2025 (4) TMI 371 - AT - Service Tax

Recovery of service tax with interest and penalty - services provided by the appellant to Indian Railways and IIT Kanpur qualify as original works under the relevant service tax exemption notifications - partail reverse charge mechanism - HELD THAT - After having examined adjudicating authority has concluded that these pertain to the Original Works. Revenue in their appeal has made a sweeping statement without pointing out to a single order which were in relation to some other activities which is not in nature of original works in absence of anything specific there are no merits in the appeal filed by the revenue on this account. Further it is found that impugned order not only drops the demand for this reason only but in the impugned order has gone ahead to interpret the phrase original work used in the N/N. 25/2012-ST dated 20.06.2012. On the basis of his interpretation of the said phrase he has concluded that all these work orders would qualify for exemption under that notification. In their appeal revenue has not specified any reason to question the interpretation placed. In absence of any challenge to the interpretation placed in the impugned order to phrase original works the ground taken in the appeal is not sufficient to dislodge the findings recorded. In respect of the services provided to Madhyanchal Vidyut Vitran Nigam Ltd the demand has been confirmed after allowing the benefit of abatement. Appellant do not dispute the leviability of service tax submit that amount of service tax due has been paid by them by taking abatement as applicable. Also they claim that they are liable to pay only 50% of the service tax due in terms of Notification No 30/2012-ST dated 20.06.2012. The demand in respect of this needs to be worked out and adjusted against the amount already paid. For this limited purpose the matter needs to be remanded back to the Original Authority. The quantum of penalty if any imposable would be determined in case any amount of tax is due. Conclusion - The appellant s appeal is allowed regarding services to Railways and IIT Kanpur while the matter concerning Madhyanchal Vidyut Vitran Nigam Ltd. is remanded for recalculation. The revenue s appeal is dismissed. Appeal disposed off.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the services provided by the appellant to Indian Railways and IIT Kanpur qualify as "original works" under the relevant service tax exemption notifications, thus exempting them from service tax liability.
Whether the appellant is liable for service tax on services provided to Madhyanchal Vidyut Vitran Nigam Ltd. under the partial reverse charge mechanism.
The applicability of interest and penalties under Sections 75 and 78 of the Finance Act, 1994 for non-payment or short payment of service tax.
Whether the revenue's appeal challenging the classification and exemption of services provided to Railways as "original works" is valid.

ISSUE-WISE DETAILED ANALYSIS

1. Exemption for Services Provided to Indian Railways and IIT Kanpur

Relevant Legal Framework and Precedents: The appellant claimed exemption under Notification No. 25/2012-ST, which exempts services related to "original works" for Railways and governmental authorities. The definition of "original works" is derived from Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
Court's Interpretation and Reasoning: The Court found that the services provided to Railways, such as design, supply, erection, testing, and commissioning of traction substations, qualify as "original works" and are thus exempt. The Court relied on the definition of "original works" and the supporting evidence provided by the appellant, such as letters of acceptance from Railways.
Key Evidence and Findings: The appellant submitted letters of acceptance from Railways, confirming the nature of the work as original. The Court found these sufficient to establish the exemption claim.
Application of Law to Facts: The Court applied the definition of "original works" and found that the appellant's activities fell within this category, thus qualifying for exemption.
Treatment of Competing Arguments: The revenue argued that the work did not qualify as "original works" due to the nature of the modifications and maintenance involved. However, the Court disagreed, finding the appellant's evidence and interpretation of the notification persuasive.
Conclusions: The demand for service tax on services provided to Railways was quashed, affirming the exemption under the notification.

2. Liability for Services Provided to Madhyanchal Vidyut Vitran Nigam Ltd.

Relevant Legal Framework and Precedents: The appellant argued for a partial reverse charge mechanism under Notification No. 30/2012-ST, which stipulates that 50% of the service tax liability is on the service recipient.
Court's Interpretation and Reasoning: The Court acknowledged the independent liability of service providers and recipients under the partial reverse charge mechanism, affirming that the appellant's liability should be limited to 50% of the service tax due.
Key Evidence and Findings: The Court noted the appellant's compliance with the abatement rules and the partial reverse charge mechanism, requiring a recalculation of the tax due.
Application of Law to Facts: The Court applied the partial reverse charge mechanism to limit the appellant's liability, necessitating a remand to determine the exact amount due.
Treatment of Competing Arguments: The revenue's position on full liability was not supported by the notification's provisions, leading the Court to favor the appellant's interpretation.
Conclusions: The matter was remanded to the Original Authority for recalculating the tax liability under the partial reverse charge mechanism.

3. Interest and Penalties under Sections 75 and 78 of the Finance Act, 1994

Relevant Legal Framework and Precedents: Sections 75 and 78 of the Finance Act, 1994, govern interest on delayed tax payments and penalties for willful misstatements or suppression of facts.
Court's Interpretation and Reasoning: The Court upheld the imposition of interest under Section 75, noting that delayed payment of taxes inherently attracts interest. However, the penalty under Section 78 was contingent on recalculated tax liability.
Key Evidence and Findings: The Court found evidence of non-payment and misstatements in the appellant's tax returns, justifying the interest and potential penalties.
Application of Law to Facts: The Court applied the statutory provisions, affirming interest liability and remanding for penalty determination based on recalculated tax dues.
Treatment of Competing Arguments: The appellant's claims of compliance were insufficient against the evidence of misstatements and delayed payments.
Conclusions: Interest was upheld, and the penalty determination was remanded for recalculation of tax liability.

4. Revenue's Appeal on Classification and Exemption for Railways

Court's Interpretation and Reasoning: The Court found the revenue's appeal lacking specificity and merit, as it failed to challenge the interpretation of "original works" effectively.
Conclusions: The revenue's appeal was dismissed due to insufficient grounds to overturn the exemption findings for Railways.

SIGNIFICANT HOLDINGS

Core Principles Established: The judgment reinforced the interpretation of "original works" under service tax exemptions and clarified the application of the partial reverse charge mechanism.
Final Determinations: The appellant's appeal was allowed regarding services to Railways and IIT Kanpur, while the matter concerning Madhyanchal Vidyut Vitran Nigam Ltd. was remanded for recalculation. The revenue's appeal was dismissed.
Verbatim Quotes: "The work allotted to the party by Railways is squarely covered under the definition of 'Original Work' as defined above. Thus, the proposed liability in respect of Railways deserves to be quashed."

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