2025 (7) TMI 77 - AT - Service Tax

Exemption from service tax - construction at residence of District judge - applicability of Sl.No.14(b) of N/N. 25/2012-ST dated 20.6.2012 -construction at Eklavya Sports Stadium where modification renovation was done as per work order of PWD department of UP Government - Penalty u/s 78 of FA. Exemption from service tax - construction at residence of District judge - applicability of Sl.No.14(b) of N/N. 25/2012-ST dated 20.6.2012 - HELD THAT - It is found from the records that Show Cause Notice has been issued on information for the F/Y 2016-17 received from income tax department/26AS under third party data exchange. Since the Appellant has not taken ST Registration and S T - 3 returns were not filed the Show Cause Notice has been issued on the basis of ITR/26AS. The work order shows that there are different works of construction providing fixing new tiles on floor and also fixing new items etc thus there is force in Appellant s argument that construction work at the residence of District Judge falls under definition of original work under Rule 2(A) of Service Tax (Determination of Value) Rules 2006 which means all new constructions all types of additions alterations to abandoned or damaged structure on land that are required to make them workable - The work at residence of District judge would be covered by clause (b) of Sl.No.14 of Notification No.25/2012-ST dated 20.6.2012 therefore exempt from service tax. Exemption from service tax - Construction at Eklavya Sports Stadium where modification renovation was done as per work order of PWD department of UP Government - HELD THAT - The work order of Eklavya Sports Stadium is gone through where dismantling work was there and installation of new items i.e. G.S. Sheet roofing laying of badminton flooring supply fixing of PVC pipe and RCC work with cement has been done which falls under definition for original work under Rule 2(A) of Service Tax (Determination of Value) Rules 2006 which means all new constructions all type of additions alterations to abandoned or damaged structure on land that are required to make them workable. The Adjudicating Authority is directed to re-quantify the demand of service tax by taking construction work at Eklavya Sports Stadium under original work and demand of tax has to be worked-out on 40% of value and also by giving benefit of cum-tax value. The demand of service tax Rs.5217/- on construction of Boundary wall at Divisional warehouse has been correctly worked-out. Penalty u/s 78 of FA - HELD THAT - In the matter at hand construction work was done for government and no service tax was mentioned in work orders therefore the Appellant s argument on bonafide belief is accepted. The penalty imposed under Section 78 is therefore set-aside. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the construction services provided by the Appellant during the financial year 2016-17, specifically pertaining to the District Judge residence, Eklavya Sports Stadium, and boundary wall of Divisional warehouse, attract service tax under the Finance Act, 1994.

- Whether the construction work at the District Judge residence and Eklavya Sports Stadium qualifies as 'original work' under Rule 2(A) of the Service Tax (Determination of Value) Rules, 2006, and thereby exempt under Notification No.25/2012-ST dated 20.6.2012.

- Whether the demand of service tax raised on the Appellant based on third-party data received from the Income Tax Department and 26AS is valid and sustainable.

- Whether the Show Cause Notice issued invoking the extended period of limitation is valid in the facts and circumstances of the case.

- Whether the penalty imposed under Section 78 of the Finance Act, 1994 is justified given the Appellant's bonafide belief regarding exemption.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Service Tax on Construction Services Provided

Relevant legal framework includes the Finance Act, 1994, specifically Sections 66D (Negative List), 68 (Levy of Service Tax), 69 (Registration), 70 (Returns), and Section 78 (Penalty). Notification No. 25/2012-ST dated 20.6.2012 provides exemption for certain construction services, particularly under Sl.No.14.

The Show Cause Notice (SCN) was issued on 14.10.2021 based on third-party data (ITR/26AS) indicating receipts of Rs.4,00,65,369/- for taxable services which were neither in the Negative List nor exempted under the Mega Exemption Notification. The SCN alleged non-registration and non-payment of service tax amounting to Rs.60,09,805/-.

The Adjudicating Authority confirmed a demand of Rs.24,76,669/- service tax with interest and penalties, partly dropping demand of Rs.35,33,136/-. On appeal, the Commissioner (Appeals) partly allowed the appeal, confirming a demand of Rs.6,51,213/- for specific construction works and imposed penalty under Section 78.

The Appellant contended that prior to 2016-17, their road construction services were exempt, and the current works fall under 'original work' exempt under Notification No.25/2012-ST, hence not taxable. The Appellant also argued that the SCN was vague regarding the nature of service and that extended period invocation was barred due to bonafide belief in exemption.

The Tribunal observed that the SCN was validly issued based on third-party data and non-filing of returns and non-registration, which is a sufficient basis for demand. The demand relating to boundary wall construction was upheld as correctly computed.

Issue 2: Classification of Construction Work as 'Original Work' and Applicability of Exemption

Rule 2(A) of Service Tax (Determination of Value) Rules, 2006 defines 'original work' as encompassing all new constructions, additions, and alterations to abandoned or damaged structures necessary to make them workable. Notification No.25/2012-ST exempts services by way of construction of original works pertaining to a single residential unit otherwise than as part of a residential complex (Sl.No.14(b)).

The Appellant's work orders from PWD for the District Judge residence included dismantling, installation of new items, fixing tiles, and other works. Similarly, at Eklavya Sports Stadium, work included dismantling, installation of G.S. Sheet roofing, laying of badminton flooring, PVC pipe fixing, and RCC work.

The Tribunal found merit in the Appellant's argument that these works qualify as 'original work' under Rule 2(A) and thus fall within the exemption at Sl.No.14(b) of Notification No.25/2012-ST for the District Judge residence. Consequently, service tax demand on this portion was set aside.

Regarding Eklavya Sports Stadium, the Tribunal directed the Adjudicating Authority to re-quantify the demand by treating the work as 'original work' and applying the valuation at 40% of the contract value with benefit of cum-tax value, thereby reducing the demand significantly.

Issue 3: Validity of Show Cause Notice Issued on Third-Party Data and Invocation of Extended Period

The SCN was issued based on information received from the Income Tax Department under third-party data exchange. The Appellant argued that the SCN did not specify the nature of service and was therefore bad in law. Further, the Appellant claimed a bonafide belief in exemption, thus barring invocation of extended period of limitation.

The Tribunal held that issuance of SCN based on third-party data such as ITR and 26AS is valid and recognized under the Finance Act framework. The Appellant's failure to register and file returns justified issuance of SCN. However, the Tribunal accepted the bonafide belief argument due to the nature of the work being for government and exemption provisions, thereby setting aside the penalty under Section 78.

Issue 4: Penalty Imposition under Section 78 of Finance Act, 1994

Section 78 imposes penalty equal to the amount of service tax evaded or not paid. The Appellant contended that penalty was not justified due to bonafide belief in exemption. The Tribunal agreed with this contention, noting that the Appellant had reasonable grounds to believe that the services were exempt, especially since the work was for government and no service tax was mentioned in the work orders.

Accordingly, the Tribunal set aside the penalty imposed under Section 78, recognizing the principle that penalty should not be imposed where there is a bona fide belief in non-taxability.

3. SIGNIFICANT HOLDINGS

"The work at residence of District judge would be covered by clause (b) of Sl.No.14 of Notification No.25/2012-ST dated 20.6.2012, therefore, exempt from service tax."

"The Adjudicating Authority is directed to re-quantify the demand of service tax by taking construction work at Eklavya Sports Stadium under original work and demand of tax has to be worked-out on 40% of value and also by giving benefit of cum-tax value."

"In the matter at hand, construction work was done for government and no service tax was mentioned in work orders, therefore the Appellant's argument on bonafide belief is accepted. The penalty imposed under Section 78 is, therefore, set-aside."

Core principles established include:

- Construction services qualifying as 'original work' under Rule 2(A) and falling within the exemption Notification No.25/2012-ST are not liable to service tax.

- Show Cause Notices issued on the basis of third-party data such as Income Tax returns and 26AS are valid and sustainable.

- Penalty under Section 78 should not be imposed where the assessee has a bona fide belief in exemption, especially in government contract contexts where service tax is not explicitly mentioned.

Final determinations:

- Demand of service tax on construction at District Judge residence is set aside as exempt original work.

- Demand relating to Eklavya Sports Stadium is to be recalculated treating the work as original work with valuation at 40% and cum-tax benefit.

- Demand on boundary wall construction is upheld.

- Penalty under Section 78 is set aside due to bonafide belief in exemption.