No Service Tax payable on behalf of Service provided to Government Entities: CESTAT grants Relief [Read Order]

Concerning the case,the Ahmedabad bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT )  set aside the original authority order and granted relief to the assessee and ruled that no service tax is payable on behalf of service provided to government entities and held that the demand was wrongly raised under commercial and industrial construction services instead of works contract service, making it unsustainable.

Dhananjay G Kela, the assessee appellant, a proprietorship firm, between April 2007 and March 2011 had provided construction services to GETCO, a subsidiary of the Government of Gujarat and the services included  building roads, residential quarters, compound walls, and foundations, as well as laying cables and other related tasks as per contract entered between the assessee and GETCO .

The appellant did not pay any service tax, since GETCO is a government entity and believed that the services were not for any commercial or industrial purposes. The services were related to the transmission and distribution of electricity, making them exempt from service tax under Notification No. 45/2010-ST dated 20.07.2010.  The appellant had also provided construction services to the local Municipality i.e. Patan Municipality/ Mahanagar Palika during the aforementioned period and did not pay service tax for the same.

The assessee submitted financial statements for the financial year  2007-2008 to 2010-2011 along with the work orders received from GETCO as the letters were received seeking information  for the work carried on 19-03-2012. The assessee informed that a total of Rs. 6,54,193 in service tax and Rs. 6,032 in interest was paid.

A show cause notice was issued to the appellant without considering the non-taxability of the services and Rs. 78,09,657/-  was asked to be redeemed  with interest and penalty. On an appeal filed by the appellant,the Commissioner(Appeals) upheld the order of the original authority.

The Tribunal after  considering the submissions and records of the case found that the assessee had provided services with materials and paid VAT, therefore, these services fall under the works contract category. The demand cannot be upheld if the correct classification for service tax is not specified in the notice and the demand is proposed under the wrong head and in this case the demand was wrongly raised under commercial and industrial construction services instead of works contract service, making it unsustainable.

The two member bench of Ramesh Nair (Judicial Member) and C.L.Mahar (Technical Member)  held that the services were provided to a Government Authority and Public Sector Undertaking, no service tax liable to be paid and the extended period demand is also invalid as there was no intent to evade tax. Therefore,the demand for Service Tax, interest, and penalties is not upheld and to set aside the order and grant relief.

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