2025 (7) TMI 152 - AT - Service Tax

Levy of service tax - construction of godown office for storing of electronic voting machine construction repair of Tourist Avas Grih construction of fire fighting fire alarm system in District Court Agra and repair of Court Room building and Commissioner Agra premises for which work entrusted by PWD Department and construction repair of strong room in Naveen Galla Mandi - Construction repair of strong room in Naveen Galla Mandi where work order given by Executive Engineer CD-1 (TTZ) PWD Agra - levy of penalty u/s 78 of FA. Levy of service tax - construction of godown office for storing of electronic voting machine construction repair of Tourist Avas Grih construction of fire fighting fire alarm system in District Court Agra and repair of Court Room building and Commissioner Agra premises for which work entrusted by PWD Department and construction repair of strong room in Naveen Galla Mandi - HELD THAT - It is found from the records that SCN dated 28.04.2021 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 returns not filed the SCN has been issued on the basis of figures in ITR/26AS. On going through the work order given by PWD Department regarding construction service with material of godown office for storing of electronic voting machine construction repair of Tourist Avas Grih construction of fire fighting fire alarm system in District Court Agra and repair of Court Room building and Commissioner Agra premises shows there are different work assigned and mainly are addition/alternation and new construction were carried-out thus there is force in Appellant s argument that construction work at above mentioned places falls under definition of 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 hence the Adjudicating Authority is directed to re-quantify the demand of service tax on above work orders on 40% of value under original work under Rule 2A of Service Tax (Determination of Value) Rules 2006 and also by giving benefit of cum-tax value. Construction repair of strong room in Naveen Galla Mandi where work order given by Executive Engineer CD-1 (TTZ) PWD Agra - HELD THAT - On going through the work order of construction repair of strong room in Naveen Galla Mandi where brick work with coarse sand mortar cement and other work was there 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 tore-quantify the demand of service tax by taking construction addition/alteration of strong room at Naveen Galla Mandi under original work under Rule 2A of Service Tax (Determination of Value) Rules 2006 and demand of tax has to be worked-out on 40% of value and also by giving benefit of cum-tax value. Penalty u/s 78 - HELD THAT - In the matter at hand construction work was done for Government and no service tax was mentioned in work orders therefore there are no ingredient of suppression of facts wilful mis-statement etc; with an intent to evade payment of Service Tax. The penalty imposed under Section 78 is therefore set-aside. Appeal allowed in part.

Summary

The core legal questions considered by the Tribunal in this appeal pertain to the applicability and quantification of service tax on construction services provided by the Appellant during the financial year 2016-17, specifically:

• Whether the construction works carried out by the Appellant fall under the definition of 'original work' as per Rule 2(A) of the Service Tax (Determination of Value) Rules, 2006, thereby attracting service tax at a specified value rate;
• Whether the demand for service tax, interest, and penalty under Section 78 of the Finance Act, 1994, as confirmed by the Commissioner (Appeals), is justified;
• The validity of the Show Cause Notice (SCN) issued based on third-party data from the Income Tax Department and whether the extended period of limitation for demand is invokable;
• The applicability of exemption notifications, particularly Notification No. 9/2016-ST dated 01.03.2016, and whether the Appellant's construction works qualify for such exemptions;
• Whether the penalty under Sections 77 and 78 of the Finance Act, 1994, can be sustained given the facts and circumstances of the case.

Regarding the classification of construction services, the Tribunal examined the legal framework under the Finance Act, 1994, and the Service Tax (Determination of Value) Rules, 2006. Rule 2(A) defines 'original work' to include "all new constructions, all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable." The Tribunal reviewed the work orders issued by the Public Works Department (PWD) and the Executive Engineer, CD-1 (TTZ), PWD Agra, which detailed various activities such as additions, alterations, new constructions, brickwork, and other related tasks.

The Court interpreted the scope of 'original work' expansively, holding that the nature of the work carried out by the Appellant-construction and repair of godown and office for storing electronic voting machines, Tourist Avas Grih, fire fighting and fire alarm systems in District Court, repair of Court Room building and Commissioner premises, and construction and repair of a strong room in Naveen Galla Mandi-falls within the ambit of 'original work.' This interpretation was grounded in the factual matrix of the work orders, which showed a combination of new construction and additions/alterations, consistent with the definition under Rule 2(A).

In applying the law to facts, the Tribunal directed the Adjudicating Authority to re-quantify the service tax demand on these works by applying the 40% valuation rule prescribed for 'original work' under Rule 2(A) of the Service Tax (Determination of Value) Rules, 2006. The Tribunal further held that since the work orders did not mention service tax separately, the valuation should be on a cum-tax basis, thereby granting the Appellant the benefit of including service tax within the contract value.

On the issue of the SCN's validity and the invocation of the extended period of limitation, the Tribunal noted that the SCN was issued based on third-party data received from the Income Tax Department (26AS data) for the financial year 2016-17. The Appellant contended that the nature of the services was not specified in the data, rendering the SCN legally defective. The Tribunal, however, did not find merit in this argument, implicitly accepting that the information sufficed to initiate proceedings. Nevertheless, the Tribunal found that the Appellant was under a bona fide belief that construction work with material provided for Government projects was not taxable and held that there was no suppression or wilful misstatement to evade tax. Consequently, the Tribunal set aside the penalty imposed under Section 78 of the Finance Act, 1994.

The Tribunal also addressed the contention regarding exemption under Notification No. 9/2016-ST dated 01.03.2016, which exempts certain work contracts prior to 01.03.2015. Since the Appellant's works were awarded in the financial year 2016-17, the exemption was rightly denied by the Commissioner (Appeals), and the Tribunal did not interfere with this finding.

Regarding penalty under Sections 77 and 78, the Tribunal noted that the penalty under Section 77 was deleted by the Commissioner (Appeals), and it concurred with the deletion of penalty under Section 78, given the absence of any willful evasion or suppression. The Tribunal emphasized the absence of any ingredient of suppression of facts or wilful misstatement in the record, particularly since the Appellant had not mentioned service tax separately in the work orders and had acted under a bona fide belief.

The Tribunal's conclusions can be summarized as follows:

• The construction works carried out by the Appellant qualify as 'original work' under Rule 2(A) of the Service Tax (Determination of Value) Rules, 2006;
• The service tax demand must be re-quantified on 40% of the contract value, allowing the benefit of cum-tax valuation;
• The SCN issued on the basis of third-party data was valid, but the extended period of limitation is not applicable due to bona fide belief and lack of suppression;
• The exemption under Notification No. 9/2016-ST is not applicable as the work contracts were awarded post 01.03.2015;
• The penalty under Section 78 of the Finance Act, 1994, is set aside in the absence of any wilful misstatement or suppression;
• The appeal is partly allowed, directing re-quantification of service tax demand and deletion of penalty under Section 78.

In its reasoning, the Tribunal stated: "I find from the records that... the work order... shows there are different work assigned and mainly are addition/alteration and new construction were carried-out, thus there is force in Appellant's argument that construction work... falls under definition of 'original work' under Rule 2(A) of Service Tax (Determination of Value) Rules, 2006."

Further, the Tribunal held: "In the matter at hand, construction work was done for Government and no service tax was mentioned in work orders, therefore, I do not find any ingredient of suppression of facts, wilful mis-statement etc; with an intent to evade payment of Service Tax. The penalty imposed under Section 78 is therefore set-aside."

These holdings establish the principle that when construction contracts involve new construction and additions/alterations as defined under Rule 2(A), the service tax valuation is to be computed at 40% of the contract value, inclusive of service tax if not separately indicated. Moreover, bona fide belief and absence of suppression can negate the imposition of penalty under Section 78, even where tax demand is confirmed based on third-party information.