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2025 (7) TMI 349 - AT - Service TaxDenial of benefit of exemption in case of service provided to WBSEB which has been specifically allowed under N/N. 45/2010-S.T. dated 20- 7-2010 - exemption to all taxable services relating to transmission and distribution of electricity provided by a person - HELD THAT - The same issue has come before this Tribunal earlier and this Tribunal has remanded the matter to the Ld. Adjudicating authority to pass a speaking order after giving an opportunity to the appellant to submit all the documents available with him. On the basis of direction of this Tribunal the Ld. Commissioner has passed this Order In - Original No. 24/ Commr./BOL/2011 dated 25.03.11. confirming the demand of service Tax demanding service tax including ceases totally amounting to Rs.75, 97, 824/- along with interest and penalty and dropped the demand of Rs. 8, 04, 461/ including cesses. It is found that the service recipients have deducted sales tax (WCT) which proves that the service provided falls under work contract service which came into effect from 01.06.2007. However there is no demand of service tax under the category go works contract in the impugned order. Thus the demand of service tax on the said services some other category is not sustainable. The Ld. Commissioner has denied the benefit of exemption in case of service provided to WBSEB. However the exemption has been specifically allowed under N/N. 45/2010-S.T. dated 20- 7-2010 to all taxable services rendered relating to transmission and distribution of electricity provided by a person. It is observed that the Ld. Commissioner in para 4.14 of the order has distinguished the above notification on the analogy that the work has no direct relation with the transmission and distribution of electricity. In this regard it is observed that the WBSEB prior to bifurcation as WBSEB and WBSEDL was engaged in generation transmission and distribution of electricity and so there cannot be any doubt that all the work received by it were related to generation transmission and distribution of electricity and hence such narrow interpretation cannot be made to deny benefit of emption. Accordingly the appellant are eligible for the said exemption to the services rendered in connection with transmission of electricity. It is observed that the demand of service tax has been raised in this case on the basis of Balance Sheets and records submitted by the Appellant. It is observed that the demand notice is the foundation of recovery proceedings of the service tax not paid or short paid. Until and unless the tax liability for particular service is indicated in the impugned demand notice the opportunity to refute the same is not available to the appellant. In the instant case the show cause notice has not has not specifically demanded service tax under any particular category. Thus the instant proceedings initiated against the appellant without specifying the demand of service tax under a particular category of service is legally not sustainable. The demand notice issued to the appellant is legally not valid. Hence the impugned order confirming the notice on the basis of the invalid notice is not sustainable. As the demand itself is not sustainable the question of demanding interest and imposing penalty does not arise. Accordingly the penalty imposed are set aside. The demand set aside - appeal allowed.
The core legal questions considered in this appeal revolve around the validity and correctness of the service tax demand and related penalties imposed on the appellant. Specifically, the issues include:
1. Whether the demand of service tax was correctly raised without proper classification of the services rendered by the appellant under the relevant service categories as defined in the Finance Act, 1994. 2. Whether the demand notice issued was valid and legally sustainable, given that it did not specify the service tax liability under particular service categories, thereby depriving the appellant of an opportunity to effectively contest the demand. 3. Whether the extended period of limitation under section 73 of the Finance Act, 1994 could be invoked in the absence of any willful suppression or intention to evade service tax. 4. Whether the appellant was entitled to avail exemptions and abatements under various notifications, including notification No. 15/2004-S.T. (abatement for use of material), notification No. 45/2010-S.T. (exemption for services related to transmission and distribution of electricity), and exemption for services provided to government agencies such as Railways, WBSEB, ADDA, and DMC. 5. Whether the appellant, as a subcontractor, was liable to pay service tax when the main contractors had already discharged the service tax liability on the entire project value. 6. Whether the demand of service tax based solely on turnover figures from 3CD and Party Ledger without corroborative evidence is sustainable. 7. Whether the penalties and interest imposed under sections 76, 77, and 78 of the Finance Act, 1994 are justified in view of the above considerations. Issue-wise Detailed Analysis 1. Classification of Services and Validity of Demand Notice The legal framework mandates that for any service tax demand, the nature of service rendered must be first identified and classified under the appropriate service category as defined in the Finance Act, 1994. This classification determines the applicable rate of tax, exemptions, and abatements. The appellant contended that the adjudicating authority failed to classify the services and simply imposed the demand based on aggregate turnover figures from financial statements (3CD and Party Ledger), which is contrary to settled legal principles. The Court noted that the impugned order did not specify the service category under which the demand was raised, nor did it provide a breakup of service tax liability by service type or party-wise basis. This omission is critical because it denies the appellant a meaningful opportunity to contest the demand. The Court relied on precedents including the decision of the Apex Court in Metal Forgings v. U.O.I. and the Tribunal's own ruling in GSP Infratech Development Ltd., which emphasize that a show cause notice must categorically demonstrate the legal ingredients and specify the service tax liability to enable the assessee to defend effectively. The Court observed that the authority took the entire turnover as assessable value without distinguishing taxable and non-taxable activities or applying exemptions and abatements, which is legally impermissible. The Court held that demand based on such a notice is unsustainable and that the adjudicating authority must issue a speaking order with detailed classification and quantification of service tax liability. 2. Limitation and Extended Period of Demand Section 73 of the Finance Act, 1994 prescribes a limitation period of five years for issuing a demand notice, except in cases of willful suppression of facts with intent to evade tax, where an extended period can be invoked. The appellant argued that there was no suppression or evasion, and that the demand notice was issued beyond the limitation period applicable to the relevant dates of service tax payment. The Court found that the demand was raised based on financial records submitted by the appellant and there was no evidence of suppression or fraud. It relied on several precedents, including the Apex Court decision in Commissioner of Central Excise, Pune v. Coca-Cola India Pvt. Ltd., holding that in cases of revenue neutrality (i.e., when no loss to revenue is established), extended period demands are not maintainable. The Court also cited Tribunal decisions that extended this principle. Accordingly, the Court held that the invocation of the extended period was not justified and the demand was barred by limitation. 3. Entitlement to Exemptions and Abatements The appellant claimed entitlement to various exemptions and abatements:
The Court examined the evidence including work orders and found that the appellant had utilized materials and was thus eligible for the 33% abatement. The Court also accepted that services rendered to WBSEB related to transmission and distribution of electricity were exempt under the relevant notification, rejecting the adjudicating authority's narrow interpretation that denied exemption on the ground that the work had no direct relation to transmission and distribution. Further, the Court relied on Tribunal decisions holding that civil works related to sewerage, water supply, and similar services provided to government agencies are not taxable under the relevant service categories. The Court observed that the adjudicating authority had allowed exemption only in part and failed to address all such services comprehensively. 4. Liability of Subcontractors The appellant contended that as a subcontractor, he was not liable to pay service tax where the main contractors had already discharged the tax liability. The legal position evolved with Circular No. 96/07/2007 dated 23.08.2007 clarifying subcontractors' liability. However, prior to this circular, subcontractors were not liable. The appellant's services pertained to periods mostly before this circular and the main contractors had paid service tax. The Court found that demand on subcontractors in such circumstances is not sustainable, relying on Tribunal rulings including NBCC Ltd. vs. CCE, Patna, which held that subcontractors are not liable if the main contractor has paid service tax on the entire project value. 5. Demand Based Solely on Financial Statements Without Corroborative Evidence The appellant challenged the demand being based solely on turnover figures from 3CD and Party Ledger without any corroborative evidence linking such turnover to taxable services. The Court agreed with the appellant, citing the Tribunal decision in Synergy Audio Visual Workshop P. Ltd. which held that amounts shown in Income Tax Returns or Balance Sheets are not liable to service tax without further corroboration. The Court observed that the adjudicating authority failed to apply mind to the records and documents and wrongly presumed the entire turnover as taxable value, including non-taxable and exempt activities. 6. Penalties and Interest Given the Court's findings that the demand itself was not sustainable due to invalid notice, lack of classification, non-invocation of limitation properly, and entitlement to exemptions, the penalties and interest imposed under sections 76, 77, and 78 of the Finance Act, 1994 were also held to be unsustainable. The Court set aside all penalties and interest accordingly. Significant Holdings The Court held: "The instant proceedings initiated against the appellant without specifying the demand of service tax under a particular category of service is legally not sustainable." "The show cause notice is the foundation of recovery proceedings of the service tax not paid or short paid. Until and unless the tax liability for particular service is indicated in the impugned demand notice, the opportunity to refute the same is not available to the appellant." "Merely going by the Balance Sheet and Ledger figures to arrive at the service amount received is not correct... For demand of Service Tax, first of all the nature of services rendered has to be considered, thereafter it has to be examined whether the service is covered by definition of services in the Finance Act, 1994 and classified under a particular service category, thereafter it has to be seen what is rate of tax and consideration received and the tax has to be calculated." "As there is no suppression of facts with intention to evade the tax established in this case, the demand confirmed by invoking extended period of limitation is not sustainable." "The appellant are eligible for the abatement as provided under the notification No. 15/2004-S.T., dated 10-9-2004." "The appellant are eligible for the said exemption to the services rendered in connection with transmission of electricity." "Services provided by the appellant to Railways, WBSEB (for power transmission), to Govt. Agencies like ADDA and DMC (for road and sewerage) are not liable to service tax." "The penalty imposed are set aside." "We set aside the demands of service tax including cesses, along with interest and penalties, confirmed in the impugned order and allow the appeal filed by the appellant with consequential relief, if any, as per law."
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