CESTAT Sets aside Service Tax Demand on Contractor, Citing 'Bona Fide Belief' to Bar Extended Period [Read Order]

The Chandigarh bench of the Customs, Exciseand Service Tax Appellate Tribunal (CESTAT) allowed an appeal, holding that the invocation of the extended period of limitation was not justified as the appellant acted under a 'bona fide belief' of non-liability.

Gurmail Singh, a small-time contractor, filed the appeal against an order that had confirmed a service tax demand for the period prior to 01.07.2012. The demand originated from a Show Cause Notice dated 20.10.2015 for services provided to Haryana State Warehousing Corporation (HSWC) from 2008-09 to 2014-15. The appellant had not registered for service tax or paid the tax.

The Commissioner had dropped the demand for the post-01.07.2012 period due to an exemption but confirmed a demand of Rs. 20,46,409/- for the earlier period under the Works Contract Service. The core issues were whether the construction services provided to HSWC were exempt from service tax and, more critically, whether the Revenue was correct in invoking the extended period of limitation to confirm the demand.

Counsel for the appellant argued that the services were provided to HSWC, a charitable organization engaged in non-commercial activities, and were therefore exempt. He further contended that there was no suppression of facts and that the appellant had a 'bona fide belief' in non-taxability, based on HSWC's charitable status and communications, which should bar the invocation of the extended period. He relied on the Supreme Court's decision in Chemphar Drugs Limited.

The Department's representative supported the lower order, arguing that HSWC engages in commercial activities and that the demand was correctly confirmed under 'Works Contract Service'. He contended that the extended period was justified because the appellant failed to register, file returns, or cooperate with the department's investigation despite multiple summonses, relying on the decision in *ICICI Econet Internet & Technology Fund*.

The CESTAT bench, comprising Mr. S. S. Garg (Judicial Member) and Mr. P. Anjani Kumar (Technical Member), sided with the appellant on the issue of limitation. The Tribunal held that the appellant, a small contractor, could not be compared to a large corporate entity and that the communication from HSWC created a 'bona fide belief' regarding taxability. It rejected the Revenue's argument that the appellant's non-cooperation justified the delay, stating the department could have used its own powers to obtain information.

While the Tribunal noted that the appellant's arguments on the merits of the exemption were weak, it held that since the entire demand was for the extended period and the invocation of the extended period was not sustainable, the appeal could be allowed on this ground alone. The CESTAT set aside the service tax demand. The appeal was allowed on the ground of limitation.

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