Service Tax Demand on Government Works Contracts Set Aside on Limitation: CESTAT Kolkata

Srinath Builders & Housing Company Pvt. Ltd Vs Principal Commissioner of Central Goods and Service Tax (CESTAT Kolkata)

The appeal was filed by the appellant against Order-in-Original dated 04.05.2020 passed by the Principal Commissioner of CGST and Central Excise, Guwahati, which confirmed Service Tax of ₹5,16,70,590 (including Education Cess and Secondary & Higher Education Cess) for the period April 2013 to March 2018, along with interest under Section 75 of the Finance Act, 1994 and an equivalent penalty under Section 78. The demand was confirmed by invoking the extended period of limitation on allegations of suppression and wilful non-payment of Service Tax in relation to various works contract and other services undertaken by the appellant.

Material Facts and Procedural Background

The appellant, registered for “Works Contract Service,” executed construction projects for Government departments, Government agencies and other authorities, including projects for the Food Corporation of India (FCI), educational institutions, universities and Government authorities. Following an investigation by the Directorate General of GST Intelligence (DGGI), Guwahati, statements of company representatives were recorded, and a show cause notice dated 20.04.2019 proposed recovery of Service Tax on the allegation that the appellant had failed to discharge Service Tax on works contract services provided between 01.04.2013 and 30.06.2017. The appellant maintained that the services were exempt under various entries of Notification No. 25/2012-ST dated 20.06.2012. The adjudicating authority nevertheless confirmed the entire demand with interest and penalty, leading to the present appeal.

The appeal challenged demands relating to:

• Construction of a 50,000 MT Food Grain Godown for FCI.
• Construction of an Integrated Farmers’ Market Complex in Meghalaya.
• Construction of Jawahar Navodaya Vidyalaya buildings.
• Mobilisation advance received for construction of the College of Agriculture, Meghalaya.
• Construction of a boundary wall for the Ministry of Textiles.
• Construction of ground tank and fire-fighting works for an apparel manufacturing unit.
• Service Tax under reverse charge on Goods Transport Agency (GTA) services.
• Service Tax on royalty under “Assignment of Right to Use Natural Resources Service.”
• Service Tax on Trade Licence Fees.

Key Legal Issues

The Tribunal examined:

• Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 was validly invoked.
• Whether various works contract services qualified for exemption under Notification No. 25/2012-ST.
• Taxability of mobilisation advance under Rule 3 of the Point of Taxation Rules, 2011.
• Sustainability of GTA reverse charge demand.
• Taxability of royalty paid under reverse charge.
• Taxability of Trade Licence Fees.
• Sustainability of penalty under Section 78 of the Finance Act, 1994.

Limitation

The Tribunal first considered limitation. It observed that although the Revenue alleged suppression and wilful misstatement, mere allegations were insufficient to invoke the extended period. The burden rested on the Revenue to establish fraud, collusion, wilful misstatement, suppression of facts or intent to evade tax.

The Tribunal found that the contracts related to public projects awarded by Government authorities through tender processes and were available in the public domain. The appellant consistently maintained that it believed the services were exempt under Notification No. 25/2012-ST. The dispute primarily concerned interpretation of the exemption notification, and no material established deliberate withholding of information or intent to evade tax.

Accordingly, the Tribunal held that the extended period under the proviso to Section 73(1) was not invocable. Demands falling beyond the normal period were therefore unsustainable on limitation.

Findings on Individual Demands

(A) FCI Food Grain Godown

The Tribunal held that the construction related to food grain godowns for FCI, a statutory corporation, and involved warehousing infrastructure intended for storage and preservation of food grains.

It observed that:

• the project was rendered to a Governmental Authority;
• its predominant purpose was creation of public warehousing infrastructure rather than any commercial venture;
• the adjudicating authority had confined its analysis to Entry 14(d) while failing to examine Entries 12 and 12A read with Section 102 of the Finance Act, 2016;
• the essential character of the project could not be determined merely because rice was among the commodities stored; and
• Entry 40 exempting storage and warehousing of rice had not been properly appreciated.

The Tribunal held that exemption under Notification No. 25/2012-ST could not be denied and set aside the demand.

(B) Integrated Farmers’ Market Complex

The Tribunal disagreed with the adjudicating authority’s view that the project was commercial because of a profit-sharing arrangement.

It found that:

• the project belonged to the Directorate of Horticulture, Government of Meghalaya;
• it was conceived for development of farmers’ markets and agricultural infrastructure;
• user charges or revenue-sharing did not alter the essential character of the project;
• no material established that it was predominantly intended for commerce or business.

The Tribunal held that exemption under Notification No. 25/2012-ST was available and set aside the demand.

(C) Jawahar Navodaya Vidyalaya Project

The dispute centred on whether the contract had been entered into before 01.03.2015.

The Tribunal noted that:

• the project related to educational infrastructure;
• the work order had been issued on 20.02.2015, before the cut-off date;
• the formal agreement executed on 02.03.2015 followed the earlier work order.

It accepted the appellant’s submission that the earlier work order could not be ignored while determining eligibility for exemption. It also held that, even assuming the Revenue’s interpretation was accepted, the demand would still fail on limitation. Accordingly, the demand was set aside.

(D) Mobilisation Advance

The dispute related to mobilisation advance of ₹88,90,020 received for construction of the College of Agriculture.

The Tribunal found that the advance:

• carried interest;
• was secured by a bank guarantee;
• was recoverable;
• was adjustable against future running bills.

It held that the Revenue had proceeded only on the nomenclature of “advance” without examining its true contractual character. Such a recoverable and interest-bearing mobilisation advance could not be taxed merely by invoking Rule 3 of the Point of Taxation Rules, 2011 without establishing that it represented consideration for taxable services.

The Tribunal also held that the demand failed on limitation.

(E) Boundary Wall and (F) Ground Tank & Fire-Fighting Works

The appellant conceded that these contracts were executed after the cut-off date under Entry 12A and that exemption might not be available on merits.

However, the Tribunal held that:

• the contracts related to Government projects;
• the transactions were reflected in the appellant’s books;
• the dispute arose from differing interpretation of the exemption notification;
• the extended period was not invocable.

Although exemption was unavailable on merits, the demands were held barred by limitation. Interest and penalties consequently did not survive.

GTA Services

The Tribunal noted that the appellant, being a body corporate, was liable under the reverse charge mechanism for GTA services.

However, it accepted the appellant’s contention that the demand was revenue neutral because any Service Tax paid would have been available as CENVAT credit. The Revenue did not dispute availability of such credit or establish any net revenue loss.

Referring to the decision in Indus Valley Partners (India) Pvt. Ltd., the Tribunal held that the GTA demand was not sustainable and set aside the demand, interest and penalties.

Royalty on Right to Use Natural Resources

The Tribunal observed that the appellant’s argument that royalty constituted a tax could not be accepted in view of the Constitution Bench judgment in Mineral Area Development Authority v. Steel Authority of India Ltd.

Nevertheless, it held that:

• the demand related to April 2016 to June 2017;
• the show cause notice was issued only on 20.04.2019 by invoking the extended period;
• the issue was interpretational and had been subject to judicial debate;
• no evidence established suppression or intent to evade tax.

The Tribunal therefore held the demand barred by limitation and set aside the demand, interest and penalties.

Trade Licence Fees

The Tribunal found that the Trade Licence Fees were statutory fees paid to the Guwahati Municipal Corporation under municipal law.

It further observed that Entry No. 58 of Notification No. 25/2012-ST exempts services provided by Government or a local authority by way of registration required under any law. It therefore held that the demand was unsustainable and liable to be set aside.

Penalty

The Tribunal found no material to support allegations of wilful suppression or intent to evade tax.

It observed that:

• the disputes principally related to interpretation of exemption notifications and statutory provisions;
• relevant facts were available in the appellant’s books, agreements and records;
• no deliberate concealment or falsification had been established.

It therefore held that the requirements for invoking Section 78 had not been established and set aside the penalty.

Final Ruling

The Tribunal held that none of the demands confirmed in the impugned order could be sustained. The issues were decided in favour of the appellant either on merits or on limitation. Consequently, the entire Service Tax demand, together with interest and penalty, was set aside, the impugned order was quashed, and the appeal was allowed with consequential reliefs in accordance with law.

Cases Discussed

1. Mineral Area Development Authority v. Steel Authority of India Ltd., (2024) 21 Centax 378 (SC).

2. M/s. Indus Valley Partners (India) Pvt. Ltd. v. Commissioner of C.G.S.T., Noida, Final Order No. 70026 of 2024 dated 17.01.2024 in Service Tax Appeal No. 70010 of 2021 – CESTAT, Allahabad.

3. Jet Airways India Ltd. [2016-TIOL-2072-CESTAT-MUM].

4. Jain Irrigation System Ltd. [2015 (40) S.T.R. 572 (T)].

5. Coca-Cola India Pvt. Ltd. [2007 (213) E.L.T. 490 (S.C.)].

FULL TEXT OF THE CESTAT KOLKATA ORDER

The present Appeal has been filed by M/s. Srinath Builders & Housing Company Private Limited (hereinafter referred to as “the appellant”) against the Order-in-Original No. 01/Commr./ST/GHY/2020-21 dated 04.05.2020 passed by the Ld. Principal Commissioner of C.G.S.T. and Central Excise, Guwahati, whereby Service Tax amounting to Rs.5,16,70,590/- (inclusive of Education Cess and Secondary & Higher Education Cess) was confirmed against the appellant, along with interest under Section 75 of the Finance Act, 1994, and a penalty of Rs.5,16,70,590/- was imposed under Section 78 ibid. The demand pertains to the period from April, 2013 to March, 2018 and was confirmed by invoking the extended period of limitation on allegations of suppression and wilful non-payment of Service Tax in respect of various activities undertaken by the appellant during the period under dispute.

2. The facts of the case are that the appellant is a private limited company incorporated under the Companies Act, 1956 having its registered office at 2C/2D, Vardhaman Apartment, Near Jain Mandir, Janaki Path, Guwahati – 781 001 and principal place of business at Anil Plaza (3rd Floor), ABC, G.S. Road, Near IDBI Bank, Guwahati – 781005. The appellant is registered with the Service Tax Department under Registration No. AAHCS5437PSD001 for providing taxable services under the category of “works contract service”. The appellant has been regularly filing their statutory ST-3 Returns and maintaining books of account, which are subject to audit under the provisions of the Companies Act, 1956, besides regularly filing returns under the Income Tax Act, 1961.

3. During the relevant period, the appellant executed various construction projects for Government departments, Government agencies and other authorities. The appellant was engaged in providing ‘Works Contract Services’ in relation to construction activities undertaken for, inter alia, Food Corporation of India, educational institutions, universities and other governmental authorities.

4. Information was received by the officers of the Directorate General of G.S.T. Intelligence (DGGI), Guwahati Zonal Unit, to the effect that the appellant had provided Works Contract services to various Government and non-Government entities and had not properly discharged Service Tax liability thereon. Accordingly, an enquiry was initiated and the appellant was called upon to furnish details relating to the works executed by it along with supporting documents, which were furnished from time to time.

4.1. During the course of investigation, the Department also sought and obtained documents from various service recipients including Assam Industrial Infrastructure Development Corporation (AIIDC), Meghalaya Government Construction Corporation Ltd. (MGCCL), Food Corporation of India (FCI), Bridge & Roof Co. (India) Ltd., Directorate of Horticulture, Government of Meghalaya and Navodaya Vidyalaya Samiti. Copies of agreements, tender documents, work orders, bills, allotment letters, handing over and taking over reports and other related documents were collected and examined.

5. Pursuant to summons, Shri Biki Kundu, Chief Accountant/Authorized Representative of the appellant-company, appeared before the officers of DGGI on 12.03.2019 and his statement was recorded. In the said statement, work-wise particulars of the projects undertaken by the appellant and the status of payment of Service Tax thereon were furnished. It was, inter alia, stated that Service Tax had not been discharged in respect of the various projects on the ground that the same were exempted under different entries of Notification No. 25/2012-ST dated 20.06.2012, as amended.

5.1. Subsequently, the statement of Shri Manish Agarwal, Director of the appellant-company, was recorded on 09.04.2019. He, inter alia, stated that Shri Biki Kundu had been functioning as Chief Accountant of the company since 2013 and affirmed the particulars furnished by him in his statement dated 12.03.2019.

6. Thereafter, the Directorate General of GST Intelligence, Guwahati Zonal Unit issued Show Cause Notice F. No. DGGSTI/GuZU/INV/ST/3/2018/1961 dated 20.04.2019 proposing recovery of Service Tax amounting to Rs. 5,16,70,590/- under the provisions of the Finance Act, 1994 on the allegation that the appellant had failed to discharge appropriate Service Tax liability in respect of Works Contract services provided by it during the period from 01.04.2013 to 30.06.2017 and had thereby contravened the provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. Interest and penalty were also proposed by invoking the extended period of limitation.

6.1. The appellant contested the allegations and claimed that the services rendered by it in respect of the projects in question were exempt from payment of Service Tax in terms of various entries contained in Notification No. 25/2012-ST dated 20.06.2012, as amended.

6.2. However, the Ld. Principal Commissioner of C.G.S.T. and Central Excise, Guwahati, vide his Order-in-Original No. 01/Commr./ST/GHY/2020-21 dated 04.05.2020, confirmed the demand of Service Tax totally amounting to Rs. 5,16,70,590/- along with interest under Section 75 of the Finance Act, 1994 and imposed an equal amount of penalty under Section 78 ibid.

6.3. Aggrieved by the said Order-in-Original dated 04.05.2020, the appellant has preferred the present appeal before this Tribunal.

7. At the outset, the Ld. Counsel appearing on behalf of the appellant-company furnished the following table, wherein the various demands raised against the assessee by way of the impugned order along with the grounds urged by the appellant there against have been summarized: –

Sl. No.	Description	Amount Received/Billed (Rs.)	Service tax (Rs.)	Remarks
1	Total Tax liability as per SCN		Rs. 5,16,70,590	(including Cess)
2	Demand Confirmed by the Adjudicating Authority.		Rs. 5,16,70,590	-do-
(A)	Disputed Contracts in the SCN	Amount Received/Billed	S. Tax (Rs.) Confirmed	Remarks/ Grounds
(I)	Work Contract – Construction of 50,000 MT storage capacity of Food Grain Godown – FCI – Tender No. NBCC/ED-II/Changsari/2013/05, dated 14.05.2013[Period of construction October,2013 to March,2017. Contract Value Rs.46,97,70,348.80	Rs.25,80,28,106	Rs. 3,33,71,309	Exempted Service Exempted under Entry No. 40 and 14 of Mega Exemption Notification No.25/2012-ST, dated 20.06.2012. Notification No.4/2014-ST dated 20.06.2012 and Notification No. 2/2014-ST, dated 30.012014 and CBEI Circular No.177/3/2014- ST dated 17.02.2014 issued under F. No.334/03/2014-TRU- Para-4,
(II)	Work Contract – Construction of Integrated Farmers’ Market Complex – for preservation of agriculture produces – Director of Horticulture to the Govt. of Meghalaya, Job No. 29/Horticulture/2011-12 dated 05.11.2012 period of Construction – 18.01.2013 to 10.01.2018. Contract Value Rs.17,67,31,000/-	Rs. 6,65,73,268	Rs. 84,49,075	Exempted Service Exempted under Clause (d) of Sec.66D of the Finance Act,1994; Services relating to Agriculture or agriculture produces by way of Read with Entry No. 12 and 12A of Mega Exemption Notification No. 25/2012-ST, dated 20.06.2012.
(III)	Work Contract – Construction of School Building of Jawahar Navadya Vidyalaya- Haflong, Agreement No. AIIDC/JNV/HAFLONG/48 dated 02.03.2015, Work Order issued on 20.02.2015. Wok Order No.AIIDC/JNV/Haflong/1017/2011 -12/630/10294 dated 20.02.2015. Contract Value Rs.28.88 Crores	Rs. 5,41,64,644	Rs. 80,76,073	Exempted Service Entry No. 12, clause – c of Mega Exemption Notification No. 25/2012-ST, dated 20.06.2012.
(IV)	Work Contract – Construction Building for College of Agriculture, at Kyrdemkulai, Ri-Bhoi District, Meghalaya, by Central Agriculture University, Imphal, Teder Document No.B&R/HO/CAU/BUILDING/51042 45/CW/01 dated 24.10.2016-Construction of Administrative Building and Academic Block, Boys’ and Girls’ Hostel, Guest House for Faculty and Roads and Wmployees’ Quarters etc. Period of Dispute – 13th Feb, 2017 to 23rd February, 2017.Contract Value Rs.35,56,00,780 /-	Rs.88,90,020 Mobilisation Advance Received from M/s. Bridge & Co. India Ltd. Taxable Service Rs. 35,56,008/-	Rs. 5,33,401	Not taxable – Beyond the scope of Rule 3 of the point of Taxation Rules, 2011.
(V)	Work Contract – Construction of Boundary Wall at Ministry of Textiles Premises, executed through NBCC, Contract No, NBCC/GM/MOT/Assam/BW/2015/1 435 dated 02.11.2015, contract Value Rs. 76,84,106/-	Rs. 8,05,297	Rs. 1,16,768	Exempted Service Exempted Service Entry No. 12A, clause-a of Mega Exemption Notification No. 25/2012-ST, dated 20.06.2012.
(VI)	Work Contract – Construction of Ground Tank and Firefighting work at Boragaon for Apparel and Garment manufacturing unit of Ministry of Textiles, executed through NBCCL on behalf of the Ministry of Textiles to the Govt. of India, contract Value Rs. 46,70,131.66	Rs.3,75,248	Rs. 56,287	Exempted Service Entry No. 12A, clause-a of Mega Exemption Notification No. 25/2012-ST, dated 20.06.2012.
VII	Right to use of Natural Resources Service.	Rs. 42,53,551	Rs.6,36,474	Not taxable – Not within scope of notification No. 22/2016-ST dated 13.04.2016 [ Entry No. 61]
VIII	Payment of Trade License Fees	Rs. 17,500	Rs. 2,581	Exempted under Entry No.58 of Notification No.25/2012-ST, dated 20.06.2012.
(IX)	Goods Transport Agency Services (RCM)	Rs. 34,61,054	Rs. 4,89,103	Revenue neutral situation. (Not taxable)
(X)	Total- Rs. 95,76,86,300/- Taxable Service	Rs.39,12,34,676 After abatement	Rs.5,16,70,590

7.1. Further, the Ld. Counsel for the appellant-company, reiterates the grounds of appeal and, inter alia, makes the following submissions:

(i) It is submitted that the appellant had executed various works contract projects for Government Departments, Governmental Authorities and agencies implementing projects on behalf of the Central Government and the State Governments of Assam and Meghalaya. According to the Learned Counsel, the services rendered under the various work orders, involving construction, erection, commissioning and other allied activities, were undertaken in relation to public utility and infrastructure projects and are squarely covered by the exemption granted under Notification No. 25/2012-ST dated 20.06.2012 (Mega Exemption Notification). It is contended that each of the work orders in question independently satisfies the conditions prescribed under the respective entries of the said Notification. The Learned Counsel submits that the adjudicating authority has failed to properly appreciate the scope and applicability of the Mega Exemption Notification and has erroneously denied the benefit thereof while confirming the demand. It is accordingly contended that the Service Tax demand confirmed in respect of the various projects executed by the appellant is legally unsustainable and liable to be set aside.

(ii) It is further submitted that the amount received towards “Right to Use of Natural Resources Service” is not exigible to Service Tax and, in any event, does not fall within the scope of Entry No. 61 inserted vide Notification No. 22/2016-ST dated 13.04.2016. Hence, the demand raised on this count is liable to be set aside.

(iii) Further, that the amount paid towards Trade Licence Fees is specifically exempted under Entry No. 58 of Notification No. 25/2012-ST dated 20.06.2012 and, therefore, no Service Tax can be levied on the same.

(iv) It is submitted that the demand of Service Tax under the category of Goods Transport Agency (GTA) service under reverse charge mechanism is wholly revenue neutral. According to the Learned Counsel, any Service Tax payable under reverse charge would have been available to the appellant as CENVAT credit and, therefore, no intention to evade payment of tax can be attributed to the appellant and the demand on this count is not sustainable.

(v) It is further submitted that the appellant was throughout under a bona fide belief that the services rendered under the various Government contracts awarded to it were covered by the Mega Exemption Notification No. 25/2012-ST dated 20.06.2012; that their records were subjected to statutory audit under the Companies Act and the Income Tax Act. Thus, according to the Learned Counsel, there was neither suppression of facts nor any wilful misstatement on the part of the appellant. It is also contended that the projects in question were public projects awarded through tender processes and the details thereof were available in the public domain. Consequently, invocation of the extended period of limitation under Section 73 of the Finance Act, 1994 is legally unsustainable.

7.2. In view thereof, the Learned Counsel for the appellant prays that the impugned Order-in-Original dated 04.05.2020 confirming Service Tax demand, along with interest and penalty thereon, be set aside and the appeal be allowed with consequential reliefs, in accordance with law.

8. On the other hand, the Ld. Authorized Representative of the Revenue has reiterated the findings in the impugned order and submits that the appellant is not entitled to the benefit of exemption under Notification No. 25/2012-ST dated 20.06.2012, as claimed by them, which has been addressed vide the impugned order. It is contended that the conditions prescribed under the relevant entries of the said Notification are not satisfied in respect of the projects in question and, therefore, the adjudicating authority has rightly denied the benefit of exemption and confirmed the demand of Service Tax along with interest and penalties. He thus prayed for dismissal of the instant appeal.

9. Heard both sides and perused the documents available on record.

10. Before adverting to the merits of the individual work orders and the other issues arising in the present appeal, we consider it appropriate to first deal with the appellant’s contention regarding limitation, since the impugned Show Cause Notice dated 20.04.2019 has been issued by invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994.

10.1. We find that the principal ground adopted by the Revenue for invoking the extended period is that the appellant had suppressed material facts from the Department by not disclosing the actual income earned from taxable services in the ST-3 returns and had thereby wilfully contravened the provisions of the Finance Act, 1994 with an intention to evade payment of Service Tax. However, we observe that a mere allegation of suppression or wilful misstatement cannot by itself justify invocation of the extended period of limitation. It is well settled that the burden lies upon the Revenue to establish the existence of fraud, collusion, wilful misstatement, suppression of facts or contravention of statutory provisions with intent to evade payment of tax for invocation of the extended period of limitation.

10.2. In the facts of the present case, we find that the contracts in question pertained to various public projects awarded by the Government of India as well as the State Governments of Assam and Meghalaya. Such projects were awarded pursuant to tender processes and the work orders issued thereunder were matters available in the public domain. The appellant has consistently maintained that it was under a bona fide belief that the services rendered by it were covered by the exemption available under Notification No. 25/2012-ST dated 20.06.2012. We find no material on record to indicate that the appellant had deliberately withheld any information from the Department or had acted with an intention to evade payment of Service Tax.

10.3. We further find that the dispute involved in the present proceedings is essentially one relating to the interpretation and applicability of the Mega Exemption Notification No. 25/2012-ST dated 20.06.2012 to the various contracts executed by the appellant. It is settled law that where the dispute revolves around the interpretation of exemption notifications and the assessee acts under a bona fide understanding of the legal position, invocation of the extended period cannot be sustained in the absence of positive evidence establishing suppression of facts or wilful misstatement.

10.4. From a perusal of the impugned order, it can be observed that apart from making a general allegation of suppression, the Revenue has not brought on record any cogent material to establish that the appellant had acted with a deliberate intent to evade payment of tax. In such circumstances, we do not agree with the conclusion arrived at in the impugned order regarding invocation of the extended period of limitation. We are, therefore, of the considered view that the extended period under the proviso to Section 73(1) of the Finance Act, 1994 was not invocable in the facts and circumstances of the present case.

10.5 Consequently, the demand raised beyond the normal period of limitation cannot be sustained. Accordingly, wherever the demands proposed in the impugned proceedings fall beyond the normal period, the same would not survive on the ground of limitation itself. The issue of limitation is answered accordingly.

1.6. Having dealt with the aspect of limitation hereinabove, we now proceed to examine the principal controversy involved in the present appeal on merits, namely, whether the various works executed by the appellant are entitled to the benefit of exemption under Notification No. 25/2012-ST dated 20.06.2012. We propose to examine each work order separately in the light of the conditions prescribed under the said notification, the grounds recorded in the impugned order for denial of exemption and the submissions advanced by the appellant.

(A) Construction of 50,000 MT Capacity Food Grain Godown for Food Corporation of India (FCI)

12. Upon consideration of the rival submissions and the records placed before us, we find that the denial of exemption by the adjudicating authority in respect of the above project / work viz. “Construction of 50,000 MT Capacity Food Grain Godown for Food Corporation of India (FCI)” rests substantially on the premise that the godowns in question were intended for storage of wheat and rice and, since rice does not fall within the definition of “agricultural produce” under Section 65B(5) of the Finance Act, 1994, the benefit of exemption under Entry No. 14(d) of Notification No. 25/2012-ST dated 20.06.2012 would not be available. It is not in dispute that the work in question pertained to construction of food grain godowns and allied works for the Food Corporation of India (FCI), a statutory corporation established under the Food Corporations Act, 1964 by an Act of Parliament. Thus, we observe that there is no dispute that the construction of food grain godowns was rendered by the appellant to a Governmental Authority within the meaning of clause 2(s) of Notification No. 25/2012-ST, as amended vide Notification No. 2/2014-ST dated 30.01.2014. The contract itself was awarded through NBCC on behalf of FCI for creation of warehousing infrastructure intended for storage and preservation of food grains and allied purposes.

12.1. We find that the predominant object and purpose of the project was to create public warehousing infrastructure for FCI in discharge of its statutory functions connected with procurement, storage and distribution of food grains. Such activity cannot be viewed as one undertaken for commerce, industry or any business or commercial venture.

12.2. We find that Entry Nos. 12 and 12A of Notification No. 25/2012-ST dated 20.06.2012, read with Section 102 of the Finance Act, 2016, extends exemption to Works Contract services provided to Government, local authority or governmental authority in respect of original works. The impugned order, however, appears to have confined its analysis only to Entry No. 14(d) and has failed to examine the applicability of the aforesaid provisions, which have a direct bearing on the issue involved.

12.3. Even otherwise, we find that the adjudicating authority has laid considerable emphasis on the observation that rice was one of the commodities intended to be stored in the godowns and, relying upon CBEC Circular No. 177/3/2014-ST dated 17.02.2014, proceeded to deny the benefit of exemption. In our considered view, such an approach amounts to a narrow and overly mechanical interpretation of the exemption provisions. The project in question was conceived for construction of food grain storage infrastructure for FCI and its predominant purpose was the warehousing and preservation of food grains for public distribution and food security. The essential character of the project, therefore, cannot be determined with reference to any one particular commodity that may eventually be stored therein. Viewed in this perspective, the mere fact that rice also constituted one of the commodities stored in the godowns would not alter the basic nature and purpose of the project so as to render the exemption unavailable.

12.4. Besides, we find merit in the appellant’s contention that Entry No. 40 of Notification No. 25/2012-ST, as amended by Notification No. 4/2014-ST dated 17.02.2014, specifically exempted services by way of storage or warehousing of rice. Though the adjudicating authority has referred to CBEC Circular No. 177/3/2014-ST dated 17.02.2014, the consequential effect of the amendment granting exemption in respect of storage and warehousing of rice has not been appropriately appreciated.

12.5. Viewed from another angle, Entry No. 14(d) of Notification No. 25/2012-ST exempts original works pertaining to post-harvest storage infrastructure for agricultural produce. The expression employed therein is “pertaining to” post-harvest storage infrastructure, which is of wide amplitude. The construction of large-capacity food grain godowns for FCI, intended for preservation and distribution of food grains procured after harvest, would, in our considered view, squarely answer the description of post-harvest storage infrastructure contemplated under the exemption entry.

12.6. In the aforesaid circumstances, we are unable to subscribe to the view adopted in the impugned order. Accordingly, we hold that the benefit of exemption under Notification No. 25/2012-ST cannot be denied in respect of the construction of the 50,000 MT capacity food grain godown and allied works executed for the Food Corporation of India. Consequently, the demand confirmed on this count is unsustainable and liable to be set aside.

(B) Construction of Integrated Farmers’ Market Complex at Ampati, West Garo Hills, Meghalaya

13. We now proceed to examine the demand confirmed in respect of the “Construction of the Integrated Farmers’ Market Complex at Ampati, West Garo Hills, Meghalaya”. Upon consideration of the rival submissions and the records available before us, we find that the ld. adjudicating authority has proceeded to reject the appellant’s plea for exemption under Notification No. 25/2012-ST dated 20.06.2012 on the ground that the project was intended to generate income and that in view of the profit-sharing arrangement contained in the Memorandum of Understanding executed between the Directorate of Horticulture, Government of Meghalaya and the Garo Hills Autonomous District Council, the said structure was to be treated as one meant for commercial purposes. We are, however, unable to concur with the aforesaid reasoning recorded by the ld. adjudicating authority in the impugned order.

13.1. From the materials available on record, it emerges that the work in question was executed through Meghalaya Government Construction Corporation Limited acting as the implementing agency / nodal agency of the Directorate of Horticulture, Government of Meghalaya. The project itself belongs to the Directorate of Horticulture and was conceived for development of farmers’ markets and for providing infrastructure relating to storage, preservation, exhibition, training and marketing facilities for agriculturists and agricultural produce. Thus, the predominant object and purpose of the project was advancement and development of agricultural activities and creation of public infrastructure for the benefit of farmers, and not the carrying on of any trade, business or commercial venture.

13.2. We find considerable force in the contention advanced by the appellant that the mere existence of a mechanism for collection of user charges or a provision regarding sharing of revenue arising from management of the facility cannot, by itself, alter the essential character of the project. The primary object of the project has to be gathered from the nature and purpose of the work undertaken and not merely from an isolated clause contained in the Memorandum of Understanding. In our considered view, the adjudicating authority has attached undue significance to the profit-sharing clause while overlooking the broader purpose for which the Integrated Farmers’ Market Complex was established.

13.3. We also find that the project constitutes public property belonging to the Directorate of Horticulture, Government of Meghalaya and the work was executed through the State Government’s implementing agency. In such circumstances, the benefit of exemption available under Entry No. 12A of Notification No. 25/2012-ST, as amended, cannot be denied merely on the basis of assumptions regarding commercial intent. No material has been brought on record by the Revenue to establish that the structure was intended predominantly for commerce, industry or any other business or profession.

13.4. Besides, it is a fact on record that the facilities created under the project were integrally connected with agricultural activities and marketing infrastructure for agricultural produce. The project envisaged provision of facilities for storage, warehousing, exhibition, dissemination of information and training to farmers and thus bore a direct nexus with agricultural development. The approach adopted in the impugned order, in treating the entire project as a commercial complex merely on account of the existence of a revenue-sharing arrangement, does not accord with the true nature and purpose of the project.

13.5. In view of the foregoing discussion, we are unable to subscribe to the findings recorded in the impugned order. We thus hold that the benefit of exemption under Notification No. 25/2012-ST could not have been denied in respect of the construction of the Integrated Farmers’ Market Complex at Ampati, West Garo Hills, Meghalaya. Consequently, the demand confirmed on this count is unsustainable and is liable to be set aside.

(C) Construction of Phase-A Works of Jawahar Navodaya Vidyalaya, Haflong, N.C. Hills, Assam

14. It can be observed from the records that dispute in respect of this work order viz. “Construction of Phase-A Works of Jawahar Navodaya Vidyalaya, Haflong, N.C. Hills, Assam” centres around the interpretation of Entry No. 12A(b) of Notification No. 25/2012-ST dated 20.06.2012 and, more particularly, whether the contract can be regarded as having been entered into prior to 01.03.2015 so as to qualify for the benefit contemplated therein. There is no dispute regarding the nature of the project itself. The work pertains to the construction of buildings for Jawahar Navodaya Vidyalaya, an educational institution functioning under the Navodaya Vidyalaya Samiti, an autonomous organization under the Ministry of Human Resource Development, Government of India. The project is thus undeniably connected with educational infrastructure and not with any commercial or business activity.

14.1. The sole basis on which the adjudicating authority has denied the exemption for the period from 01.03.2016 onwards is that the formal agreement between AIIDC and the appellant came to be executed on 02.03.2015 and, therefore, according to the Revenue, the condition requiring the contract to have been entered into before 01.03.2015 stood violated. However, we find that the ‘Work Order’ had already been issued on 20.02.2015 itself, whereby the contract work stood awarded in its favour for a specified consideration and the appellant was directed to proceed with the execution of the project upon completion of the formalities contemplated therein.

14.2. It is a settled principle of contract law that a binding contractual relationship does not necessarily arise only upon execution of a formal agreement where the essential terms have already been accepted and the parties have unequivocally manifested their intention to be bound. The work order dated 20.02.2015, which preceded the formal agreement, assumes significance in this context. The appellant has relied upon judicial precedents to contend that once the offer stood accepted and the work stood awarded, the contract must be regarded as having come into existence, the subsequent execution of the formal agreement being merely a consequential act evidencing the arrangement already concluded between the parties.

14.3. In the facts of the present case, we find considerable force in the submission that the issuance of the work order prior to 01.03.2015 cannot be completely ignored while determining the eligibility of the exemption. The project admittedly pertains to a Government educational institution; the award of work had already been finalized before the cut-off date; and the subsequent execution of the formal agreement on 02.03.2015 appears, prima facie, to be a continuation of the contractual arrangement already set in motion by the work order dated 20.02.2015. In such circumstances, a hyper-technical interpretation of the exemption entry, detached from the substance of the transaction, would not be justified.

14.4. We are of the view that exemption notifications concerning Government and public welfare infrastructure projects are required to be interpreted in a manner that advances the object sought to be achieved, particularly where the essential conditions stand substantially fulfilled and there is no dispute regarding the nature of the recipient or the character of the work executed. Viewed in that light, the denial of exemption solely on account of the formal agreement having been signed two days after the stipulated date does not appear to be justified in the peculiar facts of the present case.

14.5. Be that as it may, even assuming for the sake of argument that the Revenue’s interpretation were to be accepted, the demand would nevertheless not survive on the ground of limitation. As already discussed hereinbefore, the show cause notice dated 20.04.2019 has been issued beyond the normal period prescribed under Section 73 of the Finance Act, 1994 and the ingredients necessary for invocation of the extended period have not been established. Consequently, the demand pertaining to this work order would, in any event, be unsustainable on the ground of limitation.

14.6. Accordingly, we find no justification for sustaining the demand confirmed in respect of the construction of Phase-A Works of Jawahar Navodaya Vidyalaya, Haflong, N.C. Hills, Assam, and hence, we hold that the same is liable to be set aside.

(D) Construction of College of Agriculture at Kyrdemkulai, Ri-Bhoi District, Meghalaya (Mobilization Advance)

15. The dispute under this head is confined to the taxability of an amount of Rs. 88,90,020/- received by the appellant as “Mobilization Advance” in connection with the contract awarded for “Construction of the College of Agriculture at Kyrdemkulai, Ri-Bhoi District, Meghalaya”.

15.1. The case of the Revenue is that the aforesaid amount constitutes an advance received towards the provision of taxable service and, therefore, by virtue of Rule 3 of the Point of Taxation Rules, 2011, the same became liable to Service Tax upon receipt. The appellant, on the other hand, has contended that the mobilization advance was in the nature of an interest-bearing and recoverable amount released solely to facilitate mobilization of resources, manpower, plant and machinery at the project site and was secured by a bank guarantee. It has further been contended that the said amount was liable to be adjusted against future running bills and did not represent consideration finally received towards the execution of the works contract.

15.2. Upon examination of the contractual arrangement placed on record, we find considerable force in the contention of the appellant. The materials available indicate that the amount in question was released under a specific contractual clause governing mobilization advance, carried interest, was backed by a bank guarantee and was recoverable from subsequent running bills. These features distinguish such payment from an ordinary advance received as consideration for services rendered. The essence of the transaction appears to be the provision of temporary financial assistance to enable commencement and execution of the project, rather than payment towards any identified stage of completed service.

15.3. The decisions relied upon by the appellant also recognize that mobilization advances, depending upon the terms governing their release and recovery, possess characteristics akin to a recoverable financial accommodation and cannot automatically be equated with consideration for taxable services merely because the expression “advance” is employed in the contract.

15.4. In the facts of the present case, we find that the Revenue has proceeded solely on the nomenclature of the payment without examining the true nature, purpose and recoverability of the amount under the contractual terms. In our considered view, such a recoverable and interest-bearing mobilization advance, secured by a bank guarantee and adjustable against future running bills, cannot be brought to tax merely by invoking Rule 3 of the Point of Taxation Rules, 2011 without first establishing that the amount represented consideration received towards the provision of taxable service.

15.5. Without prejudice to the above findings on merits, we find that the demand is also unsustainable on limitation. The issue pertains to the interpretation of the taxability of Mobilization Advance under the Point of Taxation Rules, 2011 and all relevant particulars were available in the books of account and contractual documents maintained by the appellant. In the absence of any evidence of suppression, wilful misstatement or intent to evade payment of tax, the extended period of limitation could not have been invoked, already held by us hereinbefore. The demand thus would be liable to be set aside on this ground as well.

15.6. Accordingly, we hold that the demand confirmed on account of the mobilization advance received by the appellant cannot be sustained and is liable to be set aside.

(E) Construction of Boundary Wall at the Ministry of Textiles Premises, Guwahati;

AND

(F) Construction of Ground Tank and Fire-Fighting Works for Apparel and Garment Manufacturing Unit at Boragaon, Guwahati

16. We have perused the records in respect of the aforesaid two work orders together, as the issues involved therein are substantially identical.

16.1. We find that the contracts in question were admittedly entered into on 02.11.2015 and 07.12.2015 respectively. The appellant has fairly conceded that the said contracts were executed after the cut-off date prescribed under Entry 12A of Notification No. 25/2012-ST dated 20.06.2012 and, therefore, the benefit of exemption under the said entry may not be available on merits. The appellant has further submitted that non-payment of Service Tax arose on account of a bona fide understanding that construction activities undertaken for Government departments and governmental bodies continued to enjoy exemption and that there was no intention whatsoever to evade payment of tax.

16.2. In the facts of the present case, we find that the demands pertaining to both the aforesaid work orders cannot be sustained on the ground of limitation. As already discussed in the preceding paragraphs, the contracts in question pertained to Government projects awarded by Government agencies and public sector entities. The existence of such contracts was never concealed from the Department and the relevant transactions were duly reflected in the books of account maintained by the appellant. The entire case of the Revenue proceeds on a different interpretation of the exemption notification and not on the discovery of any positive act of fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of Service Tax.

16.3. The Show Cause Notice dated 20.04.2019 seeks to demand Service Tax for the period March 2016 to June 2017 for the aforesaid works by invoking the extended period under the proviso to Section 73(1) of the Finance Act, 1994. In the absence of any tangible material establishing the ingredients necessary for invocation of the extended period, we are unable to sustain such invocation merely because the appellant entertained an erroneous understanding regarding the scope of the exemption notification. A bona fide interpretational dispute, by itself, cannot justify invocation of the extended period of limitation.

16.4. Accordingly, while we find that the appellant is not entitled to the exemption claimed under Notification No. 25/2012-ST in respect of the aforesaid two contracts, the corresponding demands are nevertheless liable to be set aside as being barred by limitation. Once the demands themselves fail on the ground of limitation, the question of imposition of interest and penalties in respect thereof does not survive for consideration.

Demand of Service Tax on Goods Transport Agency (GTA) Service under Reverse Charge Mechanism

17. We have considered the rival submissions and perused the records. It is not in dispute that the appellant had availed Goods Transport Agency (GTA) services during the relevant period and, being a body corporate, was covered under the reverse charge mechanism prescribed under Notification No. 30/2012-ST dated 20.06.2012. To that extent, the statutory liability to discharge Service Tax on the GTA services received cannot be seriously disputed.

17.1. However, we find considerable force in the contention of the appellant that the entire demand is revenue neutral in nature. The records indicate that the GTA services in question were availed in connection with the execution of the Works Contracts undertaken by the appellant and, had the Service Tax liability been discharged under the reverse charge mechanism, the corresponding benefit available under the CENVAT Credit Rules, 2004 would also have accrued to the appellant in accordance with law. The Revenue has not disputed the availability of such credit or otherwise demonstrated that any net loss of revenue would have arisen to the exchequer.

17.2. The concept of revenue neutrality has repeatedly been recognized by the Courts and Tribunals as a relevant consideration while examining demands where payment of duty or tax would simultaneously entitle the assessee to corresponding credit or refund benefits. In the facts of the present case, we find that the Revenue has not established any intent on the part of the appellant to evade payment of tax, nor has it demonstrated any consequential gain accruing to the appellant by non­payment of the impugned amount. In this connection, it would be pertinent refer to the decision of the CESTAT at Allahabad in the case of M/s. Indus Valley Partners (India) Pvt. Ltd. v. Commissioner of C.G.S.T., Noida [Final Order No. 70026 of 2024 dated 17.01.2024 in Service Tax Appeal No. 70010 of 2021 – CESTAT, Allahabad], wherein a similar view has been expressed by the Tribunal. The relevant observation recorded therein is reproduced below: –

“9. We find that the main contention of the Appellant in the present case is regarding revenue neutrality. Service tax on all four services, namely ‘legal services’, ‘rent-a-cab service’, ‘clouding service’ and ‘purchasing licence use of Geneva brand product’, relevant to this case was payable under reverse charge mechanism. Legal services and rent-a-cab services were specified services under Notification No.30/12-ST dated 20.06.12 on which service tax was payable by the service recipient under reverse charge mechanism. Clouding services and Authorisation for use of Geneva product were provided by entities located abroad, i.e., non­taxable area. So, service tax on said services was payable by service recipient under reverse charge mechanism. We further find that the Appellant was a registered person under service tax and was eligible for taking Cenvat credit paid on input services. It is a fact that all said services were input services for the Appellant. Whatever tax was paid on said services, the Appellant would have taken back as Cenvat credit. Thus there was no gain to the government exchequer in that case. It is a case of revenue neutrality. We find that the issue of the applicability of revenue neutrality in the circumstances of charging service tax under reverse charge mechanism has been settled in catena of judgments. In the case of Jet Airways India Ltd [2016-TIOL-2072-CESTAT-MUM], this Tribunal has considered the issue of revenue neutrality where service tax was required to pay under reverse charge mechanism as service provider was foreign based firm. The Tribunal held that as the appellant could have availed CENVAT credit of the service tax paid on reverse charge mechanism, hence a revenue neutral situation arises wherein appellant pays the tax and takes the credit and accordingly set aside the tax demand interest thereon and penalties. In the case of Jain Irrigation System Ltd. [2015 (40) S.T.R. 572 (T)] the Tribunal holds that revenue neutral situation comes about when credit is available to assessee himself. In the case of Coca-Cola India Pvt. Ltd. [2007 (213) E.L.T. 490 (S.C.)] the Apex Court accepted the stand that the duty payable in respect of beverage basis/concentrates is modvatable. Since the duty payable is modvatable, there is no revenue implication. By applying ratio of above decisions, we find that the present case is a revenue neutrality case and as such no demand is sustainable.”

17.3. Having regard to the peculiar facts of the case, the nature of the contracts executed by the appellant and the undisputed availability of corresponding credit/refund benefits under the statutory scheme, we are of the considered view that the demand raised on GTA services under the reverse charge mechanism is not sustainable and deserves to be set aside on the ground of limitation.

17.4. Accordingly, the demand confirmed under this head, together with the consequential interest and penalties, are set aside.

Demand of Service Tax on “Assignment of Right to Use Natural Resources Service” (Royalty) under Reverse Charge Mechanism

18. Upon consideration of the rival submissions and the records of the case, it is observed that the demand under this head pertains to Service Tax sought to be levied under reverse charge mechanism on Royalty paid by the appellant to the State Government/Forest Department for extraction and use of minor minerals such as sand, boulders, gravel, stone chips, earth and similar materials used in execution of works contracts.

18.1. The principal contention of the appellant is that Royalty constitutes a tax and, therefore, levy of Service Tax thereon would amount to impermissible taxation of a tax. However, the said contention no longer holds the field in view of the Constitution Bench judgement of the Hon’ble Supreme Court in Mineral Area Development Authority v. Steel Authority of India Ltd., reported in (2024) 21 Centax 378 (SC), wherein the Hon’ble Supreme Court has categorically held that Royalty payable under the Mines and Minerals (Development and Regulation) Act, 1957 is not a tax. Consequently, the appellant’s plea that Service Tax could not be levied on Royalty on the ground that Royalty itself is a tax cannot be accepted.

18.2. Nevertheless, it is observed that the impugned demand pertains to the period April 2016 to June 2017, whereas the Show Cause Notice came to be issued only on 20.04.2019 by invoking the extended period of limitation. The issue involved relates to the taxability of Royalty under the category of “assignment of right to use natural resources service”, a matter which had been the subject matter of considerable judicial debate and conflicting views before various judicial fora. In fact, the very nature and character of Royalty ultimately came to be examined by the Hon’ble Supreme Court in the aforesaid judgement. Such circumstances clearly demonstrate that the issue was interpretational and highly contentious.

18.3. In the facts of the present case, no material has been brought on record to establish any wilful suppression of facts, fraud, collusion, misstatement or deliberate intent on the part of the appellant to evade payment of Service Tax. The demand has been raised primarily on the basis of entries available in the books of accounts and records maintained by the appellant. Therefore, the essential ingredients required for invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994 are absent, as already observed by us elsewhere in this order. Accordingly, we hold that the demand confirmed under this category is barred by limitation and is therefore unsustainable. The demand of Service Tax, along with consequential interest and penalties, insofar as it relates to Royalty payments under reverse charge mechanism, is therefore set aside.

Demand of Service Tax on Trade Licence Fees paid under Reverse Charge Mechanism

19. The appellant has also challenged the demand of Service Tax under reverse charge mechanism on Trade Licence Fees paid by the appellant to the Guwahati Municipal Corporation during the relevant period, of Rs.2,581/-, which has been upheld vide the impugned order.

19.1. The records indicate that the said amount was paid under the provisions of Section 180 of the Guwahati Municipal Corporation Act, 1971 read with the relevant Schedule thereto, for obtaining and maintaining a statutory trade licence required for carrying on business within the municipal limits. Such payment is in the nature of a statutory fee levied by a local authority in exercise of its regulatory functions. The fee is collected as a condition for grant of permission/licence under the governing municipal law and cannot readily be equated with consideration paid for rendition of an independent taxable service.

19.2. It is further noticed that Entry No. 58 of Notification No. 25/2012-ST dated 20.06.2012, as amended, exempts services provided by Government or a local authority by way of registration required under any law for the time being in force. The trade licence obtained by the appellant is intrinsically connected with statutory registration/licensing requirements prescribed under the municipal law. Therefore, even viewed from the standpoint of the exemption notification, the activity is entitled to the benefit of the said entry.

19.3. In these circumstances, we hold that the demand of Service Tax confirmed on trade licence fees paid to the Guwahati Municipal Corporation is not sustainable and is liable to be set aside.

20. Lastly, coming to the issue of imposition of penalty under Section 78 of the Finance Act, 1994, we find that the impugned order has imposed penalty on the allegation that the appellant had wilfully suppressed material facts with intent to evade payment of Service Tax. However, upon examination of the records and the issues involved in the present proceedings, we find no sufficient material has been brought on record for sustaining such allegation.

20.1. It is observed that the disputes involved in the present case principally relate to the interpretation of exemption notifications and other legal issues requiring interpretation of the statutory provisions. The relevant facts concerning the contracts executed by the appellant, receipts earned therefrom and other transactions were available from the appellant’s books of account, agreements, invoices and other records produced during the course of investigation. No material has been brought on record to establish any deliberate falsification of records, concealment of transactions or conscious attempt to evade payment of tax.

20.2. It is a settled proposition that mere non­payment or short-payment of tax arising out of a dispute regarding interpretation of law or eligibility to exemption does not, by itself, establish fraud, wilful misstatement or suppression of facts so as to attract the provisions of Section 78 of the Finance Act, 1994. The burden to establish the existence of such ingredients lies upon the Revenue and the same cannot be presumed merely because a demand has been proposed. 20.3. Accordingly, we hold that the ingredients necessary for invocation of Section 78 of the Finance Act, 1994 have not been established in the present case. The penalty imposed under Section 78 ibid. is therefore unsustainable and liable to be set aside.

21. In view of the foregoing discussions and findings, we are of the considered view that none of the demands confirmed in the impugned order can be sustained in law. The issues arising in the present appeal stand answered in favour of the appellant, either on merits or on limitation, in terms of our observations in the preceding paragraphs. Consequently, the entire demand of Service Tax confirmed against the appellant vide the impugned order, along with interest and penalty thereon, stands set aside.

22.Accordingly, the impugned order cannot be sustained and is hereby set aside.

23. The appeal is allowed with consequential reliefs, if any, as per law.

(Order pronounced in the open court on 02.07.2026)