CESTAT Kolkata Sets Aside Service Tax Demand On Railway Cleaning and Housekeeping Services

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata, has set aside the service tax demand raised against Khagaul Loco Labour Co-Operative Society after holding that the services provided by it to the Indian Railways were either not taxable, exempt from service tax, or part of the demand was barred by limitation.

The tribunal also rejected the Department's allegation that the society had collected and retained service tax from the Railways, finding no evidence to support the claim.

A coram of Judicial Member R. Muralidhar and Technical Member K. Anpazhakan allowed the society's appeal, set aside the impugned order, and, consequently, the demand for interest and penalties.

Khagaul Loco Labour Co-Operative Society provides mechanised and manual station cleaning, mechanised coach cleaning and on-board housekeeping services (OBHS) to the Indian Railways, including cleaning and disinfecting toilets and distributing bedrolls.

The dispute related to service tax demands raised on services rendered by the society to the Indian Railways for different periods, both before and after 1 July 2012.

For the period prior to 1 July 2012, the tribunal held that the cleaning services did not fall within the definition of "Cleaning Service" under Section 65(24b) of the Finance Act, 1994, as they were not rendered to a commercial concern.

"We find that the said activities would not fall under the category of 'Cleaning Service' as defined under Section 65(24b) of the Finance Act, 1994 and not chargeable to service tax, as the said services were not rendered to a Commercial Concern," the Tribunal said.

The tribunal relied on its earlier decision in Bindhya Bashini Traders v. Commissioner of CGST & Central Excise and held that, for the period after 1 July 2012, the services were exempt from service tax under Notification No. 25/2012-ST, rendering the demand unsustainable.

As regards the demand under the category of Business Auxiliary Service for the period prior to 1 July 2012, the tribunal held that it was also unsustainable because the Department had already issued an earlier show cause notice on the same issue. Since the Department was already aware of the appellant's activities, it could not invoke the extended period of limitation by alleging suppression of facts.

The tribunal further rejected the Department's allegation that the society had collected and retained ₹87.07 lakh from the Railways as service tax. It found that documentary evidence showed the amount formed part of a settlement arising out of disputes with the Railways and had subsequently been returned.

The tribunal noted that the dispute had earlier reached the Calcutta High Court, which had directed the parties to reconcile and settle the issue.

It also found that the society had duly paid the service tax actually collected from the Railways and had filed its ST-3 returns.

In the absence of any evidence showing that the society had retained service tax collected from the Railways, the tribunal held that the Department's allegation was without merit.

Accordingly, the tribunal allowed the appeal filed by Khagaul Loco Labour Co-Operative Society, set aside the order in question.

For Appellant: Advocate Aditya Dutta

For Respondent: Debapriya Sue, Authorized Representative