2024 (12) TMI 1243 - AT - Service Tax

Eligibility for exemption under S.No.12(d) of Notification 25/2012 for services provided by the sub-contractor - Entitlement to exemption when services are not provided directly to the Government but through a contractor - contractor had been awarded the work of constructing part of dam from M/s Transstroy JSC EC UES JV (hereinafter referred to as the Principal Contractor), who, in turn, was awarded the work by the Government of Andhra Pradesh for construction of dam - Extended period of limitation. Whether in the facts of the case, the services provided by the sub- contractor are in the nature of services eligible for exemption under S.No.12(d) of Notification 25/2012? - HELD THAT - When the expression used in the notification is by way of construction , whether it should mean actual construction of dam or it should mean any activity, howsoever remote it may be that ultimately lead into emergence of dam/ construction of dam. Another aspect, which is also crucial to understand is that similar activities of site formation, excavation, etc., were otherwise specifically covered under the specific classification of service prior to introduction of negative list based Service Tax in 2012. There was also an exemption available to such site formation services (vide Notification 17/2005-ST dt.07.06.2005) when provided in relation to, inter alia, construction of dam. However, after the introduction of Negative List, no such exemption is available for any site formation activities or services provided, which may be in relation to construction of dam. Therefore, going by the strict interpretation of notification, the activities of site formation, excavation, removal of soil boulders, etc., for dam spillway intake structure, etc., would not strictly be covered within the ambit of the expression by way of construction of dam. It is also a settled legal position in view of the judgment of Hon ble Supreme Court in the case of CC (Import), Mumbai Vs Dilip Kumar and Co Ors 2018 (7) TMI 1826 - SUPREME COURT that an exemption notification claimed must be strictly interpreted by way of plain reading of the expression and only when there is any ambiguity or possibility of two different interpretations, the benefit should go to the Revenue. In this case, in view of the fact that the site formation services were separately classifiable service prior to 2012 and were also otherwise exempted in relation to dam, etc., but no such exemption, per se, is available post 2012 and therefore, even by the plain reading it would be obvious that it is the construction of dam, as such, which is exempted and the activity of site formation cannot be brought in within the expression to consider this for exemption under S.No.12(d) of Notification 25/2012. Thus, even if there is some ambiguity the benefit will go to Revenue. Their reliance on the case of Prasad Babu Kalyanam Vs CCT, Visakhapatnam-GST 2024 (2) TMI 1308 - CESTAT HYDERABAD is also misplaced in the sense that there the issue of service was not involved. It was only relating to providing the service to the Government or Governmental Authority or otherwise when there was a sub- contractor and contractor relation and it was held that when the service is provided even indirectly, through the contractor, to the Governmental Authority, they will be eligible for exemption. Whereas, in the present case, when the activity itself is not covered within the ambit of the notification itself, they cannot, by virtue of their ultimate assertion that the Principal Contractor being eligible for exemption will also make them exempted, is not tenable. Therefore, on this count, the appellants are not eligible to claim exemption under S.No.12(d) of Notification 25/2012. If yes, then whether they are entitled for exemption under said notification when the same are not being provided to the Government directly but to the contractor, who, in turn, is providing the services to the principal contractor? - HELD THAT -As the activities undertaken by the appellant are not covered within the expression in Notification 25/2012 then whether they have been provided directly or indirectly would not have any significance. Secondly, when the Government intended to provide exemption to site formation and clearance, excavation, earth moving and demolition, which exactly are the kind of activities assigned to the appellant, when provided to any person by any other person in the course of construction of roads, dams, etc., there was a specific exemption available for the activities. Therefore, in the absence of any specific exemption available for the activities being performed by the appellant in the post Negative List regime, their activities cannot be considered for coverage under S.No.12(d) of Exemption Notification 25/2012. As far as the issue of contractor and sub-contractor is concerned, this Bench, in the case of Akash Engineering Services Vs CCT, Visakhapatnam-I 2023 (12) TMI 1305 - CESTAT HYDERABAD has dealt with the liability to pay Service Tax even when the main contractor has discharged the entire Service Tax on the project value and held, inter alia, that even sub-contractor is required to discharge the Service Tax irrespective of whether the main contractor has discharged the entire Service Tax or otherwise in respect of entire activities being provided by them and if the service provided by the sub-contractor otherwise amounts to provision of service. Whether the activities undertaken by the sub-contractor can be considered as works contract within the definition of WCS under Finance Act, 1994, in view of the factual matrix and material on record? - If the services are considered as WCS, then whether they will be entitled for exemption under S.No.29(h) of the said notification? - HELD THAT - Holistically evaluating the terms and conditions and the scope of work awarded to the appellant by the Contractor, the same would not be covered within the expression by way of construction of dam in the given factual matrix. It is also obvious that despite pleading that they have discharged VAT there is no evidence on record to suggest except for certain deductions made by the Contractor from their bill on account of VAT, to prove that there was transfer of property while executing the site formation activities. Apparently, it appears that they were getting certain reimbursements on account of VAT paid on lubricants, spares, explosives, etc., from the Contractor. However, even if the appellants are claiming that VAT has been paid on lubricants, spares, etc., the definition of WCS would entail that they were otherwise required to transfer the property in goods to the Contractor or recipient for it to be covered within the definition of WCS. Under the VAT laws, when there is a deemed sale, the VAT is leviable unless otherwise exempted. In this case, there is no evidence adduced by the appellant that they had discharged any VAT on the services/activities performed by them to their Contractor or it was otherwise exempted - The activities are more in the nature of service of site formation, etc., as held by the department. Therefore, on this count also, they would not be eligible for exemption under S.No.29(h) of the Notification 25/2012. Extended period of limitation - HELD THAT - In this case, there is no ground adduced by the Appellant that they had bonafide belief of their being not liable to Service Tax during the material time nor they have produced any evidence to suggest that they had sought any clarification from the department regarding leviability of Service Tax, etc., in respect of the activities being carried out by them. In fact, even at a subsequent stage, they have been taking multiple grounds to substantiate their claim that Service Tax is not leviable on these grounds. Therefore, the appellants were not sincere about finding out their tax liability and especially when they are engaged in work at such a large scale. Therefore, in the facts of the case, there are no reason to interfere with the observations of the Adjudicating Authority justifying the invocation of the extended period. There are no infirmity in the Order passed by the Adjudicating Authority and the same is sustained - appeal dismissed.

Summary

Issues Involved:

A. Eligibility for exemption under S.No.12(d) of Notification 25/2012 for services provided by the sub-contractor.
B. Entitlement to exemption when services are not provided directly to the Government but through a contractor.
C. Classification of activities as works contract (WCS) under the Finance Act, 1994.
D. Eligibility for exemption under S.No.29(h) of Notification 25/2012 if services are considered WCS.
E. Justification for invocation of the extended period for demand.

Detailed Analysis:

A. Eligibility for Exemption under S.No.12(d) of Notification 25/2012:

The appellants contended that their services were related to the construction of a dam, qualifying for exemption under S.No.12(d) of Notification 25/2012, which exempts services provided to the Government by way of construction of canals, dams, or other irrigation works. However, the adjudicating authority determined that the services provided were in the nature of site formation and excavation, which do not fall under the definition of "by way of construction" of a dam. The authority emphasized that such services were separately classified and exempted prior to 2012, but no such exemption exists post-2012. Thus, the appellant's activities were not eligible for exemption under S.No.12(d).

B. Entitlement to Exemption When Services Are Not Provided Directly to the Government:

The appellants argued that even if services were provided indirectly through a contractor, they should still qualify for exemption as the ultimate beneficiary is the Government. However, the tribunal held that since the activities undertaken by the appellant were not covered within the expression in Notification 25/2012, the manner of provision (direct or indirect) was irrelevant. The tribunal cited previous rulings that even if the main contractor is exempt, the sub-contractor must discharge service tax if their services do not qualify for exemption.

C. Classification of Activities as Works Contract (WCS):

The appellants claimed their activities constituted a works contract, which involves the transfer of property in goods liable to tax as a sale of goods. However, the tribunal found no evidence of such transfer in the appellant's activities, which primarily involved site preparation and excavation. The tribunal noted that the use of consumables, lubricants, and explosives did not amount to a transfer of property in goods. Consequently, the activities did not qualify as WCS under the Finance Act, 1994.

D. Eligibility for Exemption under S.No.29(h) of Notification 25/2012:

Since the activities did not qualify as WCS, the tribunal held that the appellant was not eligible for exemption under S.No.29(h) of Notification 25/2012. The tribunal emphasized that the nature of work performed did not involve the transfer of property in goods, which is a prerequisite for classification as WCS.

E. Justification for Invocation of the Extended Period:

The adjudicating authority invoked the extended period for demand, citing the appellant's suppression of facts regarding taxable services. The tribunal upheld this decision, noting that the appellants did not demonstrate a bona fide belief of non-liability to service tax nor sought clarification from the department. The tribunal found no reason to interfere with the authority's decision, given the lack of transparency and the scale of operations involved.

Conclusion:

The tribunal dismissed the appeal, affirming the adjudicating authority's order and rejecting the appellant's claims for exemption under both S.No.12(d) and S.No.29(h) of Notification 25/2012. The tribunal also upheld the invocation of the extended period for demand due to the appellant's lack of disclosure and failure to ascertain their tax liability.