authorities under government schemes for rural electrification are exempt from Service Tax under Notification No. 25/2012-S.T.
• The composite contract argument to tax all related contracts as erection and installation services is not sustainable when parts of the contract are purely supply of goods.
• Extended period of limitation cannot be invoked without evidence of suppression or fraud.

Final determinations on each issue:

• Service Tax demand on supply contracts (Nos. 1, 2, 3) was rightly dropped.
• Service Tax demand on erection, commissioning, testing and civil construction contracts (Nos. 4, 5, 6) was not sustainable due to exemption notification.
• The Revenue's appeal was dismissed and the assessee's appeal was allowed.
• The cross objection filed by the assessee was disposed of accordingly.