2024 (5) TMI 1278 - AT - Service Tax

Classification of services of civil construction for taxation - Demand of service tax on construction services provided to government entities - invocation of extended period of limitation for recovery of tax - HELD THAT - We find that as per the fact of the case the appellant have provided service along with the material and VAT has been paid. Accordingly, the services are correctly classifiable under works contract service. It is settled law that even though the activity of the assesse is taxable but if the assessee is not put to notice for demand of Service Tax specifying the correct classification, show cause notice proposing demand for under wrong head the demand cannot be sustained. Since, the issue involved is interpretation of classification of service and admittedly service work provided to the Government Authority and Public Sector undertaking, the appellant s bona fide belief that the activity is not liable to Service Tax cannot be doubted with. The service were provided to Government Agency the transaction cannot be hidden hence the suppression of fact with mala fide intention to evade payment of Service Tax does not exist in the present case. Accordingly, the demand for the extended period is also hit by limitation. Thus, the demand of Service Tax and consequential interest and penalties confirmed by the Adjudicating Authority will not sustain. Consequently, the impugned order was set aside, and the appeal was allowed

Summary

Issues involved: Classification of services for taxation, applicability of service tax on construction services provided to government entities, invocation of extended period of limitation for recovery of service tax.

Summary:
The case involved M/s. Dhananjay G. Kela, a firm providing construction services to government entities like GETCO and the local Municipality. The firm believed that as the services were not for commercial or industrial purposes, no service tax was payable. However, a Show Cause Notice was issued proposing recovery of service tax amounting to Rs. 78,09,657/- along with interest and penalty. The firm contested the allegations, stating that the services were not classifiable under 'Commercial or Industrial Construction Service' or 'Works Contract Service' due to the nature of the entities served.

The appellant argued that there was no suppression of facts or wilful misstatement, as they genuinely believed service tax was not applicable. They cited legal precedents to support their stance that the responsibility for proper assessment lies with the tax authorities, not the taxpayer. The appellant also contended that the services provided were correctly classifiable under works contract service, not commercial or industrial construction service, based on the nature of the services and VAT payment.

The Tribunal considered the submissions and records, concluding that the services were correctly classifiable under works contract service. As the demand was raised under the wrong category, the demand was deemed unsustainable. The Tribunal noted that the appellant's bona fide belief in non-liability for service tax, especially when serving government entities, indicated no mala fide intention to evade payment. Therefore, the demand for the extended period was also found to be hit by limitation.

Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief on 17.05.2024.