2025 (5) TMI 400 - AT - Central Excise

Levy of service tax - services rendered to BBMB Nangal a government authority under the categories of Management Maintenance and Repair Service and Commercial or Industrial Construction Services - HELD THAT - In the present case the services have been rendered to BBMB Nangal which is a govt. authority and as per the Board s Circular No. B-2/08/2004-TRU dated 10.09.2004 the services rendered to the govt. authority are not liable to service tax. The learned Commissioner (Appeals) has changed the classification Head of services from Management Maintenance Repair Services to Commercial or Industrial Construction Services which is also not permissible under law. The issue involved in the present case is also covered by the decision of the Tribunal in the case of Nagarujna Construction Co. 2010 (5) TMI 232 - CESTAT BANGALORE wherein it has been held that when the services are rendered to a government organization then it is not subject to service tax. Conclusion - The services have been rendered to BBMB Nangal which is a govt. authority and as per the Board s Circular No. B-2/08/2004-TRU dated 10.09.2004 the services rendered to the govt. authority are not liable to service tax. The impugned order is not sustainable in law - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant was liable to pay service tax on services rendered to BBMB, Nangal, a government authority, under the categories of 'Management, Maintenance and Repair Service' and 'Commercial or Industrial Construction Services' for the period 2005-06 to 2007-08.

- Whether the classification of services by the Commissioner (Appeals) from 'Management, Maintenance & Repair Services' under Section 65(105)(zzg) to 'Commercial or Industrial Construction Services' under Section 65(105)(zzq) & 65(25)(d) was legally permissible.

- Whether the demand of service tax, interest, and penalties confirmed by the Original Authority and partially reduced by the Commissioner (Appeals) was justified, considering the appellant's reliance on Board Circular No. B-2/08/2004-TRU dated 10.09.2004 and relevant Tribunal precedents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability to pay service tax on services rendered to BBMB, a government authority

Relevant Legal Framework and Precedents: The Finance Act, 1994 governs the levy of service tax. Section 65(105) defines taxable services, including 'Management, Maintenance and Repair Services' and 'Commercial or Industrial Construction Services.' The Board Circular No. B-2/08/2004-TRU dated 10.09.2004 clarifies that constructions for use by organizations established solely for educational, religious, charitable, health, sanitation, or philanthropic purposes and not for profit are non-taxable. The Tribunal decision in Nagarujna Construction Co. vs. C.C.E. established that services rendered to government organizations are exempt from service tax.

Court's Interpretation and Reasoning: The Court examined the nature of BBMB, Nangal, confirming it as a government authority. It applied the Board Circular and Tribunal precedent to conclude that services rendered to such government entities are not liable to service tax, as these are non-commercial in nature and exempt under the Circular and judicial interpretation.

Key Evidence and Findings: The appellant provided documentary evidence including the Board Circular and the order in the case of Sarup Singh Randhawa, where identical demands for services rendered to BBMB, Nangal were dropped by the Commissioner (Appeals). This demonstrated consistent administrative practice and supported the appellant's claim of exemption.

Application of Law to Facts: The appellant's services to BBMB fell squarely within the exempted category as per the Board Circular and Tribunal rulings. The demand for service tax was therefore not sustainable.

Treatment of Competing Arguments: The Revenue's representative reiterated the impugned order's findings but failed to distinguish the Board Circular and binding Tribunal precedents. The Court found the appellant's arguments more persuasive and legally sound.

Conclusion: The appellant was not liable to pay service tax on services rendered to BBMB, Nangal, a government authority, under the relevant provisions and exemptions.

Issue 2: Legality of reclassification of services from 'Management, Maintenance & Repair Services' to 'Commercial or Industrial Construction Services'

Relevant Legal Framework and Precedents: Classification of taxable services must adhere strictly to the definitions under Section 65(105) of the Finance Act, 1994. The Tribunal in Dr. Lal Path Lab vs. Commissioner held that service tax demands based on incorrect classification are unsustainable.

Court's Interpretation and Reasoning: The Court found that the Commissioner (Appeals) erred in changing the classification of the appellant's services from 'Management, Maintenance & Repair Services' to 'Commercial or Industrial Construction Services.' Such reclassification was impermissible under law and lacked justification.

Key Evidence and Findings: The appellant's grounds of appeal and reliance on Tribunal precedent demonstrated that the original classification was correct and that the reclassification was arbitrary.

Application of Law to Facts: Since the classification was incorrect, the demand based on the altered classification could not be upheld.

Treatment of Competing Arguments: The Revenue did not provide substantive legal or factual basis for the reclassification, and the Court rejected this change.

Conclusion: The reclassification of services by the Commissioner (Appeals) was not permissible, rendering the related demand invalid.

Issue 3: Justification of the demand, interest, and penalties imposed

Relevant Legal Framework and Precedents: Under Section 73(1) of the Finance Act, 1994, service tax demands can be raised for non-payment. Interest under Section 75 and penalties under Sections 76, 77, and 78 may be imposed for defaults. However, if the demand itself is unsustainable due to exemption or incorrect classification, the associated interest and penalties cannot stand.

Court's Interpretation and Reasoning: Since the Court held that the appellant's services were exempt and the classification incorrect, the demand of service tax was set aside. Consequently, interest and penalties predicated on such demand could not be sustained.

Key Evidence and Findings: The appellant's reliance on the Board Circular, Tribunal precedents, and the identical case where demand was dropped supported the setting aside of the demand and associated charges.

Application of Law to Facts: The impugned order partially reduced the demand but did not fully address the exemption and classification issues. The Court found the entire demand, interest, and penalties unsustainable.

Treatment of Competing Arguments: The Revenue's insistence on confirming the demand was rejected in light of the binding precedents and circular.

Conclusion: The demand, interest, and penalties confirmed by the Original Authority and partially reduced by the Commissioner (Appeals) were not justified and were set aside.

3. SIGNIFICANT HOLDINGS

"In the present case, the services have been rendered to BBMB, Nangal, which is a govt. authority and as per the Board's Circular No. B-2/08/2004-TRU dated 10.09.2004, the services rendered to the govt. authority are not liable to service tax."

"The learned Commissioner (Appeals) has changed the classification Head of services from 'Management, Maintenance & Repair Services' to 'Commercial or Industrial Construction Services', which is also not permissible under law."

"On identical services rendered by one Sarup Singh Randhawa to BBMB, Nangal, the Commissioner (Appeals) has dropped the demand vide OIA dated 20.09.2013."

"The issue involved in the present case is also covered by the decision of the Tribunal in the case of Nagarujna Construction Co. wherein it has been held that when the services are rendered to a government organization then it is not subject to service tax."

"In view of our discussion above, we are of the considered opinion that the impugned order is not sustainable in law, accordingly, we set aside the same and allow the appeal of the appellant."

Core principles established include the exemption of services rendered to government authorities from service tax liability as clarified by the Board Circular and supported by Tribunal precedents, and the impermissibility of reclassifying services for the purpose of imposing service tax.

Final determinations: The appeal is allowed; the demand of service tax, interest, and penalties imposed on the appellant for services rendered to BBMB, Nangal is set aside. The reclassification of services by the Commissioner (Appeals) is held to be invalid.