The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Regional Bench, has set aside a ₹56.71 lakh Service Tax demand and equivalent penalty, holding that manpower services provided for sanitation and cleaning purposes to the Noida Authority were covered by the exemption under Entry 25 of Notification No. 25/2012-Service Tax dated June 20, 2012.
The bench of P. K. Choudhary (Judicial Member) and K. Anpazhakan (Technical Member) has observed that the extended period of limitation could not be invoked where the assessee had regularly filed its Service Tax returns and had a bona fide belief that the exemption was available.
The dispute originated from a Show Cause Notice issued based on third-party information. The notice proposed a Service Tax demand of ₹3,42,33,449, along with interest and penalties under Sections 77(1)(d) and 78 of the Finance Act, 1994. It also proposed invoking the extended period of limitation.
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During adjudication, the Commissioner dropped a substantial portion of the proposed demand amounting to ₹2,85,62,093, relating to manpower supply services provided to body corporates where Service Tax was payable under the reverse charge mechanism.
However, a demand of ₹56,71,356 was confirmed in respect of services provided during 2015-16 and 2016-17. The confirmed demand consisted of ₹25,54,981 for services provided to the Project Engineer (Public Health), Noida Authority during 2015-16; ₹31,04,221 relating to the New Okhla Industrial Development Authority during 2016-17; and ₹12,154 concerning Express Housekeeper Ltd.
The Commissioner additionally imposed an equivalent penalty of ₹56,71,356 under Section 78 and a penalty of ₹10,000 under Section 77(1)(d) of the Finance Act, 1994.
The principal question before CESTAT was whether the services provided to the Noida Authority qualified for exemption under Entry 25 of Notification No. 25/2012.
The exemption entry covered services provided to the Government, a local authority or a governmental authority by way of specified activities, including water supply, public health, sanitation conservancy, solid waste management, and slum improvement and upgradation.
The assessee contended that the manpower supplied was specifically for sanitation conservancy, including sweeping and cleaning, and therefore fell squarely within the exemption.
It relied upon the work order issued by the Noida Authority, which required the deployment of sweepers for cleaning purposes. The assessee further argued that the Noida Authority, having been constituted under the Uttar Pradesh Industrial Area Development Act, 1976, qualified as a governmental authority under the notification.
The assessee also claimed the benefit of the small service provider exemption under Notification No. 33/2012 dated June 20, 2012 in respect of the remaining amount of ₹81,026.
The Commissioner had rejected the exemption essentially on the reasoning that the Noida Authority did not fall within the definition of either “Government” or “local authority.” The adjudicating authority noted that the Noida Authority had been constituted through a notification dated April 17, 1976, under Section 3 of the Uttar Pradesh Industrial Area Development Act.
CESTAT, however, found a significant gap in this reasoning.
The Tribunal observed that although the Commissioner had considered whether the Noida Authority was Government or a local authority, he had failed to examine whether the authority qualified as a “Governmental Authority” under the specific definition contained in Notification No. 25/2012.
The Tribunal examined Clause (s) of paragraph 2 of the notification, which defined a governmental authority as an authority, board or other body set up by an Act of Parliament or a State Legislature, or established by Government with the requisite participation by way of equity or control for carrying out functions entrusted to a municipality under Article 243W of the Constitution.
After examining the statutory framework, the Tribunal reached a categorical conclusion that Noida Authority falls within the definition of “Governmental Authority” for purposes of the exemption notification.
The Bench therefore held that the services provided by the assessee were eligible for exemption under Entry 25 of Notification No. 25/2012.
The Tribunal’s conclusion was also supported by the actual nature of the work. On examining the work order issued by the Noida Authority, the Bench found that the assessee had provided sweepers for cleaning purposes. CESTAT held that such services were covered by the expression “sanitation conservancy” used in the exemption notification.
The Tribunal consequently held that the exemption applied to the manpower services supplied for sanitation and cleaning activities.
Apart from the major demand relating to services supplied to the Noida Authority, the Tribunal separately considered the remaining amount of ₹81,026.
CESTAT held that the assessee was eligible for the small service provider exemption under Notification No. 33/2012 dated June 20, 2012, in respect of this amount as well.
Thus, the Tribunal found no sustainable basis for retaining the Service Tax demand confirmed by the Commissioner.
The Tribunal’s ruling was not confined to the substantive exemption issue. It also examined whether the Department could invoke the extended period of limitation.
The assessee argued that the disputed services related to the period April 2015 to March 2017, whereas the Show Cause Notice was issued only on April 27, 2021. It contended that the demand was therefore time-barred.
The Tribunal relied upon its earlier decision in G. D. Goenka Pvt. Ltd. where a similar limitation issue had been considered.
In the present case, CESTAT noted that the assessee had regularly filed its Service Tax returns and had bona fide believed that it was entitled to exemption under Entry 25 of Notification No. 25/2012.
The Tribunal held that the limitation issue was squarely covered by its earlier decision and concluded that the Department could not invoke the extended period for raising the Service Tax demand.
This finding provided an additional ground for setting aside the demand, independently reinforcing the assessee’s challenge to the adjudication order.
Once the Tribunal concluded that the Service Tax demand itself could not survive, the penalties imposed by the Commissioner also lost their legal foundation.
CESTAT specifically held that the penalties imposed under Section 78 and Section 77(1)(d) of the Finance Act, 1994, were liable to be set aside along with the demand.
The Tribunal accordingly allowed the appeal with consequential relief, if any, as per law.
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