2025 (6) TMI 12 - AT - Service Tax

Exemption from service tax - construction services rendered for the Samudhayik Bhavan of Rajput Niswarth Seva Sangh - Entry Number 14(b) of N/N. 25/2012-ST - suppression of facts or not - extended period of limitation - HELD THAT - It is found that it is not a case of suppression of facts fraud or collusion which would justify the invocation of the extended period. The appellant has duly reflected the receipt of the said amount which they had received from their service receivers in the income tax returns and the balance sheet which is a public document and accessible to the Revenue Authority. In fact the case has been made against the appellant on the basis of the records of the income tax returns. In C.S.T. NEW DELHI VERSUS M/S. KAMAL LALWANI 2016 (12) TMI 398 - CESTAT NEW DELHI it has been categorically observed that all the activities undertaken by the appellant were a part of the reflection made in the balance sheet and income tax returns in which case no suppression or malafide can be attributed to the assessee. Revenue has not been able to produce any evidence on record to show that tax which according to the Revenue was payable was not being paid on account of any malafide. Hence the extended period would not be available to the Revenue. Similarly in Shri Balaji Industrial Products Ltd 2020 (3) TMI 79 - CESTAT NEW DELHI the Tribunal noticed that admittedly the appellant was recording the entire activity in their balance sheet which is a proper document and as per the settled law it cannot be said that they suppressed anything with a malafide intention. Since there was confusion as to the liability of the tax the Tribunal held that there can be a bonafide belief on the part of the assessee especially even when the entire activities are being reflected in the books of accounts. Accordingly the demand was maintained only for the normal period. Applying the above principle to the instant case it is found that in view of the exemption provisions the appellant was under a bonafide belief that the services provided are not taxable. This seems to be evident by the fact that in the balance sheet and the income tax returns filed by them they have fully described the receipt of the amount towards the services received. At the relevant time the normal period prescribed for issuing the show cause notice was 18 months however the show cause notice dated 12.10.2018 was issued raising the demand for the period 2013 2014. The demand raised is therefore barred by limitation and in view of the discussion above the extended period is not invokable. Hence the entire demand is quashed on the ground of time bar. The impugned order is set aside - appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the construction services provided by the appellant qualify for exemption from service tax under Entry Number 14(b) of Notification No. 25/2012-ST, specifically regarding construction of a single residential unit otherwise than as part of a residential complex.

2. Whether the construction services rendered for the Samudhayik Bhavan of Rajput Niswarth Seva Sangh are exempt from service tax on the basis of their charitable nature and funding sources.

3. Whether the show cause notice issued to the appellant was valid and not vague.

4. Whether the extended period of limitation for issuing the demand notice could be invoked against the appellant.

5. Whether penalty under Section 78 of the Finance Act, 1994 is justified in the circumstances of the case.

Issue-wise Detailed Analysis:

1. Exemption under Notification No. 25/2012-ST for Construction of Single Residential Unit

The relevant legal framework is Entry Number 14(b) of Notification No. 25/2012-ST dated 20.06.2012, which exempts services by way of construction, erection, commissioning, or installation of original works pertaining to a single residential unit otherwise than as a part of a residential complex. The definitions of "single residential unit" and "residential complex" are provided under Section 2(ze) and 2(zc) of the notification.

The appellant contended that the construction work carried out for individuals and acquaintances was exempt under this provision. To support this, affidavits from the parties for whom the construction was done were produced. The appellant argued that these works were for personal residential use and not part of any residential complex, hence exempt.

The Revenue challenged this, relying on the principle established by the Supreme Court in Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar and Company, that the burden lies on the appellant to establish eligibility for exemption. The Revenue disputed the affidavits submitted, highlighting discrepancies in names and amounts, and argued that the appellant failed to provide sufficient documentary evidence to prove exemption.

The Tribunal, however, did not proceed to adjudicate on the merits of this issue in light of its finding on limitation (discussed below). The appellant's bona fide belief in exemption was noted but not conclusively determined.

2. Exemption for Construction of Samudhayik Bhavan for Rajput Niswarth Seva Sangh

The appellant claimed that the construction of the Samudhayik Bhavan was of charitable nature, supported by land allotment from the Chhattisgarh Government and funding from various government sources such as "Sansad Nidhi," "Vidhayak Nidhi," and "Sweksha Anudan." Based on this, the appellant argued no service tax was payable.

The Revenue disputed this contention, stating that the appellant failed to produce relevant documents to substantiate the claim of charitable status and exemption eligibility. The affidavits submitted were questioned for discrepancies.

The Tribunal did not decide on this issue substantively, as the limitation ruling rendered further discussion unnecessary.

3. Validity and Vagueness of the Show Cause Notice

The appellant raised the issue that the show cause notice was vague and did not properly specify the grounds for demand. The Tribunal did not explicitly address this issue in detail, as the limitation issue took precedence and led to the quashing of the entire demand.

4. Invocation of Extended Period of Limitation

This issue was pivotal in the Tribunal's decision. The show cause notice was issued on 12.10.2018 for the period 2013-2014, which was beyond the normal limitation period of 18 months applicable at the relevant time.

The appellant argued that the extended period could not be invoked as there was no suppression of facts, fraud, or collusion. The appellant had reflected the receipts in income tax returns and balance sheets, which are public documents accessible to the Revenue. The demand was based on information obtained from the Income Tax Department, and no malafide intention to evade tax was established.

The Revenue contended that the appellant deliberately concealed facts and thus the extended period and penalty were justified.

The Tribunal relied on a series of precedents, including:

• C.S.T., New Delhi Vs. Kamal Lalwani - where it was held that reflection of activities in balance sheets and income tax returns negates suppression and malafide, barring invocation of extended limitation period.
• Shri Balaji Industrial Products Ltd. Vs. Commissioner - which recognized bonafide belief in non-taxability and held that recording activities in books of account precludes extended period invocation.
• Antares Services Pvt. Ltd. Vs. Commissioner - reaffirmed that demands based solely on data from Income Tax Department cannot justify extended period invocation without evidence of suppression.

Applying these principles, the Tribunal concluded that since the appellant had disclosed the receipts in public documents and acted under a bonafide belief of exemption, the extended period of limitation could not be invoked. Consequently, the demand was barred by limitation.

5. Penalty under Section 78 of the Finance Act, 1994

The penalty was predicated on the allegation of suppression and evasion. Given the Tribunal's finding that there was no suppression or malafide intention, and the extended period was not invokable, the penalty was implicitly set aside along with the demand. The Tribunal did not separately elaborate on penalty but the conclusion on limitation and bona fide belief negated the basis for penalty.

Significant Holdings:

The Tribunal held:

"It is not a case of suppression of facts, fraud or collusion, which would justify the invocation of the extended period. The appellant has duly reflected the receipt of the said amount which they had received from their service receivers in the income tax returns and the balance sheet which is a public document and accessible to the Revenue Authority."

"To justify the invocation of extended period, the settled principle of law is that once the declaration has been made with the Income Tax Department, there cannot be any suppression of facts and, therefore, the extended period of limitation cannot be invoked."

"In view of the exemption provisions, the appellant was under a bonafide belief that the services provided are not taxable. This seems to be evident by the fact that in the balance sheet and the income tax returns filed by them, they have fully described the receipt of the amount towards the services received."

"The demand raised is, therefore, barred by limitation and in view of the discussion, above the extended period is not invokable. Hence, the entire demand is quashed on the ground of time bar."

The core principle established is that where the appellant has disclosed receipts in income tax returns and balance sheets, and there is a bonafide belief of exemption, the Revenue cannot invoke the extended period of limitation for issuing a demand notice. Suppression or malafide must be clearly established to justify such invocation.

Accordingly, the Tribunal set aside the impugned order confirming the service tax demand and allowed the appeal on the ground of limitation without adjudicating the merits of exemption or other contentions.