The Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) dismissed the service tax demand of Rs. 28.39 crore due to insufficient evidence and limitations due to the time bar and also held that statutory authority’s sovereign functions are exempt from service tax.
In this case, the assessee, M/s Asansol Durgapur Development Authority ( ADDA ) is a statutory body and undertakes sovereign functions by collecting amounts on behalf of the West Bengal state government.
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Based on the figures derived from ADDA’s bank statements, the department issued a show cause notice in October 2012, claiming unpaid service tax.
ADDA contended that as a statutory authority, it performed sovereign functions, such as collecting licensing fees and development charges, on behalf of the West Bengal government and thus is exempt from service tax under the Finance Act, 1994.
The assessee’s counsel submitted that there was no motive on the part of the assessee to evade payment of service tax and the demand issued was time-barred.
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The CESTAT noted that the show cause notice did not contain certain details such as transaction specifics, dates, contracts, or even supporting documents like bank statements. The Tribunal also observed that the charges collected in pursuance of statutory functions are non-taxable. But it further noted that ADDA might still be liable for service tax on non-sovereign commercial activities like renting immovable property or leasing tangible goods.
The bench noted that it was difficult to establish that the ADDA had suppressed the facts to evade tax as it was a statutory authority. The bench, by relying on the figures taken for quantification of demand, has derived the income and expenditure statement and balance sheet of ADDA, which shows that all the details have been disclosed in the records.
The bench, comprising R. Muralidhar ( Judicial Member ) and Rajeev Tandon ( Technical Member ) noticed that the SCN issued on 12.10.2012 for 2007-2008 to 2011-12 was partly time-barred and held that the confirmed duty for the extended period is legally not sustainable.
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