CESTAT Upholds Service Tax Exemption for PGCIL Projects; Department's Appeal Beyond SCN Dismissed [Read Order]

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the service tax exemption for M/s Power Grid Corporation of India Ltd. (PGCIL) projects and noted that the ground raised by the department was beyond the show cause notice (SCN).

In this case, the department is on appeal. The assessee respondent was engaged in providing construction services for constructing commercial/industrial buildings or civil structures, providing works contract services, supply of tangible goods services, etc.

By going through the assessee’s records, it was found that the appellant has neither paid the service tax nor filed ST-3 returns. However, the appellant had prepared a reconciliation chart for the period 2010-2011 to 2013-2014 showing the exempted amount but without any documentary evidence.

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By noting the discrepancies, a show cause notice was issued to the assessee to recover service tax amounting to Rs. 5.82 crores along with the proportionate interest. Both show cause notices were decided through Order No. 96/2016-2017 dated 21.06.2017. As per the order, a demand of Rs. 1,99,080 (out of Rs. 5.82 crore) and Rs. 9,94,450 (out of Rs. 53.08 lakh) was confirmed, along with interest and penalties. The Committee of Commissioners later reviewed this order on 05.12.2017.

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So one of the demands that were dropped by the adjudicating authority was with regard to the service tax demanded with respect to projects executed for Power Grid Corporation of India Ltd. (PGCIL).

The department challenged the dropped demand, claiming that services provided to M/s PGCIL and the Municipal Corporation of Delhi (MCD) were for commercial construction and not exempt. They argued the activity was site preparation, not infrastructure for electricity transmission. However, the show cause notices did not allege site preparation services for any clients, including M/s PGCIL, MCD, or M/s VSK Infrastructure. Therefore, this new ground is beyond the scope of the show cause notice and cannot be considered at the appeal stage.

The departmental representative argued that the adjudicating authority erred in dropping the demand for services provided by the noticee to M/s PGCIL and M/s VSK Infrastructure Pvt. Ltd. before 01.07.2012, which pertained to site preparation activities during 2010-11 and 2011-12, as detailed in the show cause notice dated 15.10.2015.

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The tribunal observed that the adjudicating authority had rightly relied on Notification No. 11/2010-ST dated 27.02.2010, which states that service provided in relation to transmission of electricity stands exempted from the whole of the service tax.

The bench noted that there was no evidence brought by the department to prove that the service provided by the appellant is not for electricity transmission infrastructure.

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The CESTAT, comprising Dr Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member), partly allowed the department’s appeal.

To Read the full text of the Order CLICK HERE

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