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2025 (6) TMI 1596 - AT - Service TaxFailure to pay Service Tax on the services provided under the category of Commercial or Industrial Construction Services - demand of service tax under the category of commercial or industrial construction services against the appellant who had rendered services characterized as works contracts - recovery alongwith interest and penalty - invocation of extended period of limitation - HELD THAT - In this case the appellant could not deposit the service tax on account of his severe accident but later on he deposited the same along with interest before the issuance of show cause notice. Further it is found that the contract entered into by the appellant with the Power Grid Corporation and other parties are works contract in nature whereas the Department has sought to tax them under commercial or industrial construction/ construction of residential complex. Learned Counsel has placed on record documents which clearly shows that the contract involves in the present case are works contract which cannot be taxed prior to 01.07.2007 as the concept of works contract was introduced w.e.f. 01.07.2007 in the Finance Act 1994. It is also a settled law that the activity of works contract cannot be taxed under the category of commercial or industrial construction/ construction of residential complex even after 01.07.2007 as the services under the works contract service is totally different from that of commercial or industrial construction. The identical issue was considered by this Bench in M/S SAB INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX CHANDIGARH-I 2023 (7) TMI 483 - CESTAT CHANDIGARH wherein the demand raised by the Department under the category of commercial or industrial construction service was set aside without considering other grounds raised by the appellant. The ratio of said decision is squarely applicable in the present case. Conclusion - The demand under commercial or industrial construction services is unsustainable extended limitation is improperly invoked penalties are unjustified. The impugned order set aside - appeal allowed.
Issues Presented and Considered
The core legal questions considered by the Tribunal were:
Issue-wise Detailed Analysis 1. Classification of Services Rendered: Works Contract vs. Commercial or Industrial Construction Services Legal Framework and Precedents: The Finance Act, 1994, defines various taxable services, including commercial or industrial construction services under Section 65(105)(zzq). The concept of works contract services was introduced only w.e.f. 01.07.2007. Prior to this date, works contracts were not separately taxable. The Tribunal has consistently held that works contract services are distinct from commercial or industrial construction services and cannot be taxed under the latter category. Court's Interpretation and Reasoning: The Tribunal examined the contracts entered into by the appellant, particularly those with Power Grid Corporation and others, and found that these were works contracts in nature. The Department had sought to tax these contracts under commercial or industrial construction services, which was contrary to settled law and the legislative framework. Key Evidence and Findings: The appellant produced documentary evidence demonstrating the nature of the contracts as works contracts. The Tribunal referred to a recent decision of the same Bench (Final Order No.60190/2023 dated 12.07.2023) wherein a similar demand under commercial or industrial construction service was set aside. Application of Law to Facts: Since the contracts were works contracts and the concept was introduced only from 01.07.2007, any demand prior to this date was not sustainable. Further, even after 01.07.2007, works contract services are distinct and cannot be taxed under commercial or industrial construction services. Treatment of Competing Arguments: The Department's contention that these contracts were taxable under commercial or industrial construction was rejected. The Tribunal relied on the appellant's documentary evidence and consistent judicial precedents. Conclusion: The demand of service tax under commercial or industrial construction services was unsustainable as the appellant's services were works contracts. 2. Invocation of Extended Period of Limitation under Section 73 of the Finance Act, 1994 Legal Framework: Section 73 allows for recovery of service tax beyond the normal limitation period if there is willful mis-statement or suppression of facts. Section 73(3) provides for reasonable cause exceptions. Court's Interpretation and Reasoning: The appellant claimed delay in deposit due to hospitalization following a severe accident, which constituted reasonable cause under Section 73(3). The Tribunal found that the appellant had deposited the tax along with interest before issuance of the show cause notice. Key Evidence and Findings: Medical evidence of hospitalization and timing of tax payment before show cause notice were considered. Application of Law to Facts: The Tribunal held that the delay was not due to willful suppression or mis-statement but due to reasonable cause, hence extended limitation could not be invoked. Treatment of Competing Arguments: The Department relied on the extended limitation period but failed to establish willful suppression. Conclusion: The invocation of extended period of limitation was not justified in the facts of the case. 3. Imposition of Penalties under Sections 76, 77, and 78 Legal Framework: Penalties under these sections are imposed for failure to pay service tax, suppression of facts, or failure to comply with provisions of the Act. Court's Interpretation and Reasoning: The appellant's counsel argued that penalty was not warranted as the delay was due to reasonable cause and the appellant had shown the tax payable in its books of accounts, negating any willful mis-statement or suppression. Key Evidence and Findings: The appellant's books of accounts reflected the tax liability, and the appellant had paid the tax with interest before the show cause notice. Application of Law to Facts: The Tribunal agreed that penalty under Section 76 was rightly dropped by the Commissioner (Appeals), and no penalty should be imposed for the reasons stated. Treatment of Competing Arguments: The Department sought penalties but failed to prove intentional default or suppression. Conclusion: Penalties were not justified given the circumstances and the appellant's conduct. 4. Taxability of Services Provided to Specific Entities (Power Grid Corporation, Mayor World School) Legal Framework and Precedents: Taxability depends on the nature of construction. Construction for residential purposes or educational institutions is generally not taxable under commercial or industrial construction services. Court's Interpretation and Reasoning: The Tribunal found that the construction for Power Grid Corporation was for transit camps used for residential purposes near the Indo-Pak border and thus not commercial or industrial construction. Similarly, construction for Mayor World School was for an educational institute, which falls outside taxable commercial or industrial construction. Key Evidence and Findings: The appellant's submissions and reliance on precedents such as Rattan Das Gupta & Co. Vs CCE, Jaipur were noted. Application of Law to Facts: The Tribunal applied the principle that construction for residential or educational purposes is not taxable as commercial or industrial construction. Treatment of Competing Arguments: The Department did not rebut the nature of the constructions effectively. Conclusion: Services rendered in these cases were not taxable under commercial or industrial construction services. 5. Entitlement to Benefit under Section 80 Legal Framework: Section 80 provides relief for tax already paid along with interest before issuance of show cause notice. Court's Interpretation and Reasoning: The appellant claimed entitlement to this benefit as tax and interest were paid prior to the show cause notice. Key Evidence and Findings: Payment records showed tax and interest paid before notice issuance. Application of Law to Facts: The Tribunal found merit in this submission, though the final order primarily focused on classification and limitation issues. Treatment of Competing Arguments: The Department did not contest this point strongly. Conclusion: The appellant was entitled to the benefit under Section 80 for tax and interest paid prior to show cause notice. Significant Holdings The Tribunal held that: "It is a settled law that the activity of works contract cannot be taxed under the category of commercial or industrial construction/ construction of residential complex even after 01.07.2007 as the services under the works contract service is totally different from that of commercial or industrial construction." Further, the Tribunal emphasized that: "The appellant could not deposit the service tax on account of his severe accident but later on, he deposited the same along with interest before the issuance of show cause notice." And finally: "The ratio of said decision is squarely applicable in the present case therefore by following the same, we set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any, as per law." Core principles established include the clear distinction between works contract services and commercial or industrial construction services for taxation purposes, the applicability of reasonable cause exceptions under Section 73(3) for delay in payment, and the entitlement to relief under Section 80 where tax and interest are paid before show cause notice. On each issue, the Tribunal concluded in favor of the appellant: the demand under commercial or industrial construction services was unsustainable; extended limitation was improperly invoked; penalties were unjustified; certain services were not taxable; and the appellant was entitled to benefit under Section 80. Consequently, the appeal was allowed with consequential relief.
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