2025 (4) TMI 824 - AT - Service Tax

Short payment of service tax - works contract service - demand raised under the category of works contract service on the basis of comparison of their financial records along with Form 26AS and S.T.-3 Returns filed - penalty - HELD THAT - No proper investigation has been conducted to find out as to the activity that was being undertaken by the appellant and as to whether the appellant have paid Service Tax on that activity or whether the said activity was exempt from the levy of Service Tax. Therefore the demand against the appellant raised merely on the basis of financial records is not sustainable since the Revenue has not adduced any supportive evidence in support of its allegations. The appellant was engaged in the activity of construction of dams. The said activity was related to transmission and distribution of electricity which is exempt as per Notification No. 45/2010-S.T. dated 20.07.2010 Notification No. 11/2010-S.T. dated 27.02.2010 and Notification No. 25/2012-S.T. dated 20.06.2012. Thus on the said activity the appellant is not liable to pay Service Tax. Moreover wherever the appellant provided services being a sub-contractor the main contractor has deducted the Service Tax component from the payments made to the appellant and paid the said Service Tax in the Government treasury on behalf of the appellant. In these circumstances the demand of Service Tax is not sustainable against the appellant. Penalty - HELD THAT - Since no demand of Service Tax is sustainable against the appellant no penalty can be imposed on the appellant. Conclusion - The demand for Service Tax based solely on financial records and Form 26AS is not sustainable. Without corroborative evidence such demands do not hold. The impugned order is set aside - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this judgment was whether the demand for Service Tax under the category of 'works contract service' for the period from 2009-10 to 2013-14 was sustainable. The core legal questions addressed included:

• Whether the demand based solely on financial records, without corroborative evidence, was valid.
• Whether the appellant's activity of constructing dams, related to the transmission and distribution of electricity, was exempt from Service Tax under relevant notifications.
• Whether the extended period of limitation could be invoked for the demand.
• Whether the Service Tax liability could be transferred to the appellant when the main contractor had already deducted and paid the tax.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Demand Based on Financial Records

The legal framework considered included precedents where demands based solely on Form 26AS and financial records were deemed unsustainable. The Tribunal found that the demand was raised without proper investigation into the appellant's activities or whether they were exempt from Service Tax. The Court referenced previous decisions, such as in the cases of M/s. Rishu Enterprise and M/s. Luit Developers Pvt. Ltd., which established that demands cannot be based merely on third-party information like Form 26AS without examining the appellant's records.

The Tribunal concluded that without corroborative evidence, the demand based on financial records was not sustainable.

2. Exemption for Construction of Dams

The appellant argued that their construction activities were related to the transmission and distribution of electricity, exempt under Notification No. 45/2010-S.T., No. 11/2010-S.T., and No. 25/2012-S.T. The Tribunal agreed, finding that the appellant's activities fell within the scope of these exemptions, thus negating the liability for Service Tax.

3. Extended Period of Limitation

The Tribunal examined whether the extended period of limitation was applicable. It noted that the investigation was flawed and that the show-cause notice was issued without proper investigation into the appellant's activities. The Tribunal held that the extended period of limitation could not be invoked, referencing the lack of effort by the Department to timely issue the notice or further investigate the matter.

4. Liability of Service Tax Payment by Main Contractor

The appellant contended that as a sub-contractor, the main contractor had already deducted and paid the Service Tax on their behalf. The Tribunal found this argument valid, noting that the main contractor's payment of the Service Tax to the government treasury meant that the appellant was not liable for additional Service Tax on the same transactions.

SIGNIFICANT HOLDINGS

The Tribunal held that the demand for Service Tax based solely on financial records and Form 26AS was not sustainable. It emphasized that without corroborative evidence, such demands do not hold. The Tribunal also reinforced the principle that activities related to the transmission and distribution of electricity are exempt from Service Tax under the relevant notifications.

Furthermore, the Tribunal ruled that the extended period of limitation was not applicable due to the flawed investigation process. Finally, it concluded that since the main contractor had already paid the Service Tax, the appellant was not liable for additional payment, and no penalties could be imposed.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal, granting the appellant consequential relief as per the law.