2025 (5) TMI 64 - AT - Service Tax

Demand for service tax on Works Contract Services - reverse charge mechanism - construction of warehouses for the Rajasthan State Warehousing Corporation Ltd. (RSWC) under the PEG Scheme for augmenting food grains storage - mega exemption notification no.25/2012 dated 20.06.2012 - negative list under section 66(d). HELD THAT - From perusal of the provisions it is clear that the activity of the appellant is of construction of such warehouses as are meant for agricultural produce and not of such nature as mentioned in said clause of section 66D. However admittedly it is an activity of construction of warehouse under PEG Scheme to Augment Food grains Storage as apparent from work order dated 28.06.2012 issued by RSWC in favour of appellant. Hence the activity in question is an activity covered under entry no.14 of notification no.25/2012 dated 20.06.2012. Though the department contention that the activity is not covered under the negative list is accepted. However as observed above the activity/services rendered by appellant gets fully covered under the mega exemption notification serial no.25/2012 dated 20.06.2012. We also do not find any evidence contrary to the admitted fact for storage of post storage harvest articles. Resultantly we held that there is no base in the impugned order for confirming even the partial demand. With these observations the order under challenge is hereby set aside. Consequent thereto the appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the appellant, engaged in construction of warehouses for the Rajasthan State Warehousing Corporation Ltd. (RSWC) under the PEG Scheme for augmenting foodgrains storage, was liable to pay service tax on Works Contract Services (WCS) under notification no.30/2012 dated 20.06.2012, which prescribes a 50% service tax liability under reverse charge mechanism.

(b) Whether the construction services rendered by the appellant fall within the ambit of the negative list under section 66D(d)(v) of the Finance Act, 1994, which exempts services relating to agriculture or agricultural produce by way of loading, unloading, packing, storage or warehousing of agricultural produce from service tax.

(c) Whether the mega exemption notification no.25/2012 dated 20.06.2012, which exempts certain construction services including post-harvest storage infrastructure for agricultural produce, applies to the appellant's services.

(d) Whether the appellant's partial payment of service tax and the consequent demand, interest, and penalties imposed by the department and confirmed by the Commissioner (Appeals) were justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Liability to pay service tax under notification no.30/2012 on Works Contract Services

Relevant legal framework and precedents: Notification no.30/2012 dated 20.06.2012 provides that for Works Contract Services (WCS) provided to certain government or public sector entities, the service tax liability is split 50-50 between the service provider and the service recipient under the reverse charge mechanism.

Court's interpretation and reasoning: The department formed the opinion that since RSWC is a paid corporate entity, the appellant was liable to pay 50% of the service tax on WCS rendered to RSWC, with the remaining 50% payable by RSWC under reverse charge. The appellant was found to have declared the taxable value but failed to pay the service tax amounting to Rs.1,12,24,094/-.

Key evidence and findings: The department relied on third-party information from the Income Tax Department and documents provided during investigation to establish the appellant's failure to pay the service tax. The original adjudicating authority confirmed the demand, and the Commissioner (Appeals) partly confirmed it for the period after 30.06.2012.

Application of law to facts: The Tribunal noted that the demand relating to WCS provided to RSAMB (Rajasthan State Agricultural Marketing Board) for the period 01.04.2011 to 30.06.2012 was dropped by the Commissioner (Appeals) on the ground that such construction was not for business or commerce, and this was not challenged by the department, hence that part of the order was sustained.

Treatment of competing arguments: The appellant argued that the demand under notification no.30/2012 was wrongly invoked, as the services were exempt or covered under the negative list or mega exemption notification. The department maintained the correctness of the demand under the said notification.

Conclusions: The Tribunal accepted the partial relief granted by the Commissioner (Appeals) for the period relating to RSAMB and proceeded to examine the demand relating to RSWC separately.

Issue (b) and (c): Applicability of the negative list under section 66D(d)(v) and mega exemption notification no.25/2012 to the appellant's construction services

Relevant legal framework and precedents:

- Section 66D(d)(v) of the Finance Act, 1994, excludes from service tax "services relating to agriculture or agricultural produce by way of loading, unloading, packing, storage or warehousing of agricultural produce."

- Notification no.25/2012 dated 20.06.2012 provides a mega exemption for certain construction services, including entry no.14(d): "post-harvest storage infrastructure for agricultural produce including cold storages for such purposes."

Court's interpretation and reasoning: The Tribunal examined whether the appellant's construction of warehouses for RSWC fell within the negative list or was exempt under the mega exemption notification. The appellant constructed warehouses under the PEG Scheme to augment foodgrains storage, as evidenced by the work order dated 28.06.2012 and corroborated by the PEG Scheme document dated 12.03.2013.

The Commissioner (Appeals) had denied exemption relying on the observation that RSWC also provides storage for seeds, manures, fertilizers, agricultural implements, and notified commodities, thus disqualifying the appellant's services from exemption under notification no.25/2012.

The Tribunal perused the exact language of entry no.14 of notification no.25/2012, which exempts construction of post-harvest storage infrastructure for agricultural produce, including cold storages.

It also examined the negative list provision, which exempts services relating to agriculture or agricultural produce by way of loading, unloading, packing, storage or warehousing; however, the Tribunal noted that the appellant's activity was construction of warehouses, not the storage service itself.

Key evidence and findings: The Tribunal relied on the admitted facts, work orders, and official scheme documents confirming that the warehouses constructed were for storing foodgrains, which fall within the ambit of post-harvest storage infrastructure for agricultural produce.

Application of law to facts: The Tribunal held that the appellant's construction activity is covered under entry no.14(d) of the mega exemption notification and is not covered by the negative list exemption under section 66D(d)(v), which relates to storage services, not construction services.

Treatment of competing arguments: The department's argument that the exemption does not apply because RSWC also stores other agricultural inputs was rejected as the appellant's work was specifically for foodgrain storage under the PEG Scheme. The appellant's reliance on the mega exemption notification and negative list was accepted in part.

Conclusions: The Tribunal concluded that the appellant's construction services for warehouses meant for storing agricultural produce were exempt under notification no.25/2012 and not liable to service tax. The negative list provision was held inapplicable to the construction activity.

Issue (d): Validity of demand, interest, and penalties imposed on the appellant

Relevant legal framework and precedents: The Finance Act, 1994, sections 77(2) and 78 provide for imposition of penalties for failure to pay service tax and for equivalent penalty on demand confirmed.

Court's interpretation and reasoning: Since the Tribunal held that the appellant's services were exempt under the mega exemption notification and that no service tax was payable, the demand for service tax, interest, and penalties had no basis.

Key evidence and findings: The appellant had declared taxable value but did not pay service tax on the ground of exemption. The department's demand was based on non-payment, but the Tribunal found the demand itself unsustainable.

Application of law to facts: The Tribunal set aside the demand, interest, and penalties confirmed by the Commissioner (Appeals) as the foundational service tax liability was negated by the exemption.

Treatment of competing arguments: The department's insistence on the correctness of demand and penalties was rejected in light of the exemption applicability.

Conclusions: The Tribunal allowed the appeal and set aside the entire demand, interest, and penalties.

3. SIGNIFICANT HOLDINGS

"From perusal of these provisions, it is clear that the activity of the appellant is of construction of such warehouses as are meant for agricultural produce and not of such nature as mentioned in said clause of section 66D. However, admittedly, it is an activity of construction of warehouse under PEG Scheme to Augment Foodgrains Storage as apparent from work order dated 28.06.2012 issued by RSWC in favour of appellant. Hence, the activity in question is an activity covered under entry no.14 of notification no.25/2012 dated 20.06.2012."

"In the light of above discussion though the department contention that the activity is not covered under the negative list is accepted. However, as observed above, the activity/services rendered by appellant gets fully covered under the mega exemption notification serial no.25/2012 dated 20.06.2012."

"We also do not find any evidence contrary to the admitted fact for storage of post storage harvest articles. Resultantly, we held that there is no base in the impugned order for confirming even the partial demand. With these observations, the order under challenge is hereby set aside. Consequent, thereto, the appeal is allowed."

The Tribunal established the principle that construction services for post-harvest storage infrastructure for agricultural produce are exempt from service tax under notification no.25/2012, and such services do not fall within the negative list exemption, which applies only to storage services themselves, not construction services.

Accordingly, the Tribunal set aside the service tax demand, interest, and penalties imposed on the appellant for the period in question.