The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has set aside a ₹7.24 crore service tax demand against a civil construction contractor after finding that the Department had raised several demands merely on assumptions.
It held that the Department could not raise these demands without identifying the contracts or transactions giving rise to the alleged tax liability.
The tribunal rejected demands raised by treating labour charges as payments for manpower supply, subcontract expenses as consideration for work contract services, and royalty deductions as payments for the right to use natural resources. It also granted exemptions for several construction activities, including flood protection works and construction of public roads.
A Bench of Judicial Member P.K. Choudhary and Technical Member K. Anpazhakan allowed appeals filed by G. S. Express Pvt. Ltd. and its director, Sandeep Anand, against an order passed by the Principal Commissioner, CGST and Central Excise, Lucknow.
The dispute concerned service tax demands for April 2016 to June 2017.
The Department had treated amounts recorded under labour charges as consideration for manpower supply services. Rejecting this approach, the tribunal observed:
“The onus to prove that the amount debited under the head labour charges is towards manpower supply services is on the department. Service Tax cannot be demanded on assumption.”
The tribunal noted that the company had explained that it hired labour on a daily basis for construction activities. However, the Department had not identified any contract under which manpower supply services were provided. It therefore set aside the demand raised on this assumption.
The tribunal also rejected the demand on subcontract expenses. The Department had assumed that subcontractors had provided works contract services but had not identified any contract establishing that the services fell under that category. It held that the burden of proving the nature of the services rested with the Department.
Another demand arose from deductions recorded as royalty by the Public Works Department, Avas Vikas Parishad and Irrigation Department. The Department had treated these amounts as consideration for the right to use natural resources.
The tribunal observed:
“Department has not been able to identify any particular transaction of right to use natural resources. The entire demand has been raised on the assumption that the amounts debited under the head royalty is towards right to use natural resources.”
It further noted that Avas Vikas Parishad was neither the Government nor a local authority. The amounts deducted by it could not, therefore, be treated as consideration for services provided by the Government.
On the construction activities, the tribunal allowed exemption under Notification No. 25/2012-ST for several works undertaken by the company.
It held that construction of a Pakka Ghat on the bank of the Yamuna to prevent erosion was related to construction or repair of a dam. The work qualified for exemption under Entry 12(d). Civil works relating to flood security and river diversion were also covered by the same entry.
Construction of a concrete pathway and parking area at the Gomti River Front in Lucknow was held exempt under Entry 13(a), which covers roads meant for use by the general public. The tribunal also extended this exemption to cobblestone road works, improvement and widening of roads in Lucknow, and approach roads to godowns of the Uttar Pradesh State Warehousing Corporation.
The tribunal further allowed exemption for interior decoration and renovation of the Kanpur Development Authority's office building under Entry 12A(a). It treated the activity as being in the nature of repair of a civil structure belonging to a governmental authority.
The demand relating to construction of Basti Medical College, however, was set aside on a different ground. The tribunal held that the exemption under Entry 12(a) had been withdrawn with effect from March 1, 2015.
It found that conflicting decisions on the service tax liability of subcontractors had created scope for a difference in interpretation. The dispute concerned whether a subcontractor was liable to pay service tax when the main contractor had already discharged the tax liability. The tribunal held that the extended period of limitation could not be invoked.
On limitation, the tribunal noted that the company had regularly filed its ST-3 returns. The relevant information was also available in its books of account.
Finding no element of fraud or suppression, it held that the extended period of limitation could not be invoked. The entire demand was beyond the normal limitation period.
The tribunal accordingly set aside the service tax demand of ₹7,24,12,305, along with penalties imposed on the company under Sections 77 and 78 of the Finance Act, 1994. It also set aside the ₹1 lakh penalty imposed on director Sandeep Anand under Section 78A.
Both appeals were allowed with consequential relief, as per law.
For Appellant: Kapil Vaish, Advocate
For Respondent(s): Jaishankar Prakash Upadhyay, Authorised Representative