The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has quashed a service tax demand raised against a construction contractor after finding that the demand was issued merely on the basis of Form 26AS entries without examining the actual nature of services rendered.
The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the services in question were exempt from service tax and that the Show Cause Notice (SCN) had been issued beyond the permissible limitation period.
The appeal arose from an Order-in-Appeal dated December 2, 2019, which had confirmed a service tax demand against M/s Satya Buildcon for the period from April 1, 2012, to March 31, 2013. The department initiated proceedings after examining Form 26AS records and noticing that tax had been deducted at source (TDS) on receipts amounting to ₹60.26 lakh. Based on this information, the department alleged that the assessee had provided taxable services without discharging service tax liability and issued a Show Cause Notice on April 25, 2018 by invoking the extended period of limitation.
The appellant contended that it was engaged in construction, repair and maintenance activities relating primarily to public infrastructure projects for various government entities, including the Rajasthan Housing Board, Rajasthan State Agricultural Marketing Board and Rajasthan State Road Transport Corporation. The projects included construction and maintenance of roads, laying of GI water supply pipelines and development works connected with public infrastructure.
The assessee argued that road construction activities were specifically exempt from service tax. It relied upon Entry No. 13(a) of Notification No. 25/2012-ST dated June 20, 2012, which exempted services relating to construction of roads, bridges and tunnels. It was also submitted that even prior to July 1, 2012, such activities were excluded from the levy of service tax under the provisions of the Finance Act, 1994.
The appellant challenged the proceedings on limitation, arguing that the SCN issued in April 2018 for the period ending March 2013 was clearly beyond the statutory time limits and that the department was fully aware of the nature of its activities.
The Bench found merit in the appellant’s contentions. The Tribunal observed that the department had raised the demand solely on the basis of Form 26AS data without first determining the exact nature of the services rendered by the assessee.
After examining the facts, the Tribunal noted that the appellant had been engaged in repair and maintenance works and infrastructure-related construction activities for the State of Rajasthan. It held that such services were exempt from service tax both before and after July 1, 2012. Prior to that date, the activities were excluded under the Finance Act, 1994, and thereafter they were covered by the exemption under Notification No. 25/2012-ST.
The Tribunal categorically held that since the appellant was providing exempted services, no service tax liability could be fastened upon it.
Apart from the exemption issue, the Tribunal also accepted the limitation challenge. It observed that the Show Cause Notice had been issued more than five years after the relevant period and therefore the demand was unsustainable on limitation grounds as well.
The CESTAT set aside the entire service tax demand and quashed the impugned order. The appeal filed by the assessee was accordingly allowed.
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