No Service Tax without Proper Categorisation of Services: CESTAT Quashes Demands against HIMUDA for Vagueness and Lack of Specific Classification [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Chandigarh Bench, has quashed service tax demands raised against the Himachal Pradesh Housing and Urban Development Authority (HIMUDA), holding that no service tax can be levied without proper classification of services.

Multiple appeals filed by HIMUDA against demands aggregating several crores raised for the periods 2007-08 to 2014-15 under the heads of Renting of Immovable Property, Business Auxiliary Services, and Consulting Engineer Services.

The department had alleged that HIMUDA was providing taxable services without registration and had suppressed facts with intent to evade service tax.

The Tribunal, however, noted that HIMUDA was a statutory authority constituted under the Himachal Pradesh Housing and Urban Development Authority Act, 2004, functioning under the State Government to provide housing and civic amenities, and hence acted as a governmental authority rather than a commercial enterprise.

The Bench, comprising Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), observed that the department had issued show cause notices listing multiple services without identifying the specific taxable category for each receipt.

The Tribunal observed that vague notices lacking detailed allegations deprive the assessee of a fair opportunity to defend and are therefore unsustainable. The appellate tribunal followed its recent rulings in Shri K. Mayakrishnan v. CCE, Puducherry and TMP Manoharan & Co. v. CCE, Puducherry, holding that a demand raised without precise service classification cannot be enforced.

CESTAT further found that the statement issued under Section 73(1A) of the Finance Act, 1994 for the year 2012-13 was invalid, as it introduced new grounds and services under a different regime, whereas the section permits such statements only when identical grounds as earlier show cause notices are invoked. It held that this procedural lapse rendered the corresponding demand void.

The Tribunal also recognized HIMUDA’s role as a Governmental Authority performing statutory municipal functions such as urban planning, land regulation, drainage, and sanitation, all covered under Entry 39 of Mega Exemption Notification No. 25/2012-ST, exempting such activities from service tax. Receipts relating to housing schemes, maintenance charges, and statutory fees were found to be non-taxable as they were either regulatory, capital in nature, or related to municipal functions.

While quashing the bulk of the demands and penalties, the Tribunal accepted HIMUDA’s voluntary offer to pay service tax on certain commercial construction works undertaken for government departments during FY 2013-14 and 2014-15. The case was remanded to the adjudicating authority only for the limited purpose of quantifying tax liability on such commercial works.

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