CESTAT Kolkata Sets Aside ₹70.45 Lakh Service Tax Demand On Government Grants To Indian Chamber Of Commerce

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata has set aside a ₹70.45 lakh Service Tax demand on grants received by the Indian Chamber of Commerce (ICC) from Central and State Governments.

The tribunal held that the grants were not consideration for providing a taxable service and were more in the nature of reimbursement.

The bench comprising Judicial Member R. Muralidhar and Technical Member K. Anpazhakan found no evidence that ICC provided “Business Exhibition Service” to the governments or raised invoices and received the grants as consideration. ICC was also required to account for how the grants were spent and submit utilisation certificates.

The case concerned grants received during 2013-14 and 2014-15. The show-cause notice demanded ₹70,45,319 in Service Tax on the grants and raised a separate demand of ₹7,60,232 under the Reverse Charge Mechanism (RCM).

ICC argued that the grants did not arise from a client-service provider relationship with the governments. It submitted that the amounts were meant to meet actual expenditure, contained no element of profit or reward, and any unspent amount had to be returned to the Ministries.

The chamber relied on APITCO Ltd. v. Commissioner of Service Tax, Hyderabad, which was affirmed by the Supreme Court. In that case, grants received by a project implementing agency for government welfare schemes were held not to be consideration for a service rendered to the government.

The Revenue relied on an August 16, 2010 Ministry of Finance circular concerning donations and grants received by charitable foundations providing free livelihood training. The tribunal noted that the circular dealt with commercial training and coaching, while ICC's demand was raised under “Business Exhibition Service”.

The tribunal also noted that the agreements with the governments required the ICC to submit utilisation certificates. It observed that ICC was responsible for properly spending the grants and getting their utilisation certified.

This, the tribunal held, distinguished the grants from consideration received in a normal client-service provider relationship. The amounts were “more in the nature of the reimbursement rather than being a 'consideration'”.

Relying on the Supreme Court's ruling in Union of India v. Intercontinental Consultants, the bench reiterated that Service Tax is concerned with consideration for a taxable service. It then found that the Revenue had not shown that ICC provided Business Exhibition Service to the governments or received the grants as consideration for such service.

“The Grant received can never be equated to the 'consideration' received for any service provided by the appellant.”

The tribunal also held that the ₹70.45 lakh demand was time-barred. ICC had accounted for the grants and corresponding expenditure in its books, and the Revenue had not established suppression with an intent to evade Service Tax.

As regards the separate ₹7.60 lakh RCM demand, ICC produced reconciliation statements claiming that it had already paid Service Tax in excess of the amount demanded. The tribunal noted that it could not individually verify those figures.

It nevertheless found the transaction revenue-neutral because Service Tax paid under RCM would be available to ICC as Cenvat credit. The relevant entries were also properly recorded in its books, leaving no basis to allege suppression.

Following its earlier rulings on revenue-neutral transactions, the tribunal set aside the ₹7.60 lakh RCM demand on limitation. The appeal was accordingly allowed, with ICC entitled to consequential relief, if any, in accordance with law. 

For Appellant (Indian Chamber of Commerce): Vikram Khaitan, Chartered Accountant.

For Revenue: S. Chitkara and P. Halder, Authorised Representatives. INDIAN CHAMBER OF COMMERCE