The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a contractor executing Government Primary Health Centre projects in Tripura was entitled to the benefit of the Service Tax exemption under Notification No. 25/2012-Service Tax.
The bench of R. Muralidhar (Judicial Member) ruled that the extended period of limitation could not be invoked where the assessee had acted under a bona fide belief regarding the applicability of the exemption and had disclosed all relevant facts to the Department.
The appeal arose from an Order-in-Appeal affirming the confirmation of Service Tax demand of ₹21.76 lakh, along with Swachh Bharat Cess of ₹74,079, Krishi Kalyan Cess of ₹52,321, interest, and penalties. The Department had alleged that the contractor had failed to pay Service Tax under the category of “Works Contract Service” in relation to construction activities carried out between October 2015 and March 2017.
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The appellant had undertaken construction of two Government Primary Health Centres along with staff quarters at Mungiakami and Uttar Maharanipur in Tripura under contracts awarded by the Public Works Department. The Department initiated proceedings after collecting payment-related information from the Executive Engineer and issued a show cause notice alleging that the construction services were taxable.
The contractor consistently maintained that the projects were exempt under Entry No. 12A of Notification No. 25/2012-Service Tax. Alternatively, the contractor also claimed exemption under Entry No. 13(b) of the same notification, contending that the construction of Government Primary Health Centres qualified for exemption as specified works executed for governmental purposes. The appellant had informed the Department about the exemption claim through multiple letters even before issuance of the show cause notice.
A significant issue before the Tribunal was whether the contract had been entered into before 1 March 2015, a condition necessary for availing exemption under Entry No. 12A.
Although the formal work order was issued on 23 March 2015, the Tribunal closely examined the tender documents and found that the tender notice had been issued on 16 January 2015, bids closed on 12 February 2015, and the appellant had submitted its quotation on 9 February 2015, treating the services as exempt from Service Tax. The Tribunal observed that the subsequent formal award merely completed the tender process and did not alter the fact that the contractual understanding originated before 1 March 2015.
The Bench noted that the Revenue had failed to produce any evidence showing that the quotation accepted by the Government differed from the quotation submitted before the cut-off date.
Accordingly, the Tribunal held that the contract should be regarded as having been entered into prior to 1 March 2015, thereby satisfying the conditions prescribed under Entry No. 12A of Notification No. 25/2012-Service Tax. The lower authorities, according to the Tribunal, had adopted an unduly narrow interpretation by relying solely on the formal date of execution of the contract.
The Tribunal also considered the appellant’s alternative plea under Entry No. 13(b). It noted that the contractor had repeatedly approached the Executive Engineer seeking confirmation regarding the applicability of the exemption but received no response.
While the Tribunal did not conclusively decide this alternative claim, it observed that these efforts clearly demonstrated the appellant’s genuine belief that the projects were exempt from Service Tax.
The Tribunal devoted considerable attention to the question of limitation.
It found that the contractor was a registered Service Tax assessee and had filed returns. During departmental enquiries in 2017, the appellant had expressly informed the authorities that no Service Tax had been paid because the services were believed to be exempt under Notification No. 25/2012-Service Tax. The Department was therefore fully aware of the appellant’s stand much before issuance of the show cause notice.
The Tribunal observed that there was no evidence whatsoever of suppression of facts, fraud, wilful misstatement or any deliberate intention to evade payment of tax.
Relying upon the Supreme Court decisions in Padmini Products v. CCE and Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, the Tribunal reiterated that a bona fide belief regarding taxability or exemption cannot justify invocation of the extended limitation period. Mere non-payment of tax, without deliberate suppression, is insufficient to sustain allegations of intent to evade duty.
Allowing the appeal, the Tribunal set aside the entire Service Tax demand both on merits and on the ground of limitation. It held that the contractor fulfilled the conditions for exemption under Entry No. 12A of Notification No. 25/2012-Service Tax and, independently, that the Department had failed to establish suppression necessary for invoking the extended period of limitation.
The Tribunal consequently granted the appellant all consequential reliefs available under law.
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