Cement Corporation of India Ltd. Vs Commissioner of CGST (CESTAT Kolkata)
The CESTAT Kolkata considered an appeal by Cement Corporation of India Limited against the order confirming service tax demands arising from an audit covering June 2015 to March 2017. A show cause notice dated 02 June 2020 had proposed a total demand of Rs.1,49,07,938 under five categories: Rs.1,24,61,772 on services received from Indian Railways for construction of railway sidings; Rs.13,45,733 on royalty paid to the State Government for extraction of limestone; Rs.1,46,250 on works contract service; Rs.53,803 towards Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC); and Rs.9,00,380 relating to Cenvat credit allegedly availed on ineligible documents. The Additional Commissioner confirmed the demands with interest and penalty on 08 November 2021, and the Commissioner (Appeals) upheld them on 07 June 2023.
On the demand of Rs.1,24,61,772 relating to construction of a railway siding, the Tribunal examined Notification No. 25/2012-ST dated 20 June 2012, which exempted services by way of construction, erection, commissioning or installation of original works pertaining to an airport, port or railways, including monorail or metro. The lower authority had denied the exemption by relying on the definition of “railways” under the Railways Act, 1989 and treating the appellant’s siding as private infrastructure not used for public carriage of passengers or goods.
The Tribunal held that “railways” had not been defined under the Finance Act, 1994 and that the Finance Act did not distinguish between public and private railways. It held that the Department could not rely on a definition contained in another statute to create an artificial distinction for purposes of the exemption. In reaching this conclusion, the Tribunal relied upon Notification No. 25/2012-ST and the decisions in Triveni Engicons Private Limited, Hari Construction & Associates Private Limited, Konkan Railway Corporation Limited and Shri Mahendra Kumar Anchalia. The Tribunal accordingly held that the demand of Rs.1,24,61,772 was not sustainable and set it aside.
In relation to the Rs.13,45,733 service tax demand on royalty paid to the State Government for extraction of limestone, the Tribunal observed that services by way of grant of natural resources by the Government became taxable only with effect from 01 April 2016. Since the relevant agreements had been executed before 01 April 2016, the Tribunal held that the service tax provisions applicable before that date governed the leviability of service tax on the royalty payments. It therefore held that service tax could not be fastened on the appellant merely because consideration was paid after introduction of the levy and set aside the demand.
As regards the Rs.1,46,250 demand relating to works contract service, the Tribunal found that the appellant had acted as a sub-contractor to M/s. R.S. Engineering. Although the appellant contended that the main contractor had discharged service tax on the full value, the Tribunal relied on the Board’s Circular dated 23.08.2007, which clarified that a sub-contractor remains liable to service tax even where the main contractor pays service tax on the full value. The Tribunal held that the appellant was required to discharge service tax on reverse charge basis at 50 percent and consequently upheld the liability of Rs.1,46,250 along with interest. However, it found no intention to evade payment of service tax and held that no penalty was imposable on this demand. The principle concerning the liability of a sub-contractor despite payment by the main contractor is also discussed in TaxGuru’s discussion on sub-contractor service tax liability.
On the Rs.53,803 demand comprising SBC and KKC, relating respectively to November 2015 to December 2015 and June 2016 to August 2016, the Tribunal noted that the show cause notice was issued only on 02 June 2020 by invoking the extended period of limitation. Since the non-payment of the cesses was already within the Department’s knowledge pursuant to the audit, the Tribunal held that there was no intention to evade payment of service tax and that the demand was not sustainable on limitation. TaxGuru has also discussed the levy and applicability of Krishi Kalyan Cess and Swachh Bharat Cess.
Regarding denial of Cenvat credit of Rs.9,00,380, the Tribunal considered Notification No. 26/2014 (CE) dated 27 August 2014, under which a Service Tax Certificate for Transportation of Goods by Rail (STTG Certificate) issued by Indian Railways was prescribed as an eligible document. The appellant had obtained STTG certificates and produced them before the adjudicating authority. On examination, the Tribunal found that the certificates were in the prescribed format and contained the particulars available in the railway receipts required for availing the credit. It therefore held that the STTG certificates were valid documents and that the credit could not be denied. TaxGuru has separately published the relevant Notification No. 26/2014 concerning STTG Certificates.
Accordingly, the Tribunal set aside the Rs.1,24,61,772 demand relating to construction of the railway siding, the Rs.13,45,733 royalty demand and the Rs.53,803 SBC/KKC demand. It upheld the appellant’s liability to pay Rs.1,46,250 service tax with interest on the works contract service rendered as a sub-contractor, while holding that no penalty was imposable on that demand. The order denying Rs.9,00,380 Cenvat credit was also set aside. The appeal was disposed of on these terms by Final Order No. 76006/2024, pronounced in open court on 05 June 2024.
Cases Discussed
- Shri Mahendra Kumar Anchalia Vs. Commissioner of CGST & CX, Kolkata, [2023 (9) TMI 1377] — The Tribunal relied upon this decision for the proposition that Notification No. 25/2012-ST does not restrict the railway exemption to infrastructure used for public carriage of passengers or goods.
- Konkan Railway Corporation Limited Vs. Commissioner of CGST & Central Excise, [(2023) 8 Centax 161; affirmed by the Hon’ble Supreme Court in (2023) 8 Centax 166 (S.C.)] — The Tribunal relied upon this decision for holding that, where “railways” is not defined in the Finance Act, 1994 or the exemption notification, a distinction between private and public railways cannot be artificially created by relying on the definition in another statute.
- Triveni Engicons Private Limited Vs. Commissioner of CGST and Central Excise, Jamshedpur, [2024 (3) TMI 917 (Tri. – Kol.)] — The Tribunal referred to this decision as supporting the availability of exemption for construction of railway siding/infrastructure.
- Hari Construction & Associates Private Limited Vs. Commissioner of CGST and Central Excise, [2023 (9) TMI 454 (Tri. – Kol.)] — The Tribunal referred to this decision as another decision supporting the availability of the railway-related exemption.
FULL TEXT OF THE CESTAT KOLKATA ORDER
Cement Corporation of India Limited (hereinafter referred to as the (<Appellant=) is a Central Public Sector Enterprise engaged in the manufacture of cement falling under Chapter 25 of the Central Excise Tariff Act. Pursuant to an audit conducted for the period June 2015 to March 2017, a show cause notice dated 02 June 2020 was issued to the Appellant containing the following allegations:
| Allegation in the Impugned Notice | Amount of Service Tax demanded |
|---|---|
| Demand of Service Tax on reverse charge basis on services received from the Indian Railways for the construction of Railway Sidings by denying the benefit of exemption Notification no. 25/2012 – ST dated 20 June 2012. | 1,24,61,772/- |
| Demand of Service Tax on reverse charge basis on the royalty amount paid to the State Government on natural resource (limestone) extraction. | 13,45,733/- |
| Demand of Service Tax on reverse charge basis on works contract service received by the Appellant. | 1,46,250/- |
| Short Payment of Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC) | 23,520/- + 30,283/-
= 53,803/- |
| Input Service Credit availed on the basis of ineligible documents. | 9,00,380/- |
| Total | 1,49,07,938/- |
2. The impugned Notice was adjudicated vide an order dated 08 November 2021 passed by the Ld. Additional Commissioner of CGST and CX, Guwahati, wherein he has confirmed the demands raised in the Notice along with interest and penalty. On appeal, the Ld. Commissioner (Appeals) upheld the demands confirmed in the Order-in-Original vide impugned Order-in-Appeal dated 07 June 2023. Aggrieved against the impugned order, the appellant has filed this appeal.
3. Regarding the demand of service tax of 1,24,61,772/- in respect of construction of Railway Siding, the appellant submits that the services are exempt in terms of Notification No. 25/2012- ST dated 20 June 2012. The appellant further submits that the issue is no more res-integra in view of the decisions of various Tribunals 3.1. The appellant submits that they have entered into a contract with the Northeastern Frontier Railway Administration for the construction of a private railway siding at the premises of a cement factory of the Appellant at an estimated value of Rs. 11.83 crores. The services rendered by way of construction, erection, commissioning and installation of original works pertaining to <railways= are exempt under Notification No. 25/2012 – ST dated 20 June 2012. This view has been held by the Tribunal, Mumbai in the case of Konkan Railway Corporation Limited Vs. Commissioner of CGST & Central Excise[(2023) 8 Centax 161] – Affirmed in by the Hon’ble Supreme Court in (2023) 8 Centax 166 (S.C.). The same view has been taken by the Tribunal, Kolkata in the case of Shri Mahendra Kumar Anchalia Vs. Commissioner of CGST & CX, Kolkata [2023 (9) TMI 1377]. Accordingly, the appellant contended that the demand confirmed in the impugned order on this count is not sustainable.
3.2. Regarding the demand of service tax of Rs.13,45,733/- on the royalty amount paid to the State Government on natural resource (limestone) extraction, on reverse charge basis, the Appellant submits that the royalty payments made during the Financial Year 2016-17 was in lieu of mining agreements that were executed prior to 01 April 2016. Prior to 01 April 2016, only <support services= provided by government or a local authority was taxable in terms of Section 66D of the Finance Act, 1994. <Support services= was defined under the Finance Act, 1994 as:
“support services” means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis;”
3.3. However, with effect from 01 April 2016, all services provided by the government were brought under the service tax net. Therefore, services by way of grant of natural resources by the Government became taxable only with effect from 01 April 2016. In the present case, the agreements were executed prior to 01 April 2016 and therefore the provisions of service tax, as applicable prior to the said date would be applicable to determine the leviability of service tax on the royalty payments. It has been settled by a number of judgements of the Tribunals that when the assignment of right to use natural resources was made before 01 April 2016, service tax liability cannot be fastened upon the Appellant even if the consideration for the same is paid after the introduction of the levy with effect from the said Appeal Nos.: ST/76094/2023-DB date. In support of this contention, the appellant relied on the following decisions:
a. Ms. The Madhya Pradesh State Mining Corporation Limited Vs. Pr. Commissioner, CGST & Central Excise2023 (4) TMI 1075 –
b. (Tri. – New Delhi) b. Principal Commissioner of CGST and Central Excise Vs. SK Traders(2023) 9 Centax 407(Tri. – New Delhi)
3.4. Regarding the demand of service tax of 1,46,250/- under works contract service, the appellant submits that they have entered into a work contract agreement with the main contractor M/s. R.S. Engineering for the value of Rs. 22,42,500 which was inclusive of Service Tax amounting to Rs. 2,92,500/-. Therefore, the Appellant duly paid the service tax at the rate of 100 percent to the works contractor. The said service tax was subsequently paid to the government exchequer by the main contractor. The Appellant has obtained a declaration from the works contractor that the amount of Service Tax collected by the Appellant has been duly discharged by the works contractor. It is the case of the Department that the tax on the said works contract was required to be paid by the Appellant on a reverse charge basis at the rate of 50 percent. However, the payment of tax by the Appellant to the works contractor is merely a procedural lapse. There has been no loss of Revenue to the Department as the service tax has been duly paid by the main contractor to the government exchequer.
3.5. Regarding the demand of Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC) totally amounting to Rs. 53,803/-, the appellant submits that the demand pertains to the period November 2015 to December 2015 and June 2016 to August 2016 respectively. However, the impugned notice was issued only on 02 June 2020. The fact of non- payment of the cesses was within the knowledge of the department pursuant to the Audit conducted. When the relevant fact was already in the knowledge of the Department, extended period of limitation cannot be invoked in order to demand the cesses. Therefore, the demand confirmed by invoking extended period of limitation is not sustainable.
3.6. Regarding denial of input tax credit amounting to Rs. 9,00,380/- on the ground of ineligible documents, the appellant submits that the Cenvat Credit was originally taken based on the railway receipts given by the railways. In terms of Notification No. 26/2014 (CE) dated 27 August 2014, the Appellant was required to obtain STTG certificate to avail the Cenvat Credit. They have obtained the STTG certificates and submitted the same before the Ld. Adjudicating Authority during the course of personal hearing. However, the Ld. Adjudicating Authority has rejected the credit by holding that no co-relation is possible between the submitted documents. In this regard, the Appellant submits that the STTG Certificates were in the prescribed format as contained in the aforesaid Notification. The said certificates contained the particulars of the Railway Receipts based on which the credit was availed. Accordingly, they contended that the credit availed cannot be denied.
4. The Ld. A. R. reiterated the findings in the impugned order.
5. Heard both sides and perused the appeal documents.
6. We observe that the impugned order has confirmed the demands under five different categories. We have examined the demands on the basis of the submissions made by the appellant, department and other documentary evidences available on record.
6.1. Regarding the demand of service tax of 1,24,61,772/- in respect of construction of Railway Siding, the appellant submits that the services are exempt in terms of Notification No. 25/2012- ST dated 20 June 2012. Relevant extracts of the said notification have been reproduced hereunder:
”14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,-
(a) an airport, port or railways, including monorail or metro;=
6.2. We observe that the impugned order has relied upon the definition of <railways= as given in the Railway Act, 1989 to hold that the benefit of the aforesaid exemption notification shall not be available to the Appellant because the sidings constructed by the Railways for the Appellant was for private use and the same was not used for public carriage of passenger or goods.
6.3. We observe that the term <railways= has not been defined under the Finance Act, 1994. Accordingly, no distinction has been made out between public and private railways in the said Act. The Department cannot fall back on the definition of <railways= in another statute for the purpose of creating an artificial distinction between the two.
6.4. We observe that the issue with respect to availability of the benefit of exemption on services of construction of railway siding is no more res-integra in view of the judgements rendered by the Tribunals in the following cases:
a. M/s. Triveni Engicons Private Limited Vs. Commissioner of CGST and Central Excise, Jamshedpur [2024 (3) TMI 917 (Tri. – Kol.)].
b. M/s. Hari Construction & Associates Private Limited Vs. Commissioner of CGST and Central Excise [2023 (9) TMI 454 (Tri. – Kol.)].
6.5. In support of this view, we also rely upon the decision of the Tribunal, Mumbai in the case of Konkan Railway Corporation Limited Vs. Commissioner of CGST & Central Excise[(2023) 8 Centax 161] – Affirmed in by the Hon’ble Supreme Court in (2023) 8 Centax 166 (S.C.) . Relevant extracts of the said judgement is reproduced hereunder:
”9. It is, thus, clear that the proposition of strict construction of intent of exemption notification must also go hand in hand with strict construction of every word/phrase therein. The exemption from tax is available to ‘railways’, excluding mono rail or metro, by notification no. 25/2012-ST dated 20th June 2012 after Appeal Nos.: ST/76094/2023-DB 1st July 2012 and, as conceded by the adjudicating authority, there being no definition of ‘railway’, either therein or in Finance Act, 1994, the distinction between railway for private purpose and railway for public service cannot be artificially contrived to suit tax administration; neither can the definition in another statute be drawn upon for the purported purpose of illumination. The Railways Act, 1989 was enacted to authorize Government of India to operate the railway network of the country; it also affords a framework for administration of the railway services and jurisdictional monopoly. The ‘taxable service’ in Finance Act, 1994 excluding ‘railways’ from the ambit of the service did not place any restriction on benefit going to private railways. The statute, too, did not consider it necessary to fall back on the definition of ‘railways’ in another statute for determination of taxability and it is not open to the adjudicating authority to arrogate that privilege in an executive capacity. The intent of exclusion prior to 1st July 2012, and exemption for the period, thereafter, is abundantly clear.=
6.6. We also find that the Tribunal, Kolkata in the case of Shri Mahendra Kumar Anchalia Vs. Commissioner of CGST & CX, Kolkata [2023 (9) TMI 1377] held the same view. Relevant extract of the said decision is reproduced below:
”11.The department has interpreted the word “Railways” in the aforesaid notification and restricted it’s meaning to cover only <Railways meant for public carriage of passengers or goods”. We observe that there is no such restriction available in the Notification. A plain reading of the Notification reveals that the exemption is available to all Railways whether it is run by Government or the tracks are laid at private Firms. The exemption notification has a wider impact and it is sufficient to cover any infrastructure as Railway. As there is no mention of the fact that the structure has to be used for public carriage, we hold that the exemption is available to all Railway infrastructure.”
6.7. In view of the above, we hold that the demand confirmed in the impugned order is not sustainable.
7. Regarding the demand of service tax of Rs.13,45,733/- on the royalty amount paid to the State Government on natural resource (limestone) extraction, on reverse charge basis, we observe that the services by way of grant of natural resources by the Government became taxable only with effect from 01 April 2016. In the present case, the agreements were executed prior to 01 April 2016 and therefore the provisions of service tax, as applicable prior to the said date would be applicable to determine the leviability of service tax on the royalty payments. It has been settled by a number of decisions of the Tribunals that when the assignment of right to use natural resources was made before 01 April 2016, service tax liability cannot be fastened upon the Appellant even if the consideration for the same is paid after the introduction of the levy with effect from the said date. Accordingly, we hold that the demand of service tax confirmed in the impugned order is not sustainable.
8. Regarding the demand of service tax of 1,46,250/- under works contract service, we observe that the appellant worked as a ‘sub-contractor’ contractor for the main contractor M/s. R.S. Engineering. The appellant submits that the main contractor paid service tax on the full value and hence they are not liable to pay service tax as a ‘sub-contractor’ again. We observe that this issue has been clarified by Board vide Circular dated 23.08.2007, wherein it has been clarified that the ‘sub-contractor’ is liable to pay service tax even if the main contractor pays service tax on the full value. In the present case, for the works contract service rendered, the appellant was required to pay service tax on reverse charge basis at the rate of 50 percent. Accordingly, we hold that the appellant is liable to pay service tax of 1,46,250/-, along with interest as demanded in the impugned order. However, no penalty imposable on this service tax confirmed as the intention to evade payment of service tax does not exist in this case.
9. Regarding the demand of Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC) totally amounting to Rs. 53,803/-, we observe that the demand pertains to the period November 2015 to December 2015 and June 2016 to August 2016 respectively and the impugned notice was issued only on 02 June 2020, by invoking extended period of limitation. We observe that the fact of non- payment of the cesses by the appellant was well within the knowledge of the department in view of the Audit conducted. Accordingly, we hold that the intention to evade payment of service tax does not exist in this case. Thus, we hold that the demand confirmed on this count is not sustainable.
10. Regarding denial of input tax credit amounting to Rs. 9,00,380/- on the ground of ineligible documents, we observe that initially the appellant has taken the Cenvat Credit on the basis of the railway receipts given by the railways. In terms of Notification No. 26/2014 (CE) dated 27 August 2014, the Appellant was required to obtain Appeal Nos.: ST/76094/2023-DB STTG certificate to avail the Cenvat Credit. We observe that the appellant has obtained the STTG certificates as required under the said notification and submitted the same before the Ld. Adjudicating Authority during the course of personal hearing. However, the Ld. Adjudicating Authority has rejected the credit by holding that no co-relation is possible between the submitted documents. We have perused the STTG certificate submitted by the appellant. We observe that the STTG Certificates were in the prescribed format as contained in the aforesaid Notification. We also observe that the said certificates contain all the particulars available in the Railway receipts, as required to avail the credit. Accordingly, we hold that the STTG certificates are valid documents to avail the credit and hence the credit availed cannot be denied.
11. In view of the above discussions, we pass the following order:
(i) The demand of service tax of 1,24,61,772/- in respect of construction of Railway Siding confirmed in the impugned order is set aside.
(ii) The demand of service tax of Rs.13,45,733/- on the royalty amount paid to the State Government on natural resource (limestone) extraction, on reverse charge basis, is set aside. (iii) The appellant is liable to pay service tax of 1,46,250/- along with interest for the works contract service rendered by them as a ‘sub- contractor’. No penalty imposable on this demand confirmed.
(iv) The demand of Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC) totally amounting to Rs. 53,803/-is set aside on the ground of limitation.
(v) The input tax credit amounting to Rs. 9,00,380/ has been availed by the appellant on the Appeal Nos.: ST/76094/2023-DB basis of the STTG certificates issued by Railways, which is a valid document to avail the credit. Accordingly, the order denying the credit is set aside.
12. The appeal filed by the appellant is disposed on the above terms.
(Order Pronounced in Open court on 05.06.2024)
