The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, has held that service tax collected from clients and already deposited cannot be excluded merely because the demand for the extended period is set aside. Partly allowing an appeal concerning commercial training or coaching services provided to Bruhat Bangalore Mahanagar Palike (BBMP), the tribunal upheld ₹46.94 lakh already collected and paid, while restricting the remaining demand to the normal limitation period.
The bench of P. A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) sustained the tax liability on merits but set aside the demand raised by invoking the extended period of limitation and the penalties. It also clarified that the department could recover service tax attributable to periods beyond the normal limitation period if the company received those amounts from BBMP pursuant to the Karnataka High Court’s directions.
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The appellant/assessee provided services classified under “Commercial Training or Coaching Services.” It had not discharged service tax on services supplied to BBMP, claiming that those services were exempt.
Following a show-cause notice, the Commissioner of Service Tax, Bangalore, confirmed a demand of ₹66,75,842 for the period from April 1, 2006, to September 30, 2010, through an order dated February 3, 2012.
Of that amount, ₹46,94,388 had already been paid by the company and was appropriated in the adjudication order. The Commissioner also demanded applicable interest under Section 75 of the Finance Act, 1994, imposed penalties under Sections 76 and 77, and imposed a penalty equal to the tax amount under Section 78.
The company challenged the order before CESTAT.
The appellant-company relied on the tribunal’s decisions in Systel Infos and Synergy Computer Education. He submitted that, in similar disputes, the tax liability had been upheld on merits but the demand had been restricted to the normal limitation period.
The company argued that it had disclosed the services as exempt in its ST-3 returns. According to its counsel, the dispute concerned interpretation of the exemption, and therefore no suppression could be alleged.
It also challenged the computation of taxable value, contending that the department had adopted a hypothetical figure instead of relying on the documents produced. The company sought redetermination of the taxable value based on the consideration received during the disputed period.
The department submitted that the Karnataka High Court had upheld the service tax demand in the cases relied upon by the company.
The department also argued that the ST-3 returns had been filed belatedly and that the demand should be considered with reference to the dates on which those returns were filed. On that basis, it sought confirmation of the demand for April 2008 to September 2010.
The department stressed that ₹46,94,388 had been collected from clients and deposited by the company. It argued that the adjudication order should be upheld to that extent.
The tribunal identified the principal issues as whether the services provided to BBMP attracted service tax and whether the extended limitation period could be invoked.
It relied on its decision in Systel Infos, Final Order No. 20883/2025 dated May 29, 2025, which involved an identical set of facts and had followed the ruling in Synergy Computer Education.
In the earlier ruling, the tribunal had set aside the demand and interest for the extended period, removed penalties under Sections 76 and 78, and directed computation of the demand for the normal period. It had also required amounts already paid to be considered when quantifying the liability.
Following that reasoning, CESTAT set aside the extended-period demand and penalties in the present appeal. However, it expressly sustained the service tax liability on merits.
The tribunal noted that, out of the total demand of ₹66,75,842, the company had admittedly collected ₹46,94,388 from clients and paid it to the department.
It held that there was no dispute regarding that portion of the demand and upheld it.
For the remaining amount, the tribunal restricted the demand to the normal limitation period. It further directed that any portion of the ₹46,94,388 already paid that related to the normal period must be excluded when confirming the remaining liability, thereby avoiding recovery of the same amount twice.
The order therefore did not cancel the entire demand or grant exemption to the services. Its relief concerned the extended limitation period and penalties, while preserving the admitted amount already collected and deposited.
The tribunal also considered the Karnataka High Court’s disposal of Writ Petition. The High Court had upheld the service tax demand and directed the corporation to pay the respective amounts, including service tax, to the service providers.
In view of those directions, CESTAT held that the department remained at liberty to collect service tax beyond the normal limitation period if the company received such tax amounts from the corporation.
CESTAT partly allowed the appeal, maintaining the taxability of the services and upholding ₹46,94,388 already collected and paid. The remaining demand was confined to the normal limitation period, with credit for payments attributable to that period.
Although the company had separately questioned the taxable-value calculation, the operative portion of the order did not expressly direct a fresh valuation exercise based on the documents it had produced.
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