2025 (7) TMI 1002 - AT - Service Tax

Extended period of limitation - Department was of the view that the assessee received amounts on account of providing taxable services but did not pay the service tax due - exemption under Entry No.12 of the N/N. 25/2012-ST dated 20.06.12 - HELD THAT - The Appellant is a sub contractor and the demand of service tax amounting to Rs.3, 32, 445/- is attributable to the services valued at Rs.22, 16, 300/- rendered to M/s NTPC on the strength of work order dated 27.11.2014 sub contracted to the Appellant by the main contractor M/s Gannon Dunkerly Company. The services were provided to M/s NTPC which is a governmental Authority and were exempted from levy of service tax. M/s NTPC being a public sector undertaking under the ownership of the Ministry of Power and is under control of the Government of India and is engaged in generation of electricity. The Hon ble Supreme Court in the case of CCE ST Patna vs. M/s Sapoorji Pallonji and Company Ltd. 2023 (10) TMI 748 - SUPREME COURT has considered the scope of definition of Governmental Authority and as per the settled position of law a Governmental Authority means an authority or a board or any other body (i) set up by an Act of Parliament or a State Legislature; or (ii) established by government with 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution. The invocation of extended period in the present case is also not warranted because the Appellant was under the bona fide belief that no service tax was attracted on the value of services rendered by him to turnkey projects being a minor sub-contractor in projects declared by the Government of India as Mega Development Project of National Importance - As it is evident that he has cleared service tax liability apart from this contract and has produced all the receipts during the period under dispute. There are no ingredient of misstatement suppression of facts etc with an intent to evade payment of tax. The impugned order is not sustainable in law - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

(i) Whether the demand of service tax amounting to Rs.3,32,445/- on services valued at Rs.22,16,300/- rendered as a sub-contractor to a Public Sector Undertaking (PSU) falls within the exemption under Entry No.12 of Notification 25/2012-ST dated 20.06.2012Rs.

(ii) Whether the recipient, M/s NTPC, qualifies as a "Governmental Authority" under the relevant legal framework for exemption purposesRs.

(iii) Whether the demand raised by the Department is barred by limitation, considering the service tax levy is on the time of service provision, not on payment receiptRs.

(iv) Whether the extended period for demand invocation is justified in the facts and circumstances of the caseRs.

(v) Whether the services rendered constitute taxable services under Section 65(105)(zzzza) of the Finance Act, 1994, particularly in the context of works contract servicesRs.

(vi) Whether the Department's reliance on third-party data exchange (Income Tax data) for raising the demand without corroborative evidence is sustainableRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Exemption applicability under Entry No.12 of Notification 25/2012-ST and status of recipient as Governmental Authority

The legal framework revolves around Notification 25/2012-ST dated 20.06.2012, Entry No.12, which exempts services provided to Governmental Authorities from service tax. The Court referred to the definition of "Governmental Authority" as expounded by the Supreme Court in a recent authoritative decision, which clarified that a Governmental Authority means an authority or board or other body either (i) set up by an Act of Parliament or State Legislature, or (ii) established by government with 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution.

Applying this definition, the Tribunal found that M/s NTPC, being a Public Sector Undertaking under the Ministry of Power and controlled by the Government of India, qualifies as a Governmental Authority. The services rendered by the appellant as a sub-contractor to NTPC thus fall within the ambit of the exemption notification.

The Department's contention that NTPC is not covered as a Governmental Authority was rejected on the ground that the exemption's applicability depends on the status of the recipient, which in this case is a government-controlled entity engaged in public functions.

The Court also examined the nature of services rendered (laying of tiles, preparing slope etc.) and found that these were not excluded from the exemption under the relevant clauses of Entry No.12, thereby negating the Department's argument that the exemption was arbitrarily extended.

Issue (iii): Limitation period for demand of service tax

The appellant argued that service tax is leviable at the time of rendering services, not on receipt of payment, and since the work order was dated 27.11.2014 but payments were received in 2016-17, the demand was time barred. The Court acknowledged this principle, emphasizing that the tax point is the date of provision of service.

The Tribunal found merit in the appellant's submission that the demand raised on the basis of payment receipt rather than service provision was barred by limitation, and thus unsustainable.

Issue (iv): Invocation of extended period

The Department sought to invoke the extended period for demand under the proviso to Section 73(1) of the Finance Act, 1994, alleging suppression or misstatement by the appellant. The Court, however, found no evidence of deliberate evasion or suppression. The appellant was under bona fide belief that no service tax was payable on the services rendered to a Government-declared Mega Development Project, and did not recover service tax from the main contractor or NTPC.

Further, the appellant had complied with service tax liabilities on other contracts and produced all relevant receipts. The Tribunal concluded that the extended period invocation was not warranted in absence of any malafide intent or concealment.

Issue (v): Taxability of services under Section 65(105)(zzzza)

The appellant contended that the services rendered did not amount to taxable works contract services as defined under Section 65(105)(zzzza) because they were not for the purpose of commerce or industry. The Tribunal did not find sufficient grounds to hold the services taxable, particularly in light of the exemption available and the nature of the project being a government undertaking.

Issue (vi): Reliance on third-party data for raising demand

The Department's demand was triggered by data received from the Income Tax Department under third-party data exchange. The appellant argued that raising demand solely on discrepancy between Income Tax returns and service tax returns without corroborative evidence is unsustainable.

The Tribunal noted that mere difference in data does not establish liability, especially when the appellant was registered, filed returns, and produced receipts. This weakened the Department's case and supported the appellant's stance that the demand was unjustified.

3. SIGNIFICANT HOLDINGS

"A 'Governmental Authority' means an authority or a board or any other body: (i) set up by an Act of Parliament or a State Legislature; or (ii) established by government with 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution."

"The invocation of extended period is not warranted in absence of any ingredient of misstatement, suppression of facts, or intention to evade payment of tax."

"Service tax is leviable at the time of rendering services and not at the time of receipt of payment; therefore, demand raised on the basis of payment receipt beyond limitation period is barred."

"Raising demand solely on the difference in figures between Income Tax returns and service tax returns without corroborative evidence is not sustainable."

The Tribunal concluded that the exemption under Entry No.12 of Notification 25/2012-ST applies to services rendered to NTPC as a Governmental Authority. The demand of service tax of Rs.3,32,445/- was therefore not sustainable. The invocation of extended period was unjustified due to lack of evasion or suppression. The demand was also barred by limitation as the tax point was the date of service provision. Consequently, the impugned order confirming the demand was set aside and the appeal allowed with consequential relief as per law.