CESTAT Kolkata Sets Aside ₹14.59 Crore Service Tax Demand Against Bihar State Sugar Corporation

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand of ₹14.59 crore against Bihar State Sugar Corporation Limited.

It held that a show cause notice issued before the insertion of Section 73(2A) of the Finance Act, 1994 could not sustain a demand for the normal period after the extended limitation period was found inapplicable.

“Accordingly, we hold that in the present case, the demand even for the normal period does not sustain,” the tribunal held.

A bench of Judicial Member R. Muralidhar and Technical Member Rajeev Tandon allowed the appeal and granted consequential relief.

The dispute concerned closed sugar factories owned by Bihar State Sugar Corporation Limited, a Bihar government-owned company. The corporation had leased the factories to HPCL, Tirhut Industries and Indian Potash Limited.

The tax department treated the transactions as taxable renting of immovable property service and issued a show cause notice in October 2012 demanding service tax of ₹14.59 crore along with interest and penalties.

Before the tribunal, the corporation argued that the levy on renting of immovable property remained under litigation during the relevant period. It also contended that there was no suppression of facts or intent to evade tax.

The Revenue argued that the lease agreements covered entire factory premises, including plant, godowns and land, and therefore attracted service tax.

The tribunal rejected the corporation's challenge on merits. It held that the factory premises had been leased out as a whole and that public sector undertakings were not exempt from service tax merely because they were government-owned entities.

The tribunal, however, accepted the limitation plea. It noted that the levy of service tax on renting of immovable property remained under challenge before the Delhi High Court during the entire period in dispute. The issue attained finality only in September 2011, after the High Court upheld the retrospective amendment introduced by Parliament.

“In such a case, suppression with an willful intent to evade Service Tax cannot be fastened on the appellant,” the tribunal observed.

The bench also noted that the corporation had not collected service tax from the lessees. It further observed that, being a public sector undertaking, it could not be said to have intended to evade payment of service tax.

“we hold that the extended period provisions could not have been invoked in this case,” the tribunal held.

The tribunal relied on the Calcutta High Court's decision in Infinity Infotech Parks Ltd. v. Union of India and the Chandigarh Bench's ruling in Onkar Associates.

It noted that the show cause notice had been issued on October 9, 2012, before Section 73(2A) was inserted into the Finance Act, 1994. In those circumstances, once the extended period failed, the demand could not survive even for the normal period.

The tribunal consequently set aside the confirmed demand and allowed the appeal with consequential relief.