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TMI Blog2025 (5) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... er has further prayed for granting any other relief(s) to which the petitioner is otherwise found entitled to. Brief facts of the case of the petitioner 3. The petitioner is a government company. It is engaged in construction of bridges and roads in the State of Bihar. One of the main objects for which the petitioner company has been incorporated are inter-alia, to construct, execute, carryout, improve, work, develop, administer, manage, control or maintain in Bihar and elsewhere all types of bridges, roads and other structures, works and conveniences pertaining to bridge including approach roads to bridges and river training works. Further the main object of the company is to levy and collect toll on passengers and goods on the use of the bridges, bridge works, roads and approach roads to bridges which are vested in the corporation or are on lease, with the corporation for a period and at the rates to be decided by the Corporation. 4. The other objects of the petitioner-company is to invite tenders, enter into negotiations, contract for and in relation to the construction, execution, carrying out, equipment, improvement, management, administration or control of bridges, bridge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h estimated cost of the project and the duration by which the project is to be completed. (c) Thereafter, tenders are invited from eligible bidders for undertaking the construction of bridges and roads. (d) Upon Selection, an agreement is entered into with them to undertake construction of roads and bridges. (e) Funds are granted by the State Government of Bihar for the construction of roads and bridges. (f) After the completion of the contract, the bridges and roads, as the case may be, constructed is handed over to the State Government of Bihar. (iv) That Section 66 B of the Finance Act, 1994 inter-alia provides that there shall be levied tax referred to as the "Service Tax" on value of all services other than those specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. (v) That Section 66D of the Act provides for a negative list of services. All other services other than the one mentioned in the negative list of services are liable to Service Tax unless exempt. (vi) That Section 93 of the Finance Act empowers the Central Government to grant exemption from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 12.5% would be paid to the petitioner-company on account of the actual amount spent on the construction work and on 100 crores or above turn over. It is the case of the petitioner that it was paid a sum equivalent to 13.5% of the cost of the work done, to meet the cost of establishment. The centage in respect of cost of work done above 100 crores would be 12.5%. It is to meet the cost of the establishment, therefore, it would not fall within the ambit of taxable service as defined in the Act. According to the petitioner, reimbursement of expenditure is not service as provided in the Act. In this regard, the petitioner relies upon the definition of taxable service as provided in Section 65 (105) of the Act. According to him, by no stretch of imagination, it would fall within the meaning of word "service" as defined under Section 65B (44) of the Act. 11. As regards the issue of toll collection, it is the case of the petitioner that it has been authorized to receive toll charges on use of bridges and roads. Reliance is placed on the Rule 10 (a) of the Bihar Toll Rules, 1979, wherein it is provided that toll shall be collected by the Corporation on behalf of the State Government an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le service. As per Section 66D(a) of the Act which comprises negative list, services by Government or a local authority is exempt from Service Tax. Further, as per sub-section (26A) of Section 65B of the Act, the word "Government" has been interpreted. As per the said provision, the word "Government" means by purposive interpretation to include those entities whether created by statute or otherwise, the accounts of which are required to be kept in accordance with Article 150 of the Constitution of India. 15. It is submitted that in absence of any willful attempt to evade tax, the imputation of allegation of evasion of tax with the willful attempt does not seem to be justified. It is submitted that the noticee being a constituent of the government, cannot be expected to have been any attempt, much less deliberately or willfully to evade tax. The Order-in-Original dated 28.03.2024 (Annexure-P2) 16. It appears on going through Annexure-P2 that the respondent no. 2 verified the available records of the noticee, perused the balance-sheet and ledger vis-a-vis relevant agreements in relation to construction of bridge and found that the noticee functioned as an executing agency in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndering of services related to engaging vendors/contractors for toll collection and associated activities. The respondent no. 2 has taken a view that the petitioner had received 15% centage against the collection of toll but has not paid any service tax on the amount retained by the petitioner for rendering the said service. Petitioner has not paid service tax on centage received for getting the bridges/roads constructed by contractors. 18. Having said so, the respondent no. 2 has recorded its view with regard to levy of service tax on toll collection by any agency which is being reproduced hereunder:- "In so far as levy of service tax on service by way of access to a road or bridge on payment of toll charges was concerned, same was covered under negative list [Sub section (h) of section 66D of Finance Act 1994] and accordingly not chargeable to service tax. However, toll collection by any agency on behalf of an agency authorized to levy toll was a taxable service, on which service tax was required to be paid by the agency collecting the toll. This has also been clarified by the Central Board of Excise and Customs (now Central Board of Indirect Taxes and Customs) vide Circular N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments were furnished in respect of the same." 22. From perusal of contracts of M/s BRPNNL, it is found that in respect of above, provision has been made under the head Liquidated Damages for delay' wherein it has been mentioned that in case of delay in completion of services, a liquidated damages not amounting to penalty equal to 0.05% of the contract price per day subject to a maximum 5% of the contract value will be imposed and shall be recovered from payments due/performance security. Section 66E (e) of the Finance Act, 2012 states that the following shall constitute declared services, namely:- (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" Whether the petitioner/BRPNNL is a government or governmental authority. 23. The contention of the petitioner that they are government/governmental authority has been rejected by the respondent no. 2 and upon scrutiny of balance-sheet, copy of agreement and documents submitted during investigation, the respondent no. 2 has held as under:- "I have also to examine the noticee's claim that they being the Government/Local Authority/Governmental Authority are entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any function entrusted to a municipality under article 243W of the Constitution. On the above issue, it is also relevant to point out here the guidelines issued by the Chairman, CBEC, Department of Revenue, Ministry of Finance, New Delhi in the "Taxation of Service: An Education Guide". It is pertinent to mention here that the objectives of this Guide are to mitigate the litigations. The relevant guidelines mentioned in the Guide are as under: 2.4.8 What is a local authority? Local authority is defined in clause (31) of section 65B and means the following:- A Panchayat as referred to in clause (d) of article 243 of the Constitution. A Municipality as referred to in clause (e) of article 243P of the Constitution. A Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund. A Cantonment Board as defined in section 3 of the Cantonments Act, 2006. A regional council or a district council constituted under the Sixth Schedule to the Constitution. A development board constituted under article 371 of the Constitution, or. A regional council constituted under article 371A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticee states that it has been incorporated under the Companies Act, 1986. Further, in Books of Accounts, it has been mentioned that 100% share is owned by State Government. In the Profit & Loss Accounts of the noticee, they have shown Revenue from Operation from Centage from Toll collection; Centage from Construction of roads & bridges. Now I have to examine here whether the main work of Bihar Rajya Pul Nirman Nigam Limited from which they receive Centage; "To Levy and collect toll on passengers and goods on the use of bridges, bridge works, roads and approach roads to bridges which are vested in the corporation or are on lease, with the Corporation for a period and at the rates to be decided by the Corporation" & "to act as technical advisers, consultants, market surveyors, procurement agency and to render technical know-how, management, financial and legal consultancy and other services to any firm, company, body corporate, ...etc." fall the under article 243W or not. Article 243W of the Constitution is as under: 'Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow- (a) the Municipalities with such powers and authority as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from service tax. Liability of service tax on the services provided in lieu of fee 24. The respondent no. 2 further proceeded to consider the issue of liability of service tax on the services provided in lieu of fee charged by government or a local authority. In this regard, the views of the respondent no. 2 are as under:- "8. Services provided by way of construction, erection, commissioning, Installation, completion, fitting out, repair, maintenance, renovation, or alteration of,- (a) a road, bridge, tunnel, or terminal for road transportation for use by general public; are exempted in clause 13(a) of Mega Exemption Notification, as amended, but the one and only source of income is Centage and penalty deducted from customers which do not come under the purview of Mega Exemption Notification. 9. Service by way of access to a road or a bridge on payment of toll charges are exempted in terms of Section 660 (h) of Finance Act, 1994 (Negative list of services). Further, Section 66 F (1) of Finance Act, 1994 prescribes that "Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as the "main service") shall not include reference to a service which is used for providing the main service" This rule can be best understood with a few illustrations which are given below Provision of access to any road or bridge on payment of toll' is a specified entry in the negative list in section 66D of the Act. Any service provided in relation to collection of tolls or for security of a toll road would be In the nature of service used for providing such specified service and will not be entitled to the benefit of the negative list entry. Transportation of goods on an inland waterway is a specified entry in the negative list in section 66D of the Act. Services provided by an agent to book such transportation of goods on Inland waterways or to facilitate such transportation would not be entitled to the negative list entry." 12. In addition to above, it is also relevant to point out here the clarifications issued by the Ministry vide Circular No. 192/02/2016-Service Tax dated 13.04.2016 on the issue of liability of service tax on the services provided in lieu of fee charged by Government or a local authority as under: SI.No. Issue Clarification 5 Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril, 2015 to June, 2017 is taxable or not. 16. It has been alleged in the instant Show Cause Notice that from perusal of contracts of M/s BRPNNL, it is found that in respect of above, provision has been made under the head Liquidated Damages for delay' wherein it has been mentioned that in case of delay in completion of services, a liquidated damages not amounting to penalty equal to 0.05% of the contract price per day subject to a maximum 5% of the contract value will be imposed and shall be recovered from payments due/performance security. Section 66E (e) of the Finance Act, 2012 states that the following shall constitute declared services, namely:- (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; Services mentioned above are declared services and attracts service tax @ applicable rate during the period. The noticee in reply dated 04.10.2023 has submitted that "it has deducted penalty from the payments made to the contractor on default of the terms of the contract. The noticee further states that in large number of cases upon the contractor reaching a milestone in terms of the contract the penalty deducted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , New Delhi which is on the similar issue in which the Hon'ble CESTAT held that "13. In view of the aforesaid decisions of the Tribunal and the Circular, it is not possible to sustain the view taken by the Commissioner that since the task was not completed within the time schedule, the appellant agreed to tolerate the same for a consideration in the form of liquidated damages, which would be subjected to service tax under section 66E(e) of the Finance Act. 14. As service tax could not be levied, the imposition of interest and penalty also cannot be sustained." In the above order, the Hon'ble CESTAT has referred another Circular No. 214/1/2023-Service Tax dated 28.02.2023 issued by the Board and also different Orders of CESTAT on the similar issue. I have gone through the above Circulars and above orders of Hon'ble CESTAT and on the basis of guidelines issued by the Board and orders of Hon'ble CESTAT, I find that penalty deducted from contractors are not taxable under Service Tax. Consequently, I find that the demand of service tax of Rs. 2,48,40,450/- on penalty deducted from the contractors for the period from April, 2015 to June, 2017 is not sustainable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities, viz. board or authority or body, which fulfilled the three requisite conditions, i.e. (a) having been established with 90% or more participation by way of equity or control by government, (b) set up by an Act of the parliament or a State Legislature, and (c) carrying out any function entrusted to a municipality under Article 243W of the Constitution. The scope of the exemption was severely restricted to only a few entities. 31. It is submitted that though the reason for re-defining "governmental authority" has not been made available, but the Hon'ble Court assumed that unworkability of the scheme for grant of exemption because of the restricted definition of "governmental authority" was the trigger and the scope of the exemption was expanded to cover a larger section of entities answering the definition of "governmental authority". An amendment by way of the clarification notification was, therefore, introduced which expanded the definition of "governmental authority" and widened the exemption base for service tax to be provided even to an authority or a board or any other body set up by an Act of Parliament or a State Legislature without the condition of having be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of service tax. The noticee never sought any clarification from the department or entered into any correspondence regarding taxibility or otherwise of the services rendered by them. The noticee did not respond despite several letters issued by the department for the documents/evidence during investigation. The noticee concealed/suppressed the taxable value for the period from April, 2015 to March, 2017 with malafide intent to evade the payment of service tax thereon by not filing statutory ST-3 return during the relevant period. 36. Learned ASG submits that if the 3rd party information had not been received by the department, the petitioner could have escaped the assessment and that would have resulted into non-payment of service tax. The petitioner has, thus, willfully suppressed the facts from the department and contravened the various provisions of the Act only with intent to evade payment of service tax for the relevant period. It is submitted that the extended period as envisaged under proviso to Section 73 (1) of the Finance Act, 1994 has been rightly invoked in the present case. 37. It is submitted that the contention of the petitioner that the services rendered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in detail. It is his submission that in this case no jurisdictional error has been committed by the respondent no. 3, hence the present writ application is not fit to be entertained. 40. In course of hearing of the writ application, learned ASG has placed before this Court a copy of the Form ST-3 which is a return under Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 filed by the petitioner for the Financial Year 2015-2016. It is pointed out that there is a column under the heading 'Computation of service tax (to be filled by a person liable to pay service tax/not to be filled by input service distributor)'. In column 'A11' questions have been asked regarding exemptions. In column 'A11.1' a question is asked "Has the assessee availed benefit of any exemption notification ('Y/N'). The answer given by the petitioner in this case is 'N'. It is submitted that the intention of the petitioner writs large from the answer (N) provided in column 'A11.1'. If it is the contention of the petitioner that the services rendered by the petitioner would be falling in the Mega Exemption Notification and it would be entitled for exemption by virtue of the same, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meaning of word "Government", "Local Authority" and "Governmental Authority". 43. The respondent no. 2 has considered the submissions of the petitioner that the BRPNNL being a governmental authority would be entitled for exemption under clause 12, 12A and 13 of the Mega Exemption Notification, as amended. The elaborate discussions on this topic may be found in the impugned order (Annexure-2). On going through the definition of the word "Government" within the meaning of clause 26A of Section 65B of the Finance Act, it is crystal clear that the BRPNNL not being a department of the State government and not created by a statute or required to keep its account in accordance with Article 150 of the Constitution of India would not be covered within the meaning of the word "Government". In the writ application, there is no averment that the BRPNNL is required to maintain its account in accordance with Article 150 of the Constitution of India. Article 150 of the Constitution of India reads as under:- "150. Form of Accounts of the Union and of the States -The Accounts of the Union and of the States shall be kept in such form as the President may, on the advice of the Comptroller a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court in the case of Shapoorji Pallonji (supra) has considered the amended definition of the word "governmental authority" and held that as per definition of "governmental authority" as amended on 30.01.2014, an authority or board or any other body set up by an Act of Parliament or State Legislature is a "governmental authority." The views expressed by the Hon'ble Division Bench of this Court has been affirmed by the Hon'ble Supreme Court in Commissioner, Customs, Central Excise and Service Tax, Patna VS. Shapoorji Pallonji and Company Private Limited and Others reported in (2024) 3 SCC 358. Paragraph '24' of the judgment of the Hon'ble Supreme Court in the said case is quoted hereunder for a ready reference:- "24. Having read the two definitions, first and foremost, it is necessary to ascertain the objective behind the Clarification Notification which amended the Exemption Notification and redefined "governmental authority". A bare perusal of the Exemption Notification reveals that the exemption therein was only extended to those entities viz. board or authority or body, which fulfilled the three requisite conditions i.e.: (a) having been established with 90% or more partici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection, the petitioner claimed that service tax is not payable by the petitioner or by the Indian Institute of Technology on the construction activity undertaken by the petitioner. 50. In the aforementioned backgrounds of the facts when it was pleaded on behalf of the CGST and CX that the Indian Institute of Technology would not fall within the meaning of the word "governmental authority", hence there would be no exemption on payment of service tax on the construction of the building of the Indian Institute of Technology, this Court had occasion to delve into the issue as to whether the Indian Institute of Technology would fall within the meaning of the word "governmental authority" as amended on 30th January, 2014. Whether the activity of construction undertaken by the petitioner in the said case would be exempted from payment of service tax or not by virtue of the Mega Exemption Notification was dependent upon the question as to whether the Indian Institute of Technology is a "governmental authority". In the said context, this Court held that the provisions contained in sub-clause (i) and sub-clause (ii) of clause 2 (s) are independent, dis-conjunctive provisions and the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work force of technical expertise providing technical assistance and other infrastructure for execution of the project is Centage, which is received against the execution of works and collection of tolls. (Reply to Q. 39 at the time of investigation). * BRPNNL (Noticee) received a fresh lease of life by way of fixation of "Centage" charge for every work which the corporation executed. "Centage" charges meant that BRPNNL (Noticee) got a fixed % age of money in form of service charge for the work done by them, (mentioned at Official website)." 53. The respondent no. 2 has found that the bridges and roads are constructed by the contractors and the construction cost of the bridges and roads are paid to the contractors. A fixed percentage of construction cost i.e. 'centage' are paid to the noticee for their service charge/technical assistance. 54. It has been further held that, likewise, tolls are collected by the vendors assigned by the noticee and a fixed percentage of tolls are paid to the noticee for their service charge/technical assistance. 55. In the aforementioned background, the real question which would be falling for consideration is as to whether the activities carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selection, an agreement is entered into with them to undertake the construction work. 57. A contention has been raised before this Court that under under Entry 12A, services provided to the government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure would be exempted from service tax and in terms of Entry No.13 the services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of (a) a road, bridge, tunnel or terminal for road transportation for use by general public would also be liable to be exempted from service tax. While there is no difficulty in appreciating the various entries of the Mega Exemption Notification, this Court finds that, on facts, the petitioner has not controverted the findings recorded by the respondent no. 2 in paragraph 5, 6 and 7 of the impugned order (Annexure-P2). 58. We further find from the Circular No. 192/02/2016-Service Tax dated 13.04.2016 which clarifies the issue of liability of service tax on the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has given reasons for arriving at such conclusion. Paragraph 17 (i) to 17 (vi) are reproduced hereunder for a ready reference:- "17. (i) I find that the SCN dated 28.12.2020 has been issued invoking extended period of limitation for demand under the proviso to Section 73 (1) of the Act. In other words, it can be said that charges of suppression of facts and contravening the various provisions of the Act with intent to evade Service Tax has been leveled against the Noticee. (ii) in this regard, I observe that the noticee have not assessed their due liability of Service Tax and did not deposit the same on its relevant dates. The matter came to the knowledge of the department only when investigation against the noticee had been initiated on the basis of 3rd party data shared by the Income Tax Department. On verification of the Service Tax portal, it has been found that the noticee have not filed ST-3 returns for the relevant period and therefore, taxable value had been intentionally suppressed and no Service Tax liability and payment has been reflected/paid therein. (iii) I further observe that the noticee have willfully suppressed the facts of their taxable value from the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of extended period wherein the Hon'ble Court has held that "in case the non-payment etc. of duty is intentional and by adopting any means as indicated in the proviso then the period of notice and a priory the period for which duty can be demanded gets extended to five years." Therefore, I am of the view that the extended period has been correctly invoked in the instant case." 62. In addition, we think it just and proper to reproduce the relevant paragraph and column of return in form ST-3, a copy of which has been made available by learned ASG, wherein the petitioner was required to answer as to whether he had availed the benefit of any exemption notification. In answer to this question, the petitioner has said 'N', meaning thereby that the petitioner had not taken benefit of any exemption notification. A11.1 Has the assessee availed benefit of any exemption Notification ('Y'/'N') N 63. Mr. D.V. Pathy, learned senior counsel when confronted with the answer present to the question no.11.1 in ST-3 could only say that it should have been disclosed in ST-3 Form. If this is the declaration of the petitioner in Form ST-3, the allegation of the revenue that the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and operational support to such group companies." 67. The assessing officer justified the extended period assessment and penalty but in Appeal the Commissioner, Bangalore, dropped the proposals in the SCN for the period April 2012 to March 2013 and April 2013 to September 2014. 68. Aggrieved by the Commissioner's order dropping the demand, the Revenue had filed an appeal challenging it, in which the assessee too filed it's cross objection. 69. CESTAT allowed the cross appeals and rejected the appeals of the Revenue. This order of CESTAT was challenged before the Hon'ble Supreme Court. 70. In the facts of the said case, the Hon'ble Supreme Court observed in paragraph '69' as under:- "69. The Revenue's argument that the assessee had indulged in wilful suppression, in this Court's considered view, is insubstantial. The view of a previous three-Judge ruling, in Cosmic Dye Chemical v. CCE (1995) 6 SCC 117 - in the context of Section 11-A of the Central Excise Act, 1944, which is in identical terms with Section 73 of the Finance Act, 1994 was that : (SCC p. 119, para 6) "6. Now so far as fraud and collusion are concerned, it is evident that the requisite intent i.e. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover was clubbed then it exceeded Rupees Five lakhs." 74. The Court found that law about excisability of exempted goods was settled by this Court in Wallace Flour Mills Co. Ltd. v. CCE (1989) 4 SCC 592: 1990 SCC (Tax)10. Till then conflicting decisions were rendered by different High Courts and Tribunals and it was not settled whether the turnover of assessable and exempted goods were liable to be clubbed for determining liability. Therefore, two questions arose, whether the appellant was bound in the state of uncertainty in law to include the turnover of the two items and if it failed to do so then it amounted to suppression of fact and second whether it was the duty of appellant to keep the Department informed about the turnover of the goods which were not liable to any duty. No rule could be pointed out requiring a manufacturer to disclose the turnover of exempted goods. It was held that even assuming it was, the appellant could not be held guilty of suppression when the law itself was not certain. 75. In the above facts, the Hon'ble Supreme Court observed in paragraph '4' as under:- "4. Section 11-A empowers the Department to reopen proceedings if the levy has been short- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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