CESTAT Weekly Round-up

CESTAT Strikes Down Penalties u/s 78, Finds No Wilful Misstatement in Service Tax Lapses

M/s National Institute of Public Finance and Policy vsCommissioner of Central Excise & CGST- Delhi South

The Principal Bench of CESTAT, New Delhi, has ruled in favour of the National Institute of Public Finance and Policy (NIPFP) by setting aside penalties imposed for non-payment of service tax and ineligible Cenvat credit claims. The Tribunal noted that the discrepancies identified during a test-check audit—such as non-payment of service tax on certain income heads and Reverse Charge liabilities, along with wrongful credit availment—were inadvertent and promptly rectified. NIPFP had voluntarily deposited the full amount of tax and interest even before issuance of the show cause notice, demonstrating absence of any intention to evade.

The Bench observed that penalties under Section 78 of the Finance Act, 1994 and Rule 15(3) of the Cenvat Credit Rules, 2004 can be imposed only when fraud, collusion, or deliberate suppression of facts is established. Relying on Supreme Court judgments, it held that technical lapses or bona fide errors cannot attract penal consequences. Taking note that the appellant is a government-linked institution with no evidence of concealment, CESTAT concluded that the extended period and penalties were unjustified, and accordingly set aside the penalties while sustaining the tax and interest liabilities.

CESTAT Quashes Method Adopted for Refund Computation, Remands to Reassess Duty u/s 18(4) of Customs Act

Rungta Mines Ltd vs Commissioner of Customs Visakhapatnam -Customs

The Hyderabad Bench of CESTAT has ruled that export duty must be calculated solely on the basis of the final commercial invoice and Bank Realisation Certificate (BRC), rejecting the lower authorities’ reliance on CRCL moisture reports. The Tribunal held that once transaction value is accepted as genuine and fully realised, altering it during final assessment—particularly without following prescribed procedures or considering contractually recognised CIQ reports—is unjustified.

Observing that provisional assessment bonds do not imply acceptance of CRCL results, the Bench relied on prior rulings that mandate refund sanction based on final invoice values. It set aside the impugned orders and remanded the matter for fresh computation of refund and interest under Section 18(4) of the Customs Act, directing the Original Authority to complete the process within three months.

Black Tea Falls Within Agricultural Produce Definition: CESTAT Holds Service Tax on Export Brokerage Unsustainable

Glenworth Estate Ltd vs Commissioner of GST & Central Excise

The Chennai Bench of the CESTAT has held that black tea continues to retain its essential character as an agricultural produce, and therefore, commission paid to foreign agents for facilitating its export cannot be taxed under the Reverse Charge Mechanism. The dispute concerned the levy of service tax on export commission paid by Glenworth Estate Ltd., which the Department had treated as a taxable service under Section 65(44) read with Notification No. 30/2012. The appellant relied on CBEC Circular No. 143/12/2011-ST and the Tribunal’s earlier ruling in its own case, confirming that the processing of green tea into black tea does not alter its agricultural identity.

The Bench observed that agricultural produce-related services fall within the negative list under Section 66D(vii) of the Finance Act, 1994, and that the earlier CESTAT order remains binding and has not been set aside. Therefore, once black tea is accepted as agricultural produce, no service tax liability arises on the commission paid abroad. With the demand unsustainable on merits, the Tribunal also set aside interest and penalties, allowing the appeal with consequential relief.

Demand Under 'Construction of Complex' Invalid for Composite Contracts Prior to 2010: CESTAT Sets Aside Service Tax Demand

Dugar Housing vs Commissioner of GST and Central Excise

The Chennai Bench of CESTAT held that Dugar Housing, a residential developer, was not liable to pay service tax under “Construction of Complex Service” for the period 1 November 2005 to 31 March 2008, as developers executing composite housing projects were brought into the tax net only from 1 July 2010. The Tribunal found that the Commissioner (Appeals) exceeded the scope of the SCN by reclassifying the activity under “Works Contract Service,” which was never proposed, making the demand unsustainable on merits.

CESTAT also ruled that the extended period could not be invoked because the dispute concerned interpretation and involved no suppression of facts. The demand, interest, and penalty were therefore set aside, and the appeal was allowed with consequential relief.

Electronic Evidence without S.36B Certificate, Statements without S.9D Compliance cannot Sustain Clandestine Removal Allegation under Excise: CESTAT

M/s. Rashmi Cement Limited - Unit I & II vs Commissioner ofCentral Tax

The Kolkata Bench of CESTAT set aside a ₹67 crore excise duty demand against Rashmi Group, ruling that allegations of clandestine removal of goods cannot be sustained without strict compliance with statutory requirements. The Tribunal held that electronic records recovered from third-party premises were inadmissible as evidence due to non-compliance with Section 36B of the Central Excise Act, which mandates certification to establish the authenticity of electronic media.

It further held that inculpatory statements of directors and employees had no evidentiary value since the Revenue failed to follow Section 9D by not allowing cross-examination. Finding no corroborative evidence such as unaccounted raw materials, excess power usage, or identified buyers, the Tribunal concluded that the case rested on weak and legally unreliable grounds. The demand, interest, and penalties were therefore set aside, allowing the appeal.

Assumptions and Private Records from Third-Party Premises Cannot Prove Dept. Allegation: CESTAT Quashes ₹67 Cr Excise Duty

M/s. Rashmi Cement Limited - Unit I & II vs Commissioner ofCentral Tax

The Kolkata Bench of CESTAT set aside a ₹67 crore excise duty demand against Rashmi Group, holding that allegations of clandestine removal cannot be upheld merely on assumptions drawn from unverified private records seized from third-party premises. The Tribunal noted that the Revenue relied solely on handwritten notes and printouts that lacked any credible link to the company’s operations, without investigating essential corroborative factors such as excess raw material procurement, higher electricity consumption, transportation of goods, or unaccounted monetary receipts.

Applying the principles laid down in Arya Fibres Pvt. Ltd., the Bench found the case built on conjectures and a flawed comparison of unofficial records with statutory documents. It also rejected stock-shortage findings based on eye estimation. As the Revenue failed to discharge the heavy burden of proof required for a serious charge like clandestine removal, the Tribunal set aside the demand, interest, and penalties, allowing the appeal in full.

Construction of Railway Siding for PSU Project Eligible for Service Tax Exemption: CESTAT Affirms Broad Scope of ‘Railways’

M/s Rites Limited vs Commissioner of Central Exicse

The Chandigarh Bench of CESTAT has held that works contract services used for constructing a railway siding for a public sector power utility qualify as exempt railway services under the Finance Act, 1994. The Tribunal noted that the project, executed by Rites Limited on behalf of MPPGCL with Railway approvals, involved installation of a railway system, and the exemption under Entry 14A of Notification 25/2012 applies. Relying on the Konkan Railway Corporation judgment, it held that the Finance Act does not differentiate between public and private railways for the purpose of exemption.

Rejecting the Revenue’s contention that the siding was not for public use, the Bench observed that public sector undertakings fall within the scope of “public” and that the Railways Act definition cannot restrict exemption under service tax law. Consequently, the Tribunal set aside the service tax demand and allowed the appeal.

Mis-declaration Not Proved: CESTAT Rules Scrap Classification Alone Cannot Trigger Penal Action in Customs Valuation Disputes

M/s Hansco Iron and Steel Pvt. Ltd vs Commissioner of Customs,Ludhiana

The Chandigarh Bench of CESTAT held that mis-declaration cannot be presumed solely from a variation in scrap classification and set aside the redemption fine and penalty imposed on M/s Hansco Iron and Steel Pvt. Ltd. The importer had declared the goods as heavy melting scrap based on supplier documents and even opted for a first-check examination. The Tribunal found that the Chartered Engineer’s report, which formed the basis of the allegation, was only an estimate and lacked proper sampling.

The Bench observed that no evidence of excess or undisclosed payment existed to support a charge of under-valuation, and acceptance of a higher value for quicker clearance did not indicate wrongdoing. Concluding that the Revenue failed to establish mens rea or material mis-declaration, the Tribunal allowed the appeal and removed the fine and penalty.

Service Tax Amount Paid under VCES Cannot be Reopened or Refunded Later: CESTAT Rules Declaration under Scheme is Final and Binding

M/s Vasu Construction Co vs Commissioner of Central Excise,Goods& Service Tax, Panchkula

The Chandigarh Bench of CESTAT dismissed a refund claim by M/s Vasu Construction Co. and held that payments made under the Voluntary Compliance Encouragement Scheme (VCES), 2013 are final and cannot be reopened or refunded. The appellant had voluntarily paid service tax under VCES on works contract services provided to a government authority, but later sought a refund after judicial rulings clarified such works were exempt.

The Tribunal emphasized that Sections 108(2) and 109 of VCES bar reopening of declarations and categorically prohibit any refund of amounts paid under the scheme. It held that the legislative intent is to ensure final settlement of past liabilities and that neither the taxpayer nor the department can resign from a settled declaration. Therefore, the appeal was rejected, reaffirming that VCES payments are conclusive and non-refundable.

Sharing of Costs with Overseas Group Companies Not a Taxable Service: CESTAT Deletes Demand

CEVA Freight (India) Private Limited vs Commissioner of ServiceTax-V, Mumbai

The CESTAT Mumbai set aside service tax demands raised against CEVA Freight, holding that the company’s purchase and resale of cargo space on ships and aircraft constituted a principal-to-principal commercial transaction rather than a taxable service under Business Auxiliary Service (BAS) or Business Support Service (BSS). The Tribunal relied on facts showing CEVA issued its own transport documents, assumed legal responsibility for cargo, and bore commercial risks, confirming that it was not promoting or marketing the services of carriers.

Citing consistent precedents and CBEC Circular No. 197/7/2016, the Bench reiterated that freight forwarders contracting for space on their own account are not intermediaries or service providers to shipping lines. It further held that reimbursements from overseas group companies were mere cost-sharing and not taxable. The extended limitation was rejected, and the Order-in-Original dated 16.11.2015 was quashed entirely, deleting tax, interest, and penalties.

Confiscation cannot be Ordered for Re-exported Goods: CESTAT quashes Absolute Confiscation Order under Customs Act

The Mumbai Bench of CESTAT set aside an order directing absolute confiscation of Zinc Pyrithione imported by Chemspark India Pvt. Ltd., ruling that goods already re-exported before the Revenue’s appeal cannot later be subjected to confiscation under Section 111(d) of the Customs Act. The Tribunal emphasized that once the importer paid the redemption fine and penalty as ordered by the original authority and completed re-export, the goods were no longer within customs jurisdiction.

Since the consignment was not available in India at the time the Commissioner (Appeals) issued the confiscation order, the Tribunal held that such action was legally untenable. Allowing the appeal, it restored the adjudicating authority’s original decision permitting re-export and set aside the order of absolute confiscation.

No Independent Evidence of Betel Nuts Smuggling: CESTAT Rules ARDF Report Unreliable; Sets Aside Confiscation and Customs Penalties

Priyanka Devi Mourya vs Commissioner of Customs (Preventive)

The Kolkata Bench of CESTAT set aside the confiscation of betel nut consignments and penalties imposed on two importers after finding that the Revenue failed to prove the goods were smuggled. The Tribunal held that since betel nuts are not notified under Section 123 of the Customs Act, the burden of establishing foreign origin lies entirely on the Department, which relied solely on a test report from the Arecanut Research & Development Foundation—an institution not competent to determine origin.

Observing that there were no foreign markings, no proximity to an international border, and no independent evidence linking the goods to unlawful import, the Bench ruled that mere suspicion cannot replace legal proof. Accordingly, the confiscation and penalties under Section 112(b) were set aside, and the appeals were allowed with consequential relief.

BookMyShow Only Facilitates Ticketing, Not Engaged in Trading Activity: CESTAT Rules Against Revenue

Commissioner of Service Tax vs Bigtree Entertainment PrivateLimited

The Mumbai Bench of CESTAT upheld the Commissioner’s decision, dropping demands against Bigtree Entertainment Pvt. Ltd., operator of BookMyShow, ruling that the company only provides an online ticketing platform and does not trade in cinema or event tickets. Since the base ticket price is collected purely on behalf of theatre owners or event organisers and Bigtree retains only the convenience fee on which it pays service tax, the Tribunal held there was no exempt service involved to trigger Rule 6 of the CENVAT Credit Rules, 2004.

Rejecting the Revenue’s view that ticket settlement amounted to “trading,” the Tribunal noted that Bigtree neither owns nor controls ticket inventory, and cinema tickets are not “goods” as per Supreme Court precedent. As only a single taxable service was provided, the Bench found Rule 6(3) inapplicable and dismissed the Revenue’s appeal, confirming that no CENVAT credit reversal was warranted.

NHPC Responsible for Full Construction & Road Maintenance, Not Just Consultancy: CESTAT Holds Not Liable to Pay Service Tax

M/s. NHPC Ltd vs The Commissioner of Central Excise

The Kolkata Bench of CESTAT has ruled that NHPC Ltd.’s role under the Pradhan Mantri Gram Sadak Yojana (PMGSY) constituted full-fledged execution and maintenance of rural roads, and not merely consultancy services as alleged by the department. NHPC had taken up the project under a Tripartite Agreement with the State and Central Governments, which entrusted it with responsibilities such as construction, supervision, quality control, and five years of post-completion maintenance. Observing that these were bundled construction and maintenance services, the Tribunal held that they were squarely covered under the exemption available for road construction services under Notification No. 25/2012-ST.

The Tribunal also rejected the invocation of the extended period of limitation, noting that NHPC is a Government undertaking and no mala fide intent could be attributed. Since the demands were premised on a misclassification by the department and not on any suppression of facts, the entire service tax liability, along with interest and penalties, was found unsustainable. Consequently, CESTAT set aside the impugned orders and allowed the appeals in favour of NHPC, granting full relief.

Break-up of Charges in Builder Agreement Supports Non-Taxability of Parking Fees: CESTAT relief to Omaxe Buildhome

M/s. Omaxe Buildhome vs Commissioner of GST Delhi-East

The CESTAT Delhi ruled that car parking charges collected by Omaxe Buildhome Ltd. between July 2010 and June 2012 were not taxable as part of “construction of complex services,” since the charges were separately identified in the builder-buyer agreement and were not covered under the service tax provisions in force before the negative list regime began on 1 July 2012. The Tribunal noted that Omaxe had already paid service tax on the basic sale price and started paying tax on parking charges only once the law changed.

Rejecting the Department’s reliance on extended limitation and allegations of suppression, the Bench held that all necessary records and details were provided, and mere audit observations cannot imply intent to evade tax. It concluded that there was no statutory basis for taxing independent parking charges for the relevant period, and therefore set aside the entire demand, including interest and penalties.

Maruti Dealership Incentives Qualify as Trade Discounts Not Taxable Services: CESTAT Quashes ₹2.21Cr Service Tax Demand on Audi Motors

"M/s.Audi Motors Pvt. Ltd vs Commissioner of CGST andCentral Excise Commissionerate, Jodhpur"

The CESTAT New Delhi set aside a service tax demand of ₹2.21 crore against Audi Motors Pvt. Ltd. and its Accountant, holding that incentives and discounts received from Maruti Suzuki India Ltd. were purely trade discounts linked to vehicle purchases and sales targets — not consideration for any taxable service. The Tribunal relied on precedent, including Rohan Motors and the Larger Bench ruling in Kafila Hospitality, to reaffirm that dealers operate on a principal-to-principal basis and achieve sales targets primarily to promote their own business, even if manufacturers also benefit.

Examining the dealership agreement, the Bench found the relationship to be that of buyer and seller, with onward sale of vehicles involving transfer of property in goods — a transaction expressly excluded from the definition of “service” and falling under the negative list for trading of goods. Accordingly, the Tribunal held that no service tax was payable, set aside the order, and allowed the appeals in full without delving into limitation issues.

Construction of Govt. Residential Quarters to GSPHCL Not Taxable: CESTAT Drops Service Tax Demand on Works Contract but Upholds GTA Liability

Mirambica Construction Co vs Commissioner

The CESTAT Ahmedabad held that the construction of residential quarters for Gujarat State Police Housing Corporation Ltd. and other state departments was exempt from service tax, as such projects qualify as services provided to the government for its “personal use” under the definition of “Residential Complex” in the Finance Act, 1994. Relying on earlier rulings like CR Patel and Khurana Engineering, the Tribunal concluded that housing for government employees falls outside the taxable category, and therefore set aside the demands raised under construction and works contract services.

However, the Tribunal upheld the ₹9,33,199 service tax demand on Goods Transport Agency services under reverse charge, as the appellant failed to substantiate the exemption claim for freight below ₹1,500 per trip. With this partial relief, the appeal was allowed to the extent of deleting the tax, interest, and penalty related to the construction services.

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