Taxability of E-Seva Services under Business Support Services; CESTAT Rules Services Not Taxable as Government Functions [Read Order]

The Mumbai Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT)ruled that the E-Seva services provided by CMS Computers Ltd. under contracts with various state governments were not taxable under "Business Support Services."

CMS Computers Ltd..appellant-assessee, filed an appeal against the order dated 31.12.2018, which confirmed a service tax demand of Rs. 24.51 crore and imposed penalties.The assessee had agreements with several State Governments and bodies in seven states, including Andhra Pradesh, Karnataka, and Maharashtra, to provide E-Seva services. These services included bill payments, issuing certificates, and handling applications for water connections, traffic fines, and passport forms.

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The assessee provided hardware, software, and networking for e-governance services between 2003 and 2012, helping with tasks like bill payments and issuing licenses. They argued that these services were part of government functions, not business, and were not for profit.

Between 2011 and 2014, the revenue department issued show-cause notices saying the appellant hadn't paid service tax, first classifying the services under "Business Auxiliary Services" and later under "Business Support Services." The assessee pointed out the confusion in the classification and emphasized the services were for public administration.

On 31.12.2018, the Commissioner confirmed a service tax demand of Rs. 24.51 crore with interest and penalties. The Commissioner ruled that the appellant’s services were "Business Support Services" and remained taxable even after the negative list came into effect on 01.07.2012.

The two member bench comprising Ajay Sharma(Judicial Member) and Anil.G.Shakkarwar(Technical Member) reviewed the case with the Chartered Accountant for the appellant and the Special Counsel for the Revenue. The appeal involved three services, and the tribunal decided on each one separately before addressing the common issues of the extended period of limitation and penalties.

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For the E-Governance services mentioned in the show cause notices from 2011 to 2014, the Tribunal explained that while E-Governance was not specifically defined in the Finance Act, it referred to using technology to improve government services. The assessee had agreements with several state governments, including Madhya Pradesh and Rajasthan, to provide E-Governance services like bill payments, certificate issuance, and application submissions.

These projects were part of initiatives such as ‘e-seva,’ ‘e-mitra,’ and ‘e-setu,’ aimed at making government services accessible to citizens. The assessee helped set up infrastructure and run these service centers.

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The Revenue argued that these services should be taxed under “Support Service of Business or Commerce” as per Section 65(104c) of the Act.

The “Support Services of Business or Commerce” was introduced on 1st May 2006 under the Finance Act, covering services like customer evaluation, telemarketing, order processing, and accounting.

The assessee argued they did not provide services to end users or have any tripartite agreement. They claimed the service tax demand after July 2012 was invalid as it was not mentioned in the show cause notices.

The department alleged the assessee collected but didn’t pay service tax, but the assessee denied this, stating the services were for government welfare and not for profit. They also argued that the department did not separate sovereign and non-sovereign services.

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The adjudicating authority had ruled the services were taxable under “support services of business or commerce,” but the assessee disputed this, noting government services are not taxable. Tribunal rulings supported this view, confirming that services to government for statutory functions aren’t taxable.

The appellate tribunal also found the service tax demand was time-barred, as the department had known about the services since 2003. The demand was set aside on both merits and limitation grounds, with no penalty or interest imposed.

To Read the full text of the Order CLICK HERE

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