2025 (5) TMI 159 - AT - Service Tax

Classification of services - Demand for Service Tax along with interest and penalty - Activity of erection commissioning and installation of plant and machinery or equipment or structures under the Restructured Accelerated Power Development and Reforms Programme (R-APDRP) a programme initiated by the Government of India for reducing AT C losses in the State owned electricity distribution utilities in India - Show Cause Notice issued invoking the extended period of limitation - HELD THAT - Admittedly the services have been provided by the appellant to Government authorities by way of construction erection commissioning installation or completion of structures predominantly used other than for commerce or industry. Thus the said services are not liable to Service Tax. Following the decision of this Tribunal in the case of M/s. Arvindra Electricals 2018 (9) TMI 86 - CESTAT CHANDIGARH we find that the appellant is not liable to pay Service Tax on the said services provided by them to the Government of Sikkim. In these circumstances we hold that no Service Tax is payable.

Summary

The core legal questions considered in this appeal are:

1. Whether the appellant, engaged in Electrical Contractor Services under the Restructured Accelerated Power Development and Reforms Programme (R-APDRP), is liable to pay Service Tax on the amounts received from the Government of Sikkim for services rendered.

2. Whether the appellant's services fall within the ambit of exemption under Notification No. 25/2012-Service Tax dated 20.06.2012, particularly Serial No. 12A, which exempts certain services provided to government or local authorities.

3. Whether the extended period of limitation invoked for the demand of Service Tax is valid in the facts of the case.

4. Whether penalties under Sections 69, 70, and 78(1) of the Finance Act, 1994 are justified in the circumstances.

Issue-wise Detailed Analysis

1. Liability to pay Service Tax on Electrical Contractor Services under R-APDRP

The appellant provided services related to erection, commissioning, and installation of plant, machinery, or equipment under the Government of India's R-APDRP scheme, aimed at reducing Aggregate Technical & Commercial (AT & C) losses in state electricity distribution utilities. The Revenue alleged that the appellant failed to discharge Service Tax liability on amounts received, as the appellant was not registered and did not levy Service Tax in invoices issued to the Government of Sikkim. The demand was raised under Section 66B (levy of Service Tax) and Section 69 (failure to pay Service Tax) of the Finance Act, 1994.

The appellant contested the demand, asserting that their services qualify as "original works" under Explanation (1)(a) to Rule 2A of the Service Tax (Determination of Value) Rules, 2006, and fall within the exemption provided under Serial No. 12A of Notification No. 25/2012-ST dated 20.06.2012. The appellant relied on the Tribunal's earlier decision in M/s. Arvindra Electricals, which held that similar services provided to government entities were exempt from Service Tax.

Legal Framework and Precedents:

Section 66B of the Finance Act, 1994, imposes Service Tax on taxable services. Notification No. 25/2012-ST dated 20.06.2012 exempts services provided to government or local authorities by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of civil structures or original works predominantly meant for use other than commerce, industry, or business.

The Explanation (1)(a) to Rule 2A defines "original works" to include new constructions, additions, alterations, and erection or installation of plant, machinery, or equipment.

The Tribunal in M/s. Arvindra Electricals applied the Apex Court's decision in Larsen & Toubro, which classified services provided along with material as Works Contract services, and noted that prior to 01.07.2012, such services were not liable to Service Tax under "Erection, Commissioning and Installation Services." Post 01.07.2012, the exemption Notification No. 25/2012-ST applies to services provided to government entities for original works not used for commerce or industry.

Court's Interpretation and Reasoning:

The Tribunal noted that the appellant's services fall squarely within the scope of "erection, commissioning and installation of plant and machinery or equipment or structures" under the R-APDRP, which is a government programme. The services were provided to the Government of Sikkim, a governmental authority.

Since the services related to original works predominantly meant for use other than commerce or industry, the exemption under Serial No. 12A of Notification No. 25/2012-ST applies. The appellant's reliance on the Arvindra Electricals decision was found to be well-founded and directly applicable.

The Tribunal emphasized that the appellant's services are exempt from Service Tax liability under the said Notification and thus no Service Tax was payable.

Key Evidence and Findings:

The appellant's audited books of accounts showed revenue from operations amounting to Rs.10,19,82,144/- for services rendered to the Energy and Power Department, Government of Sikkim. The appellant was not registered under Service Tax and did not levy Service Tax in invoices.

The Revenue's Show Cause Notice was issued invoking extended limitation, but the Tribunal did not find any merit in the demand given the exemption.

Application of Law to Facts:

The Tribunal applied the exemption Notification and relevant definitions to the facts, concluding that the appellant's services are exempt. The appellant's failure to register or levy Service Tax was irrelevant since no tax was payable on the exempted services.

Treatment of Competing Arguments:

The Revenue argued for confirmation of demand and penalties. However, the Tribunal found that the exemption notification clearly covers the appellant's services, and the appellant's reliance on precedent was appropriate. The Revenue's contention was rejected.

Conclusion:

The appellant is not liable to pay Service Tax on the said services.

2. Validity of Penalties and Extended Limitation

The impugned order imposed penalties under Sections 69, 70, and 78(1) of the Finance Act, 1994, along with interest. These penalties were predicated on the appellant's alleged failure to discharge Service Tax liability and non-registration.

Legal Framework:

Section 69 and 70 impose penalties for failure to pay Service Tax and for contravention of provisions of the Act. Section 78(1) provides for penalty equivalent to the amount of tax evaded or not paid.

Court's Reasoning:

Since the Tribunal held that the appellant's services are exempt and no Service Tax was payable, the foundation for imposing penalties collapses. Penalties cannot be levied where no tax liability exists.

Conclusion:

No penalty is imposable on the appellant.

Significant Holdings

"Notification No. 25/2012-C.E. dated 20.06.2012 (Sl. No. 12A) exempts the services provided by the appellant... Admittedly, the services have been provided by the appellant to Government authorities by way of construction, erection, commissioning, installation or completion of structures predominantly used other than for commerce or industry. In these circumstances, the said services are not liable to Service Tax."

"In view of the above discussion and following the decision of this Tribunal in the case of M/s. Arvindra Electricals (supra), we find that the appellant is not liable to pay Service Tax on the said services provided by them to the Government of Sikkim. In these circumstances, we hold that no Service Tax is payable."

"Consequently, no penalty is imposable on the appellant."

The Tribunal conclusively determined that the appellant's services are exempt from Service Tax under the specified Notification, and accordingly, the demand and penalties were set aside. This reinforces the principle that exemption notifications must be strictly construed and applied as per their terms, and no tax or penalty can be imposed where exemption applies.