2025 (6) TMI 1881 - AT - Service Tax

Classification of service - Manpower Recruitment and Agency Services (MMRS) or Commercial or Industrial Construction service (CICS) - provision of retired railway drivers for transportation of fuel - Benefit of abatement under Notification No. 15/2004-ST dt.10.04.2004 and Notification No. 01/2006-ST dt.01.03.2006 availed without including value of material supplied free of cost by NTPC - scope of work covered under the one of the LOAs i.e. quenching of fire in stock yard removal of sliding coal spraying water round the clock etc. - non-payment of service tax in respect of cleaning services - Invocation of extended period and imposition of penalty. Classification of services under certain LOAs by the adjudicating authority under MMRS instead of CICS - HELD THAT - It is not disputed that services of repair alteration restoration renovation or similar services provided in respect of such LOAs are in respect of buildings etc. The LOAs are titles as Annual Maintenance and there is no continuous maintenance of single structure and the work is of repair nature on the basis of job order only. The work undertaken by the appellant based on maintenance contract is nothing but repairs of buildings - As per section 65(64)(ii)(b) any service provided by any person under a contract or agreement in relation to maintenance or repair of properties whether immovable or not is to be classified under Management Maintenance or Repair service . Therefore the services as mentioned in the above LOAs i.e. repair or maintenance of buildings are rendered under an annual/biennial agreements. The same are required to be classified under Management Maintenance or Repair service and not under Construction service. The Commissioner has rightly classified the above services under MMRS and accordingly the appellants are not entitled for abatement as availed. Therefore there is no requirement of any interference in the finding given by the adjudicating authority in the OIO. Irregular availment of abatement without including the value of free supply of material in the gross value - HELD THAT - Reliance placed in the case of CST Delhi Vs Bhayana Builders (P) Ltd 2018 (2) TMI 1325 - SUPREME COURT wherein the Hon ble Supreme Court has held that It is to be borne in mind that the notifications in questions are exemption notifications which have been issued under Section 93 of the Act. As per Section 93 the Central Government is empowered to grant exemption from the levy of service tax either wholly or partially which is leviable on any taxable service defined in any of sub-clauses of clause (105) of Section 65. Thus exemption under Section 93 can only be granted in respect of those activities which the Parliament is competent to levy service tax and covered by sub-clause (zzq) of clause (105) and sub-clause (zzzh) of clause (105) of Section 65 of Chapter V of the Act under which such notifications were issued. - It is settled law that material supplied free of cost is not liable to be included for taking abatement. Therefore the findings given by the Adjudicating Authority in the OIO in this regard is not sustainable and liable to be quashed. Improper payment of service tax and utilization of Cenvat credit without availing credit in ST3 Return - HELD THAT - The Adjudicating Authority found that even though the payment of service tax has been made by the sub-contractors during the month of January 2009 to April 2009 credit has been availed by the appellant only during 2010. The service tax credit available as on the last date of month of January 2009 and April 2009 are only to be utilized for payment of service tax on the amounts received during the respective months. Even if there is clerical oversight the appellant has the availability for payment of tax dues arising after the said date of availment and cannot be utilized for payment of service tax for the earlier period. The case law relied upon by learned Counsel on M/s Origin Learning Solutions Pvt Ltd Vs CST Chennai-II 2021 (7) TMI 898 - CESTAT CHENNAI is not applicable in the instant case since it is not only a clerical mistake but it is also case of wrongfully availing credit which was not permissible by law. Therefore the finding given by the learned Commissioner in this regard does not require any interference. Non-payment of service tax in respect of Cleaning Services - HELD THAT - In the instant case there is only transportation within the factory premises. In this regard the decision of Coordinate Bench at Kolkata in the case of Purba Medinipur Zilla Parishad Vs CCE Haldia 2010 (5) TMI 369 - CESTAT KOLKATA is important to mention wherein it was held that the activity of removing fly ash by mechanical means from ash pond to other area is prima facie not covered under cleaning activity services . Therefore the above service is not cleaning activity but only transportation within the factory premises from one place to another and accordingly is not taxable. Invocation of extended period and imposition of penalty - HELD THAT - The Coordinate Bench at Ahmedabad in the case of M/s Chansama Taluka Sarvoday Mazoor Kamdar Sahakari Mandli Ltd Vs CCE Ahmedabad 2012 (5) TMI 398 - CESTAT AHMEDABAD held that in a case which involves issues related to classification the appellant cannot be held responsible for interpreting the same in such a way that it could be beneficial to them. Therefore no penalty under section 78 of the Finance Act 1994 is imposable. Further the Hon ble Supreme Court in the case of Hindustan Steel Ltd Vs State of Orissa 1969 (8) TMI 31 - SUPREME COURT held that penalty will not ordinarily be imposed unless the assessee obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of his obligations. In this case there is no willful misstatement or suppression of facts involved and therefore invocation of extended period or imposition of penalty under section 78 are not sustainable. Conclusion - i) On the issue of classification of services under Management Maintenance or Repair service instead of Construction services it is found that the Adjudicating Authority has correctly classified the services under Management Maintenance or Repair service and accordingly we find no infirmity in the OIO and the same is upheld. ii) On the issue of irregular availment of abatement without including the value of free supply of material in the gross value it is settled law that material supplied free of cost is not liable to be included for taking abatement. Therefore the findings given by the Adjudicating Authority in the OIO in this regard is not sustainable and liable to be quashed and is accordingly set aside to that extent. iii) On the issue of improper payment of service tax in respect of LOAs 190 206 and utilization of Cenvat credit without reflecting credit in ST3 Returns it is found that the finding given by the learned Commissioner in this regard does not require any interference and therefore the impugned order to this extent is upheld. iv) On the issue of non-payment of service tax in respect of LOA 151 156 under cleaning services it is held that the activity is not taxable under the said heading and therefore the impugned order to this extent is set aside. v) On the issue of invocation of extended period and imposition of penalty it is found no willful misstatement or suppression of facts involved and therefore invocation of extended period or imposition of penalty is not sustainable and accordingly demand beyond normal period to the extent upheld and imposition of penalty under section 78 are set aside. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the services rendered under certain Letters of Award (LOAs) should be classified under 'Management, Maintenance or Repair Service' (MMRS) or 'Commercial or Industrial Construction Service' (CICS) for the purpose of service tax liability and eligibility for abatement.

- Whether the value of materials supplied free of cost by the service recipient (NTPC) should be included in the gross value for availing abatement under Notification Nos. 15/2004-ST and 01/2006-ST.

- Whether the appellant's payment of service tax in respect of LOAs 190 and 206 and the utilization of Cenvat credit without reflecting such credit in ST3 Returns was proper.

- Whether the activity of collection and disposal of mill rejects, ash, coal dust, etc., under LOAs 151 and 156 falls under 'Cleaning Services' and is liable to service tax.

- Whether invocation of the extended period of limitation and imposition of penalty under section 78 of the Finance Act, 1994, for alleged suppression of facts and evasion of service tax is justified.

2. ISSUE-WISE DETAILED ANALYSIS

A. Classification of Services under MMRS vs. CICS

Legal Framework and Precedents: Section 65(25b) of the Finance Act, 1994 defines 'Commercial or Industrial Construction Service' (CICS) to include construction, repair, alteration, renovation, or restoration of buildings or civil structures primarily used for commerce or industry, excluding roads, airports, railways, etc. Section 65(64) defines 'Management, Maintenance or Repair Service' (MMRS) as services provided under contract relating to maintenance or repair of properties. Section 65A(2) provides principles for classification when a service is classifiable under multiple categories, emphasizing the most specific description or essential character.

The appellant relied on the definition of CICS and circular dated 27.07.2005, which includes repairs within construction services, and judgments such as Spandrel Vs CCE, Hyderabad/Kochi, which recognized post-construction finishing services as CICS when undertaken as isolated contracts.

The Revenue's position was that the LOAs primarily involved annual civil maintenance contracts for repair, alteration, and renovation of existing buildings and structures, which fall under MMRS.

Court's Interpretation and Reasoning: The Tribunal examined the scope of the LOAs, which included various repair and maintenance works such as earth work, concrete work, painting, sanitary installations, and acid proof works, all under the title 'Annual Maintenance Contract'. The Tribunal noted that the work was not continuous maintenance of a single structure but repair and maintenance on a job order basis.

Applying the definitions, the Tribunal observed that services rendered under the LOAs are essentially repair and maintenance of buildings and structures under contract, fitting squarely within the MMRS definition. The Tribunal distinguished the Spandrel case, noting that the appellant's contracts were not isolated or standalone finishing contracts but ongoing maintenance agreements.

Hence, the Tribunal upheld the adjudicating authority's classification of the services under MMRS and rejected the appellant's claim for abatement available under CICS.

B. Inclusion of Free Supply of Material in Gross Value for Abatement

Legal Framework and Precedents: The issue involved the interpretation of Notification Nos. 15/2004-ST and 01/2006-ST, which provide for abatement of 67% on construction services. The question was whether the value of materials supplied free of cost by NTPC should be included in the gross value for service tax calculation.

The appellant relied on the Supreme Court decision in CST, Delhi Vs Bhayana Builders (P) Ltd, which held that materials supplied free of cost by the service recipient are not includable in the gross value for service tax. The appellant also cited the Delhi High Court decision in ERA Infra Engineering Ltd Vs UOI, which supported exclusion of free materials from taxable value.

The Revenue argued that free materials supplied by NTPC are consideration in kind and must be included in gross value.

Court's Interpretation and Reasoning: The Tribunal referred to the Larger Bench decision of the Tribunal in Bhayana Builders, upheld by the Supreme Court, which clarified that the value of goods and materials supplied free of cost by the service recipient does not form part of the gross amount charged for taxable service under Section 67 of the Finance Act, 1994.

The Tribunal held that the adjudicating authority's decision to include the value of free materials in gross value for abatement was contrary to settled law and therefore not sustainable. Consequently, this finding was quashed and set aside.

C. Improper Payment of Service Tax and Utilization of Cenvat Credit Without Reflecting in ST3 Returns

Legal Framework and Precedents: The appellant admitted payment of service tax for LOAs 190 and 206 through sub-contractors but due to clerical errors, the credits were not reflected in ST3 Returns timely. The appellant relied on the Chennai Tribunal decision in Origin Learning Solutions Pvt Ltd Vs CST, Chennai-II, which condoned procedural lapses in reflecting credit in returns where the credit was otherwise properly accounted for.

The Revenue contended that the appellant wrongly availed credit and that the timing of credit utilization violated Rule 3(4) proviso of the Cenvat Credit Rules, 2004, which restricts credit utilization to the extent available on the last day of the relevant month or quarter.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant had availed credit only in 2010 for service tax paid by sub-contractors during 2009, which is not permissible as per the proviso to Rule 3(4). The Tribunal distinguished the cited case of Origin Learning Solutions as it involved only procedural lapses, whereas the instant case involved wrongful credit availed beyond the permissible period.

Therefore, the Tribunal upheld the adjudicating authority's findings and did not interfere with the demand on this issue.

D. Classification of Collection and Disposal of Mill Rejects, Ash, Coal Dust under Cleaning Services

Legal Framework and Precedents: Section 65(24b) defines 'cleaning activity' as cleaning including specialized cleaning of commercial or industrial buildings, premises, factory, plant, machinery, tanks, or reservoirs. The appellant contended that the activity was transportation within factory premises and not cleaning, relying on the Kolkata Tribunal decision in Purba Medinipur Zilla Parishad Vs CCE, Haldia, which held that removal of fly ash mechanically from ash pond is not cleaning activity.

The Revenue classified the activity as cleaning service and demanded service tax accordingly.

Court's Interpretation and Reasoning: The Tribunal observed that the appellant's activities involved loading, transportation, and unloading of mill rejects and ash within factory premises, which is essentially transportation and not cleaning as defined under the statute.

Relying on the Purba Medinipur decision, the Tribunal held that such activity does not fall under cleaning services and hence is not taxable under that heading.

Accordingly, the Tribunal set aside the demand on this issue.

E. Invocation of Extended Period and Imposition of Penalty

Legal Framework and Precedents: Section 73(1) of the Finance Act allows invocation of extended period for service tax recovery in cases of suppression or fraud. Section 78 provides for imposition of penalty. The appellant argued that all acts were done in bonafide belief, supported by various judicial pronouncements including the Supreme Court decision in Densons Pultretaknik Vs CCE, which held that mere claim of classification under a specific tariff heading does not amount to willful misstatement or suppression of facts. The appellant also relied on the Ahmedabad Tribunal decision in Chansama Taluka Sarvoday Mazoor Kamdar Sahakari Mandli Ltd Vs CCE, which held that in classification disputes, no penalty should be imposed.

The Revenue upheld the adjudicating authority's invocation of extended period and penalty imposition.

Court's Interpretation and Reasoning: The Tribunal noted the absence of any specific finding or reason by the adjudicating authority for invoking extended period provisions. It relied on the Supreme Court and Tribunal decisions cited by the appellant to conclude that there was no willful misstatement, suppression, or dishonest conduct by the appellant.

The Tribunal held that invocation of extended period and imposition of penalty under section 78 were not sustainable and set aside these demands.

3. SIGNIFICANT HOLDINGS

"The essential condition to qualify under the said service is to render the service of repair or maintenance for a specific period under a contract/ agreement irrespective of number of buildings or goods. Maintenance of a building or structure involves not only repair but also replacement of certain parts. As per section 65(64)(ii)(b), any service provided by any person under a contract or agreement in relation to maintenance or repair of properties, whether immovable or not, is to be classified under 'Management, Maintenance or Repair service'."

"The value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the Finance Act, 1994."

"By merely claiming classification under a specific tariff heading, it cannot be said that there was any willful misstatement or suppression of facts."

"The activity of removing fly ash by mechanical means from ash pond to other area is prima facie not covered under 'cleaning activity services'."

Final determinations:

• Services rendered under the LOAs are to be classified under Management, Maintenance or Repair Services (MMRS) and not under Commercial or Industrial Construction Service (CICS); accordingly, abatement under CICS is not applicable.
• Value of materials supplied free of cost by the service recipient is not includable in gross value for availing abatement under service tax notifications; the adjudicating authority's contrary finding is quashed.
• Improper utilization of Cenvat credit without reflecting in ST3 Returns and delayed credit utilization is not condonable; the demand on this ground is upheld.
• Transportation of mill rejects, ash, coal dust within factory premises is not a 'cleaning activity' and thus not taxable under cleaning services; demand on this ground is set aside.
• Invocation of extended period of limitation and imposition of penalty under section 78 are not sustainable due to absence of willful suppression or evasion; these demands are set aside.