Case Law Details
Maturam Construction Company Vs Commissioner (CESTAT Delhi)
The appeal before the CESTAT Delhi arose from an order of the Commissioner (Appeals), who partly allowed the appellant’s appeal while upholding part of the service tax demand confirmed by the Assistant Commissioner. The original show cause notice proposed a service tax demand of Rs. 18,81,005 for the period April 2014 to June 2017. After adjudication, the Assistant Commissioner confirmed a demand of Rs. 7,52,403 with interest under Section 75 of the Finance Act, 1994, imposed an equivalent penalty under Section 78 and a penalty of Rs. 10,000 under Section 77, while dropping the balance demand. The Commissioner (Appeals) further reduced the demand to Rs. 7,07,899, and the appellant challenged the remaining demand, interest, and penalties.
The dispute related to three categories of construction services provided to Krishi Upaj Mandi Samiti. The appellant contended that all three services were exempt under different entries of Notification No. 25/2012-ST dated 20.06.2012, whereas the Revenue maintained that the exemptions were not applicable.
The first issue concerned construction of covering over existing auction platforms. The appellant claimed exemption under Serial No. 12A(a) of the notification, which exempts specified construction services provided to the Government, local authority or governmental authority where the civil structure or original works are meant predominantly for use other than commerce, industry or business. The Tribunal held that an auction platform in a Krishi Upaj Mandi is primarily used for the auction of goods, which is essentially a commercial activity. Consequently, the construction of a covering over such auction platforms could not be regarded as works meant predominantly for non-commercial use. The exemption under Serial No. 12A(a) was therefore held to be unavailable.
The second issue related to construction of roads within the Krishi Upaj Mandi. The appellant claimed exemption under Serial No. 13(a), which exempts construction of roads intended for use by the general public. The Revenue argued that the roads inside the mandi were not public roads but were meant only for mandi users. The Tribunal rejected this contention. It observed that the roads were not private roads located within private property. A Krishi Upaj Mandi is intended for use by members of the general public, including farmers and traders, and the roads constructed therein are also meant for public use. Accordingly, the Tribunal held that the appellant was entitled to the exemption for construction of roads under Serial No. 13(a).
The third issue involved construction of auction platform coverings, boundary walls, check posts and approach roads up to the gate, for which the appellant claimed exemption under Serial No. 14(d) relating to original works pertaining to post-harvest storage infrastructure for agricultural produce, including cold storages. The Tribunal held that auction platforms and related structures constitute market infrastructure rather than storage infrastructure. Although agricultural goods may remain in the market temporarily before sale, that temporary presence does not convert the market into a post-harvest storage facility. Therefore, these constructions did not qualify as post-harvest storage infrastructure, and the exemption under Serial No. 14(d) was held to be inapplicable.
The appellant also challenged the invocation of the extended period of limitation and the penalties imposed under Sections 77 and 78. It argued that all transactions had been properly recorded in its books, that the demand was based entirely on information obtained from the appellant itself, and that the dispute involved only interpretation of exemption notifications. The appellant maintained that it genuinely believed no service tax was payable and had no intention to evade tax.
The Tribunal did not accept this contention. It noted that the appellant had neither obtained service tax registration, nor filed ST-3 returns, nor paid service tax during the entire disputed period. The proceedings commenced only after the department received information from the Income Tax Department and initiated an investigation. According to the Tribunal, the appellant took no steps demonstrating bona fide conduct until departmental investigation commenced. These facts justified the conclusion that the appellant had suppressed taxable activities with intent to evade payment of service tax. Accordingly, the Tribunal held that the ingredients necessary for invoking the extended period of limitation under the proviso to Section 73 were satisfied.
For the same reasons, the Tribunal held that the penalties imposed under Sections 77 and 78 were justified. However, since the demand relating to construction of roads was set aside after granting the exemption under Serial No. 13(a), the penalty under Section 78 was directed to be reduced proportionately.
Accordingly, the Tribunal partly allowed the appeal. It set aside the service tax demand relating to construction of roads within the Krishi Upaj Mandi while upholding the demand relating to construction of auction platform coverings, boundary walls, check posts and approach roads. The matter was remanded to the Assistant Commissioner solely for the limited purpose of recomputing the service tax liability and the corresponding penalty in accordance with the Tribunal’s findings.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. Maturam Construction company1 filed this appeal to assail the order dated 28.09.20222 passed by the Commissioner (Appeals) in which he partly allowed the appeal of the appellant and partly upheld the order dated 14.6.2021 passed by the Assistant Commissioner. The Assistant Commissioner, had, in his order, decided the proposals made in the show cause notice dated 13.11.20193 by confirming demand of service tax of Rs. 7,52,403/- on the appellant under the proviso to section 73 of the Finance Act, 19944 invoking extended period of limitation along with interest under section 75 of the Act and imposed an equal amount as penalty under section 78 of the Act and a penalty of Rs. 10,000/- under section 77 of the Act. He dropped demand of Rs. 11,28,602/- proposed in the SCN. The Commissioner (Appeals) has, in the impugned order, further reduced the demand of service tax to Rs. 7,07,899. The appellant assails in this appeal this confirmation of demand with interest and penalty.
2. We have heard learned counsel for the appellant and learned authorised representative for the Revenue and perused the records. The demand of service tax has been confirmed for the period April 2014 to June 2017 on three services provided by the appellant. According to the appellant, these were exempted and no service tax was payable while according to the Revenue, service tax is payable. The entire period of demand is in the post negative list period during which all services were taxable except those which were in the negative list or those which were otherwise exempted. The three services in dispute are:
(a) Services provided by the appellant to M/s. Krishi Upaj Mandi Samiti by construction of covering of existing Auction Platform. The appellant does not dispute having rendered this service but asserts that it was exempted by Exemption Notification No. 25/2012-ST dated 20.6.2012 [S. No. 12A (a)].
(b) Services provided by the appellant to Krishi Upaj Mandi Samiti for construction of roads which service, which according to the appellant was exempted by Exemption Notification No. 25/2012-ST dated 20.6.2012[S. No. 13 (a)].
(c) Services provided by the appellant to Krishi Upaj Mandi Samiti by construction of covering of existing auction platforms, construction of boundary wall, construction of check posts, construction of approach road up to gate, construction of BT Road which, according to the appellant were exempted by Exemption No. 25/2012-ST dated 20.6.2012 (S. No. 14(d)]
3. The appellant is also contesting the demand on the ground of limitation asserting that the ingredients necessary to invoke extended period of limitation were not present in the case. For the same reason, according to the appellant, penalty under section 78 could not have been imposed. According to the appellant, all its transactions were meticulously accounted for and the entire demand is based on the data obtained from the appellant itself and it is only a question of interpretation of law and the appellant believed and continues to believe that no service tax was payable. Hence, the appellant had not paid service tax. It had no intention to evade payment of service tax.
4. According to the learned authorised representative for the Revenue, the impugned order is correct and proper and calls for no interference. The exemption under Notification No. 25/2012-ST [S. No. 12A(a)] will not be available to the appellant for the service of construction of covering of the existing auction platform because, Krishi Upaj Mandi Samiti is not a ‘governmental authority’ and it is engaged in commercial activity. Likewise, the construction of roads in the mandi were not eligible for exemption under S. No. 13(a) available to construction of roads because these are not meant for public use and but were meant for users of the mandis only. Similarly, exemption under Notification No. 25/2012-ST [S. No. 14 (d)] will not be available for the services of construction of covering over auction platforms, boundary walls, check posts and approach road upto gate.
5. Learned authorised representative submits that the appellant had not taken service tax registration nor filed any ST-3 returns nor paid any service tax for the entire period April 2014 to June 2017. This shows that the appellant had wilfully suppressed the fact that the appellant had rendered taxable services. Therefore, extended period of limitation has been correctly invoked and penalties were also correctly imposed.
6. We have considered the submissions advanced by both sides and perused the records.
7. Undisputedly, the appellant was not registered with the service tax department and it had not filed any service tax returns and had also not paid any service tax during the relevant period. On the basis of information obtained from income tax department, service tax officers initiated enquiries, investigated the matter and issued an SCN demanding service tax of Rs. 18,81,005/-. After considering the submissions of the appellant, the Assistant Commissioner confirmed demand of only Rs.7,52,403/- and on appeal, the Commissioner (Appeals) has, in the impugned order reduced further to Rs. 7,07,899/- only on three services rendered by the appellant and discussed above. There is no appeal by the department to the extent the demands were dropped by the lower authorities. The issue has attained finality to that extent. We now proceed to decide the issues on merits.
8. The appellant constructed a covering to the existing auction platform of Krishi Upaj Mandi Samiti, Kotpuli which, according to the appellant was exempted by Notification No. 25/2012-ST [S. No. 12A(a)]. This entry of the notification exempts ‘services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of … a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession’. The auction platform in a Krishi Upaj Mandi including any covering over it can only have one primary function viz., auction of goods which, by any stretch of imagination is only commerce. Therefore, exemption Notification No. 25/2012-ST [S. No. 12A(a)] will not be available to this service.
9. The appellant constructed roads in Krishi Upaj Mandi Samiti, Kotpuli which, according to the appellant, was exempted by Notification No. 25/2012-ST [S. No. 13(a)]. This entry of the notification exempts ‘Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of… a road, bridge, tunnel or terminal for road transportation for use by general public’. The case of the department is that the roads in the Krishi Upaj Mandi are not meant for public use but are within the mandi and hence the appellant is not entitled to the benefit of the exemption.
10. We do not agree with the contention of the department. The roads in question are not private roads in a private property. Krishi Upaj Mandi is meant for use by general public such as farmers, traders, etc. and hence any roads constructed therein are also meant for use of public. Therefore, the appellant is entitled to the benefit of this exemption.
11. The appellant constructed covering of auction platforms, boundary walls, check posts and approach gate in Krishi Upaj Mandi Samiti, which, according to the appellant was exempted by Notification No. 25/2012-ST [S. No. 14(d)]. This entry of the notification exempts ‘Services provided by way of construction, erection, commissioning or installation, of original works pertaining to …. Post-harvest storage infrastructure for agricultural produce including cold storages for such purposes..’.
12. Clearly, auction platforms and other structures of a market are not warehouses meant for Post harvest storage but are markets meant for trade. In our considered view, they cannot be called post harvest storage infrastructure but can only be called market infrastructure. It is true that when goods are brought to the market for selling, they are stored for sometime but that does not make market a storage area. The exemption notification is not available to the appellant for these constructions.
13. As far as the extended period of limitation is concerned, demand under section 73 of the Act can be raised within the normal period of limitation and extended period of limitation can be invoked if the non-payment or short payment of service tax is by reason of fraud or collusion or wilful misstatement or suppression of facts or violation of any provisions of the Act or Rules with an intent to evade payment of service tax. Intent of a person can only be determined from the facts of the case. The appellant was evidently rendering taxable services but neither obtained service tax registration nor paid service tax nor filed any returns. Until the department obtained information through third parties and started investigation, the appellant did not take any steps which would demonstrate it’s bonafide intentions. The appellant was just waiting till the department knocked on its door. This is, in our considered view, a clear case for invoking extended period of limitation. Penalties imposed on the appellant also, likewise, are fully justified.
14. In view of the above, we partly allow the appeal and set aside the demand on the services rendered in respect of construction of roads and uphold the rest of the demand. The penalty under section 78 of the Act will also be correspondingly reduced. The matter is remanded to the Assistant Commissioner only for the purpose of calculation of the service tax and penalty as above.
15. In view of the above, the impugned order is modified to the extent indicated above and the appeal is partly allowed with consequential relief to the appellant.
(Order pronounced in open court on 23/06/2026.).
Notes:
1 Appellant
2 Impugned order
3 SCN
4 Act
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