Service Tax Is Leviable On Repair Services Provided To Kolkata Metro: CESTAT New Delhi

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) on 26 February, held that repair and maintenance services rendered to the Kolkata Metro Railway are not eligible for tax exemption under the Mega Exemption Notification.

A Bench comprising Judicial Member Dr. Rachna Gupta, focussed on whether such services could be treated as exempt railway-related works and whether the Department was justified in invoking the extended period to confirm the service tax demand.

The Tribunal held:

"Since the appellant is proved to have been engaged in providing the taxable service of repair and maintenance that to Kolkata metro irrespective it was covered under railways or not but the activity which was eligible for the said exemption benefit i.e. a construction, erection, commissioning or installation is not rendered by the appellant. The activity of appellant i.e. repair and maintenance is not covered under the exempted entry."

The case arose from an audit of PPS International's records, during which the Department noticed that it had not paid service tax on services provided to Kolkata Metro for repair and maintenance work.

PPS International had claimed exemption of around Rs. 16 lakh under Notification No. 25/2012-ST, as amended by Notification No. 9/2016-ST, contending that Kolkata Metro formed part of Indian Railways and was therefore covered under Entry 14 of the Mega Exemption Notification.

A show cause notice was issued proposing recovery of service tax amounting to Rs. 1.68 lakh for the period October 2016 to June 2017, along with interest and penalties.

The demand was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals).

Before the Tribunal, the appellant argued that Kolkata Metro had been declared a zonal railway with effect from December 2010 and that the exemption under Entry 14(a) applied both before and after its amendment.

It also contended that the contract with Kolkata Metro was executed prior to 1 March 2016 and that the department had wrongly relied upon the explanation to the amended entry.

The Tribunal, however, found that the nature of service rendered by PPS International was clearly that of repair and maintenance, as evident from the contract documents, letters of acceptance and invoices, which specifically referred to repair of relays and maintenance work.

The Bench noted that the exemption is available only in case the service is by way of construction, erection, commissioning or installation that too of the original work. Apparently, the nature of service rendered by the appellant is that of repair and maintenance of the Kolkata Metro.

The Bench further held that even after the amendment, metro services were expressly excluded from the exemption, except in limited circumstances which required fulfilment of strict conditions, including payment of appropriate stamp duty prior to 1 March 2016, conditions which the appellant failed to prove.

The Bench observed:

"...though the contract between appellant and Kolkata metro was entered into before 01.03.2016 but there was no evidence of payment of appropriate stamp duty vis-à-vis said contract which was also the eligibility criteria for availment of said exemption."

Holding that PPS International was not entitled to the claimed exemption and that the service tax demand was rightly raised within the extended period, the Tribunal upheld the orders passed by the lower authorities.

It stated:

"...the services are being provided to Kokata metro. Metro has specifically been excluded from the purview of exemption available to Railways. There is no ambiguity in the language of amended entry no. 14. Notification of 2010 as relied upon by the appellants despite being prior in time finds no mention in the Notification No. 9/2016 which amended the entry no. 14. Hence it is held that the said notification also does not extend any benefit to the appellant."

Accordingly, the Tribunal dismissed the appeal and sustained the demand for service tax, along with interest and penalties.

For Appellant: Advocate, Akashdeep Singh

For Respondent: Authorized Representative, Rohit Issar