2025 (1) TMI 735 - AT - Service Tax

Exemption from service tax - dropping of demand on the ground that the construction services provided to M/s PGCIL and to MCD both are the constructions meant for the commercial activity having commerce/profit element - Levy of service tax - hire charges on account of giving DG sets, motor graders, hydraulic, excavator etc. - charges received for constructing parking for MCD - site preparation services - New Grounds of appeal. Exemption from service tax - dropping of demand on the ground that the construction services provided to M/s PGCIL and to MCD both are the constructions meant for the commercial activity having commerce/profit element - HELD THAT - The demand is alleged to have wrongly been dropped with respect to M/s PGCIL. The activity is not for construction of infrastructure for electricity transmission lines but is actually a site preparation services. It is observed that in none of the show cause notices the respondent assessee is alleged to have rendered site preparation services to either to M/s PGCIL or to MCD or any other of its clients including M/s VSK Infrastructure. Thus, this ground of appeal raised by the department is beyond show cause notice hence cannot be dealt with at this stage of appeal. In the present case, respondent has provided services to M/s PGCIL a public sector undertaking which admittedly is engaged in setting up of transmission lines for transmission of electricity and the respondent has provided the infrastructure for the same. Any service provided in relation to transmission of electricity stands exempted from whole of the service tax liability in terms of Notification No. 11/2010-ST dated 27.02.2010. This notification has been relied upon by the original adjudicating authority while dropping the demand vis- -vis the demand of service tax vis- -vis projects executed for M/s PGCIL. There is no evidence produced by the department to prove that the service provided by appellant is not for electricity transmission infrastructure. Hence, there are no infirmity in the order to that extent. Levy of service tax - hire charges on account of giving DG sets, motor graders, hydraulic, excavator etc. - HELD THAT - Giving goods on Hire with effective control and possession thereof thus stands ousted from the scope of service tax leviability. Since there is no evidence produced by the department on record showing that right to possession and effective control of the equipments given on hire was retained by the respondent assessee, there are no infirmity in the order under challenge where the demand on hire charges has been dropped. Levy of service tax - charges received for constructing parking for MCD - HELD THAT - The services provided by the respondent are not the services provided to the governmental authority (MCD) but it was provided to a private company viz. M/s VSK Infrastructure Ltd. Otherwise, also the parking for MCD being a paid parking and as such the construction thereof was meant for making profit/revenue generation for the MCD. These facts are sufficient for us to hold that the mega exemption No. 25/2012-ST dated 20th Jun 2012 Entry No. 12(a) which exempts the activity in relation to construction provided to the Government or governmental authorities from service tax levy is not applicable to the respondent assessee - the MCD parkings are for generating Revenue hence construction thereof is the construction for a building meant for commerce. Resultantly, irrespective the MCD is a governmental authority meant to carry out the functions entrusted in Article 243(w) of Constitution of India but the parking being meant as a commercial project of MCD - the original adjudicating authority has wrongly relied upon the said notification while dropping the demand for the construction services being provided by the respondent to M/s VSK Infrastructure Ltd,/MCD. The impugned order in original is, therefore, set aside to this extent. Levy of service tax - site preparation services - New Grounds of appeal - HELD THAT - The original show cause notice did not allege site preparation services - the department could not introduce new grounds at the appeal stage. Conclusion - i) The respondent provided services to PGCIL for electricity transmission, which is exempt from service tax. ii) The demand for service tax on hire charges was correctly dropped. iii) The demand for service tax on construction services for MCD was reinstated. iv) The department could not introduce new grounds at the appeal stage. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the services provided to Power Grid Corporation of India Ltd. (PGCIL) and Municipal Corporation, Delhi (MCD) were exempt from service tax.
• Whether the hire charges for equipment provided by the respondent were subject to service tax.
• Whether the construction services provided to MCD, through a private contractor, were exempt from service tax.
• Whether the department could raise new grounds of appeal not included in the original show cause notice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption of Services to PGCIL and MCD

• Legal Framework and Precedents: The exemption of services related to electricity transmission is covered under Notification No. 11/2010-ST. The interpretation of whether a service is for commercial purposes is guided by Circular No. 80/10/2004-ST.
• Court's Interpretation and Reasoning: The court held that services provided to PGCIL were for setting up transmission infrastructure, which is exempt under the notification. No evidence was provided to prove that the services were for commercial purposes.
• Key Evidence and Findings: The respondent provided services to PGCIL for electricity transmission, which is exempt from service tax.
• Application of Law to Facts: The court applied the exemption notification, confirming that services related to electricity transmission are not taxable.
• Treatment of Competing Arguments: The department's argument that services were commercial was rejected due to lack of evidence.
• Conclusions: The demand for service tax on services provided to PGCIL was rightly dropped.

Issue 2: Taxability of Hire Charges

• Legal Framework and Precedents: The Constitution of India, Article 366(29A), defines "deemed sale," which includes the transfer of the right to use goods.
• Court's Interpretation and Reasoning: The court found that the hire agreements transferred possession and control to the client, classifying them as "deemed sales" rather than taxable services.
• Key Evidence and Findings: Contracts indicated that possession and control were transferred to clients.
• Application of Law to Facts: The court applied the constitutional definition of "deemed sale" to exclude hire charges from service tax.
• Treatment of Competing Arguments: The department failed to provide evidence that the respondent retained control over the equipment.
• Conclusions: The demand for service tax on hire charges was correctly dropped.

Issue 3: Construction Services for MCD

• Legal Framework and Precedents: Mega Exemption No. 25/2012-ST exempts services related to non-commercial government projects.
• Court's Interpretation and Reasoning: The court concluded that MCD parking is a commercial project, thus not exempt from service tax.
• Key Evidence and Findings: MCD parking was used for revenue generation, making it a commercial activity.
• Application of Law to Facts: The court applied the exemption criteria, finding the construction of parking to be commercial.
• Treatment of Competing Arguments: The court disagreed with the original adjudicating authority's reliance on the exemption, as the service was provided to a private contractor.
• Conclusions: The demand for service tax on construction services for MCD was reinstated.

Issue 4: Raising New Grounds of Appeal

• Legal Framework and Precedents: Legal principles prohibit raising new issues not included in the original show cause notice.
• Court's Interpretation and Reasoning: The court held that the department could not introduce new grounds at the appeal stage.
• Key Evidence and Findings: The original show cause notice did not allege "site preparation services."
• Application of Law to Facts: The court applied established legal principles to reject new grounds of appeal.
• Treatment of Competing Arguments: The court supported its decision with precedents from higher courts.
• Conclusions: New grounds of appeal were not entertained.

3. SIGNIFICANT HOLDINGS

• "The impugned order in original has adjudicated two show cause notices for two consecutive period but on the same allegations."
• The court upheld the exemption for services provided to PGCIL and hire charges, while reinstating the tax demand for MCD construction services.
• The court confirmed that new grounds of appeal cannot be raised at the appeal stage.
• The departmental appeal was partly allowed, setting aside the exemption for MCD construction services.