2017 (3) TMI 615 - AT - Service Tax

Liability of tax - cleaning service rendered to railways, diesel locomotives, railway station premises, general manager s office, Airport Authority of India and certain colleges and schools - whether these organizations are commercial organizations or not so as to attract levy of service tax? - Held that - to decide the nature of building, whether commercial / industrial, it is necessarily, the nature and the functions of the occupant is examined - railways or airport authority as non commercial organizations only on the ground that they are public utility organizations has no legal basis. Incidentally, it may be noted that the freight revenue of railways is more than double of the activity of passenger revenue. It only shows that substantial railways is in commercial freight transport. Even, with reference to the status of the railway stations, the same cannot be considered as non commercial building or premises. Regarding ordinance factory - Held that - the definition covers industrial building and premises thereof. Ordnance factory premises are covered by industrial building. Even otherwise clause (ii) of the definition clearly mentions factory as one of the premises covered for tax liability. The factory in the present case is not in relation to agriculture, horticulture, animal husbandry or for dairying. As such in the absence of any exclusion from the statutory definition, the appellants are liable to service tax on this account. With reference to cleaning activity of circuit house, college, hospital and school premises, we find these are not covered by the tax entry either as commercial or industrial building or as a factory building and machinery, tank or reservoir of commercial and industrial building and premises thereof. Extended period of limitation - Held that - The conduct of the appellant regarding the disclosure of details referring to the earlier meetings with the jurisdictional officers brings out the fact that allegation of suppression or willful misstatement cannot be sustained in this case against the appellant - the appellant specifically intimated regarding their belief on non-liability of tax because of the services being rendered to Government and other non-commercial organizations - extended period not invokable. Appeal disposed off - decided partly in favor of appellant.

Issues Involved:
1. Determination of the nature of buildings/premises for service tax liability under 'cleaning activity'.
2. Classification of railways, airport authority, and ordnance factory as commercial or non-commercial entities.
3. Applicability of service tax on cleaning activities in educational institutions and public utility premises.
4. Legitimacy of invoking the extended period for demand and imposition of penalties.

Issue-wise Detailed Analysis:

1. Determination of the Nature of Buildings/Premises for Service Tax Liability:
The statutory definition of 'cleaning activity' under the Finance Act, 1994, covers cleaning services of "commercial or industrial buildings and premises thereof." The appellant argued that the nature of the building or premises, not the status of the service recipient, should determine tax liability. However, the Tribunal noted that to decide the nature of the building, the nature and functions of the occupant must be examined. The Tribunal rejected the appellant's argument that public utilities should automatically be considered non-commercial, finding no legal or logical basis for such a conclusion.

2. Classification of Railways, Airport Authority, and Ordnance Factory:
The appellant contended that railways and airports, being public utilities, should not be considered commercial entities. The Tribunal disagreed, noting that the railways and airport authority are subjected to service tax under various categories and that being a public utility does not provide immunity from service tax. The Tribunal emphasized that railways, with substantial revenue from freight transport, operate on a commercial basis. Regarding the ordnance factory, the Tribunal found it to be an industrial building, thus liable for service tax under 'cleaning activity.'

3. Applicability of Service Tax on Cleaning Activities in Educational Institutions and Public Utility Premises:
The appellant argued that cleaning services provided to educational institutions and certain public utility premises should not be taxed. The Tribunal agreed, noting that these premises do not fall under the definition of commercial or industrial buildings. The Tribunal found no justification to confirm the service tax liability on these activities, as the department did not provide supporting evidence to show that these premises are covered by the tax entry.

4. Legitimacy of Invoking the Extended Period for Demand and Imposition of Penalties:
The appellant contested the extended period for demand, stating they had informed the department about their activities and tax treatment in 2007. The Tribunal found no evidence of suppression or willful misstatement by the appellant. The Tribunal noted that the department did not follow up on the appellant's intimation, and the demand was issued almost three years later. The Tribunal concluded that the extended period for demand and the penalties imposed were not justified. Consequently, the service tax liability should be restricted to the normal period of demand, and the penalties were set aside.

Conclusion:
The Tribunal partially allowed the appeal, holding the appellant liable for service tax on cleaning activities related to railways, airport authority, and ordnance factory but not on educational institutions and certain public utility premises. The demand for the extended period and the penalties were found to be unsustainable.

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