2025 (4) TMI 1337 - AT - Service Tax

Classifcation of services - to be classified under Management Maintenance or Repair Service Manpower Recruitment and Supply Agency Service or Erection Commissioning or Installation Service? - Extended period of limitation. Classification of service - HELD THAT - In view of the findings recorded by the Adjudicating Authority and the grounds of appeal taken by the appellant the Commissioner (Appeals) was required to examine whether the service in question would be covered under the category of Management Maintenance or Repair Service or not. On the contrary the learned Commissioner erroneously formulated the question whether the work done of labour supply for ARC street light maintenance under Work Orders dated 3.8.2005 and 13.02.2007 are covered under the Management Maintenance or Repair or Manpower Recruitment Supply Agency services. The question formulated and the findings recorded by the Appellate Authority are therefore erroneous as the scope of the appeal was limited to classification under Management Maintenance or Repair Service . The order of the Commissioner (Appeals) set aside to the extent it had classified the services rendered in relation to the Work Orders dated 3.8.2005 and 13.02.2007 within the purview of Manpower Recruitment and Supply Agency Service and remand the issue of classification to be reconsidered. The Commissioner (Appeals) may also examine the issue of taxability of the services rendered with reference to the Work Orders dated 20.08.2009 and 06.09.2010 with reference to the provisions of the Circular - The appellant is entitled to the benefit of cum-tax duty and the matter is remanded to the Commissioner (Appeals) for quantification of duty element granting the benefit of cum-tax duty. Extended period of limitation - HELD THAT - The law on the issue of invocation of extended period of limitation has been settled that something positive other than mere inaction or failure on the part of the assessee is proved. Conscious or deliberate withholding of information by the assessee is necessary to invoke the extended period of limitation. Without multiplying too many decisions we would refer to the case of Savira Industries versus Commissioner of Central Excise Chennai II 2015 (9) TMI 515 - CESTAT CHENNAI where it was held held that the assessee was under bonafide belief that mere cutting welding of steel pipes and sheets did not amount to manufacture as no new commodity emerges and there was no marketability and therefore would attract excise duty. In the circumstances the demand was held to be hit by limitation - the invocation of the extended period in the present case is not justified in the absence of any strong allegation or positive act pointing towards fraud collusion or any wilful mis-statement or suppression of facts with intent to evade payment of duty. In view thereof extended period is not invokable and no penalty is imposable on the appellant. Conclusion - Appeal remanded to the Commissioner (Appeals) to re-consider the issues as follows - 1) Whether the services rendered in respect of Work Orders dated 3.8.2005 and 13.02.2007 are classifiable under Management Maintenance or Repair Service as defined under Section 65(64) of the Act. 2) Whether the services with respect to Work Order dated 20.08.2009 and 06.09.2010 are classifiable under Erection Commissioning or Installation Service as defined under Section 65(39a) of the Act and whether they are entitled to the benefit under the Circular dated 24.05.2010. 3) Re-quantify the duty element after granting the benefit of cum-tax duty. Appeal allowed by way of remand.

Summary

The core legal questions considered in this appeal include: (i) the correct classification of services provided by the appellant under the Finance Act, 1994, specifically whether the services fall under 'Management, Maintenance or Repair Service', 'Manpower Recruitment and Supply Agency Service', or 'Erection, Commissioning or Installation Service'; (ii) the applicability of service tax on the services rendered, particularly in light of the nature of services as civic amenities; (iii) the entitlement to benefit of cum-tax duty where invoices state that rates include all taxes; (iv) the validity of the extended period of limitation invoked by the Department for service tax recovery; and (v) the procedural propriety of the show cause notice issued by the Department in a composite manner without detailed specification of services.

Regarding the classification of services, the legal framework revolves around the definitions under Section 65 of the Finance Act, 1994, which enumerates taxable services, and the relevant notifications and circulars issued by the Central Board of Excise and Customs (CBEC). The Adjudicating Authority initially classified the appellant's services related to street light maintenance under 'Management, Maintenance or Repair Service' [Section 65(64)], while other services were classified under 'Erection, Commissioning or Installation Service' [Section 65(39a)]. The Commissioner (Appeals), however, re-classified the street light maintenance services under 'Manpower Recruitment and Supply Agency Service' [Section 65(68)].

The Court observed that the Commissioner (Appeals) erred in altering the classification beyond the scope of the appeal, which was restricted to the classification under 'Management, Maintenance or Repair Service'. The Tribunal held that the question of whether the services fall under 'Management, Maintenance or Repair Service' or not should be reconsidered, setting aside the Commissioner's re-classification under 'Manpower Recruitment and Supply Agency Service'. This decision underscores the principle that an appellate authority must confine itself to the issues raised in the appeal and not expand or alter the scope arbitrarily.

For the services relating to installation of PCC poles and laying of cables under the Work Orders dated 20.08.2009 and 06.09.2010, the Adjudicating Authority classified them as taxable under 'Erection, Commissioning or Installation Service'. The appellant relied on CBEC Circular No. 332/5/2010-TRU dated 24.05.2010, which clarifies the taxability of various activities related to cable laying and installation. The Circular specifies that laying of cables under or alongside roads, and between grids or substations, is not a taxable service, whereas installation of transformers or street lights is taxable. The Court directed the Commissioner (Appeals) to re-examine the taxability of these services in light of the Circular, emphasizing adherence to authoritative clarifications issued by the tax authorities.

On the issue of cum-tax duty, the appellant claimed the benefit on the ground that the Work Orders and terms and conditions explicitly stated that the rates included all taxes. The Commissioner (Appeals) denied this benefit, reasoning that invoices must explicitly mention that the gross amount includes service tax to qualify for cum-tax duty benefit. The Tribunal disagreed, holding that the appellant is entitled to the benefit of cum-tax duty based on the contractual terms stating "Above rates are including all taxes". The matter was remanded for quantification of the duty element, affirming the principle that contractual terms and conditions can substantiate claims for cum-tax duty benefits even if invoices are not explicit.

The extended period of limitation for service tax recovery was invoked by the Department under the proviso to Section 73(1) of the Finance Act, 1994, alleging suppression or wilful mis-statement by the appellant. The appellant contended that they were under a bona fide belief that no service tax was payable, as the services were civic amenities and not for commercial or industrial use. The Tribunal reiterated settled legal principles that extended limitation applies only where there is positive evidence of fraud, collusion, or deliberate suppression of facts, not mere inaction or failure to pay tax. Citing precedent, the Tribunal held that bona fide belief is a recognized defense in taxation matters and that the Department failed to establish any conscious or deliberate withholding of information by the appellant. Furthermore, the Tribunal noted conflicting classifications by the Adjudicating Authority and Commissioner (Appeals), which negated any inference of wilful concealment. Consequently, the invocation of extended limitation and imposition of penalty were held unjustified.

Regarding the procedural objection to the composite show cause notice, the appellant argued that the notice lacked specificity about the services and relied on a prior Tribunal decision. The Court found no merit in this contention, emphasizing that the appellant's non-cooperation and failure to furnish documents compelled the Department to rely on information from Nagar Nigam. The Tribunal distinguished the cited precedent on the ground that in the present case, the appellant had not cooperated, thus validating the issuance of a composite show cause notice covering multiple service categories.

The Tribunal's significant holdings include the following verbatim reasoning: "The question formulated and the findings recorded by the Appellate Authority are, therefore, erroneous as the scope of the appeal was limited to classification under 'Management, Maintenance or Repair Service'. We, therefore, set aside the order of the Commissioner (Appeals) to the extent it had classified the services rendered in relation to the Work Orders dated 3.8.2005 and 13.02.2007 within the purview of 'Manpower Recruitment and Supply Agency Service' and remand the issue of classification to be reconsidered."

Another key principle established is that "the invocation of the extended period in the present case is not justified in the absence of any strong allegation or positive act, pointing towards fraud, collusion, or any wilful mis-statement or suppression of facts with intent to evade payment of duty." This affirms the protective scope of limitation laws against arbitrary or unjustified prolonged tax demands.

Finally, the Tribunal remanded the appeal to the Commissioner (Appeals) with specific directions to reconsider: (1) the classification of services under the Work Orders dated 3.8.2005 and 13.02.2007 under 'Management, Maintenance or Repair Service'; (2) the taxability of services under the Work Orders dated 20.08.2009 and 06.09.2010 in light of the CBEC Circular; and (3) the quantification of duty after granting the benefit of cum-tax duty. This remand underscores the necessity for detailed examination and correct application of law to facts, ensuring that tax demands are just and legally sustainable.