The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Regional Bench, has held that erection services were not liable to service tax prior to 10 September 2004 and consequently set aside a service tax demand relating to erection work performed before that date.
The bench of Justice P.K. Choudhary (Judicial Member) and K. Anpazhakan (Technical Member) found that invocation of the extended period of limitation was unsustainable where the department had raised the issue on the basis of information available in its own records and there was no suppression of facts by the assessee.
The dispute arose from the appellant’s contract with Bharat Heavy Electricals Limited (BHEL) for erection of two 250 MW boilers at Parichha, Jhansi. The contract was awarded on 25 April 2003, and the appellant commenced erection work in April 2003.
Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine
During a departmental visit, the Central Excise Commissionerate, Kanpur noticed that the appellant had obtained registration under the category of “Commissioning and Installation” services only on 9 March 2005, despite having undertaken such activities for BHEL from an earlier period. The department alleged that the appellant had not discharged service tax on certain amounts received from BHEL for the period July 2003 to March 2004 and subsequently for 2004-05 and 2005-06.
According to the department, BHEL had paid approximately Rs. 1.72 crore to the appellant towards commissioning and installation charges for the period July 2003 to March 2004. The department computed service tax at 8% on the relevant amount and raised a demand of Rs. 13,81,054 for that period.
The department also compared the taxable values disclosed in the appellant’s ST-3 returns with the amounts reflected in Form 16A issued by BHEL. On this basis, it alleged that service tax amounting to Rs. 33,71,596, along with Education Cess of about Rs. 39,812, had not been paid on the differential receipts. The total alleged short payment was consequently quantified at Rs. 34,11,408.
A show cause notice dated 18 February 2008 was therefore issued demanding service tax of Rs. 34,11,408 along with interest and penalty. The adjudicating authority confirmed the demand and imposed an equivalent penalty. The Commissioner (Appeals) subsequently upheld the order, prompting the appellant to approach the CESTAT.
CA Sandeep Mukherjee on behalf of the appellant argued that the department had incorrectly treated the entire activity as taxable commissioning and installation service.
It was submitted that the appellant had actually commenced erection work in April 2003, whereas erection services were brought within the service tax net only with effect from 10 September 2004. Therefore, the receipts of approximately Rs. 1.72 crore relating to erection work undertaken during 2003-04 could not legally be subjected to service tax.
The appellant further relied upon Board Circular No. 80/10/2004-S.T. dated 17 September 2004 and Notification No. 25/2004-ST dated 10 September 2004. According to the appellant, these provisions made it clear that erection services were brought to tax along with commissioning and installation only from 10 September 2004.
Reliance was also placed on the Tribunal’s earlier decision in Power Best Electricals Limited v. Commissioner of Central Excise, Calicut, reported at 2008 (9) S.T.R. 497 (Tri.-Bang), wherein it had been held that erection services became taxable only from 10 September 2004.
The appellant additionally challenged the invocation of the extended period of limitation, contending that there had been no suppression of facts. It pointed out that the issue had been detected during audit on the basis of information already available with the department and that it had filed its service tax returns and undergone departmental audit.
The appellant also submitted that the short-paid service tax of Rs. 4,01,408 relating to 2004-05 and 2005-06 had already been discharged.
The department defended the impugned order and contended that the appellant had provided composite services involving erection, installation and commissioning. According to the department, the charges received from BHEL for these activities were liable to service tax.
The central issue before the Tribunal was therefore whether the amounts received for erection work undertaken before 10 September 2004 could be subjected to service tax and whether the extended period of limitation could validly be invoked in the circumstances of the case.
The Tribunal accepted the appellant’s contention that the erection activity undertaken before 10 September 2004 was not taxable.
It noted that the appellant had been awarded the contract for erection of two 250 MW boilers on 25 April 2003 and had commenced erection work in April 2003. Importantly, the Tribunal recorded that services rendered in connection with erection work were not liable to service tax until 10 September 2004.
The Tribunal relied upon Board Circular No. 80/10/2004-S.T. dated 17 September 2004, which clarified that erection services were to be taxed along with commissioning and installation from 10 September 2004.
It also considered Notification No. 25/2004-ST dated 10 September 2004, which specifically dealt with erection services provided by commissioning and installation agencies and exempted erection services received prior to 10 September 2004.
The Tribunal further relied on the earlier decision in Power Best Electricals Limited, which had held that erection services became taxable only from 10 September 2004. Following the circular, notification and precedent, the Bench concluded that the demand relating to approximately Rs. 1.72 crore received for erection services rendered before 10 September 2004 was legally unsustainable.
With respect to the remaining demand, the Tribunal noted that the appellant had already paid the short-paid service tax of Rs. 4,01,408 for 2004-05 and 2005-06.
The Tribunal therefore considered that there was no surviving substantive basis for sustaining the demand in the impugned order in light of the payment already made and the legal position concerning the earlier erection services.
The Tribunal also gave an important finding on limitation.
It observed that the issue had been raised by the department’s Audit Wing on the basis of information available in the department’s own records. The Tribunal specifically found that the appellant had not suppressed any information from the department.
Consequently, the Tribunal held that the demand raised by invoking the extended period of limitation was not sustainable.
Thus, the ruling was based on two independent grounds: first, the substantive tax demand relating to erection work undertaken before 10 September 2004 was legally unsustainable; and second, the extended period of limitation could not be invoked in the absence of suppression of facts.
Once the underlying service tax demand was found unsustainable, the Tribunal held that the consequential demand for interest and imposition of penalty could not survive.
The Bench categorically observed that since the service tax demand itself was not sustainable, there was no question of demanding interest or imposing penalty. Both were therefore set aside.
The CESTAT ultimately set aside the impugned Order-in-Appeal and allowed the appeal, granting consequential relief in accordance with law.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
