Composite Contracts involving supply of materials couldn’t be taxed under construction service

The Braithwaite Burn And Jessop Construction Company Limited Vs Commissioner of Service Tax-II (CESTAT Kolkata)

Conclusion: Composite contracts involving supply of materials could not be taxed under construction or other service categories and only the service portion was liable to tax.

Held: Assessee – a Public Sector Undertaking was engaged in execution of infrastructure projects, was issued a show cause notice dated 15.10.2012 demanding service tax for the period 2007–08 to 2011–12 under multiple taxable categories along with interest and penalties by invoking the extended period of limitation. The demands pertained to services rendered to entities such as BHEL, SAIL, Chittaranjan Locomotive Works (CLW), and Rajendra Agricultural University (RAU), along with disallowance of CENVAT credit. Adjudicating authority confirmed the demand, leading to the present appeal. The issue arose for consideration was whether composite contracts involving supply of goods and services were classifiable under “Works Contract Service” or other taxable categories like CICS, ECIS, or Consulting Engineering Services. It was held that contracts executed for BHEL, SAIL, CLW and RAU involved supply of materials along with services, thus constituting composite works contracts.  In light of the Supreme Court ruling in Larsen & Toubro, such contracts could not be vivisected and taxed under categories like CICS or ECIS. Consequently, demands raised under Commercial or Industrial Construction Service (CICS) and Erection, Commissioning & Installation Service were legally unsustainable.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The appellant is a reputed Public Sector Undertaking, taking up the infrastructure works for other PSUs and other corporates. On the ground that the appellant has not paid the Service Tax under different headings, and they have availed irregular Cenvat credit, a Show Cause Notice came to be issued on 15.10.2012, by invoking the extended period provisions, demanding the Service Tax for the period 2007-08 to 2011-12. The appellant submitted their reply giving the details of services provided by them, exemption available to them, details of the invoices based on which the cenvat credit was taken etc. They contested the demand both on merits as well as on account of limitation. After due process, the Adjudicating authority confirmed the demand, along with interest and penalty. Being aggrieved, the appellant is before the Tribunal.

2. The Ld Counsel appearing on behalf of the appellant makes the following submissions :

2.1 The details of the confirmed demand under various headings, demand hit by the time bar etc., are per the following Table:

2. 2 In respect of Civil Construction Services rendered to BHEL, it is submitted that the SCN proposed to demand the Service Tax under the category of Commercial and Industrial Construction Services [CICS], ignoring the fact the service is in the nature of Works Contract. The appellant has provided services during the period 2007­08 to 2009-10 in relation to Waste Heat Recovery Project in Assam. The scope of work includes civil, structural, piling and architectural works, site levelling, earth cutting, filling, dismantling of existing exhaust stacks equipment including insulation and steel structure, duct works etc. The said work also includes supply of materials for use in said contract. The said work has been sub-contracted by the appellant to Frontier Engineering. The sample copy of Works Contract Tax Deduction Certificate issued by BHEL under the Assam VAT Act to show that the client (BHEL) has made deduction of sales tax for supply of materials, is enclosed with the appeal submissions. The law in this regard has been settled by the Hon’ble Supreme Court in Larsen & Toubro Ltd 2015 (39) S.T.R 913 (S.C.). Reliance is also placed on the decision of Hon’ble Chennai Tribunal in URC Construction (P) Ltd vs. CCE, Salem [2017 (50) STR 147 (Tri- Chennai)] wherein there was an identical issue, amongst others, whether demand could be upheld for the period June 2007 to September 2008 under CICS, in case where the construction service rendered by the assessee also involved supply of materials and the classification of Works Contract Services was not proposed in the SCN for raising demand. Taking note of the precedent set by the Hon’ble Supreme Court in Larsen & Tourbo’s case (Supra), the Hon’ble Tribunal set aside the entire demand under the category of CICS. Therefore, it is submitted that the impugned order demanding Service Tax under the head “Commercial or Industrial Construction Service” is legally not sustainable.

2.3 He further submits that even as the Revenue has held the service to be falling under CICS, the abatement available under Notification No.1/2006 ST dated 1.3.2006 has been denied in respect of the value of the goods used in the provision of the service. The ground taken by the Revenue is the goods have been supplied free of cost by the client. This issue stands decided by the Larger Bench in the case of Bhayana Builders (P) Ltd vs. Commissioner of Service Tax, Delhi [2013 (32) S.T.R 49 (Tri-LB)] wherein it has been held that abatement benefits would be available even if value of freely supplied materials are not included in the assessable value. Therefore, even on this ground the confirmed demand is required to be set aside.

2.4 In respect of the steel structural works undertaken for SAIL, he submits that the services in relation to ^„structural steel and cladding work for extension of J-K BAY for installation at Alloy Steels Plant, Durgapur, West Bengal during the period from 2010-11 to 2011-12. The said work also includes supply of goods. The department has raised demand by classifying the service under “Erection, Commissioning or Installation Service” under section 65(105)(zzd) of the Finance Act, 1994.The subject service rendered to SAIL cannot be classified in the category of Erection Commissioning and Installation Services but under “Works Contract Services” as Section 65(105) (zzzza) of the Finance Act, 1994. Certificates issued by SAIL Durgapur towards Works Contract Sales Tax copies of which are enclosed from Page no. 234 onwards of PB. As the contract also includes supply of materials on which WCT has been deducted by the client, the law in this regard has been settled by the Hon‟ble Supreme Court in Larsen & Toubro Ltd (2016) 1 Supreme Court Cases 170. The impugned order demanding Service Tax under the head “Erection Commissioning and Installation Services” is legally not sustainable. The tax liability of Rs. 1,42,033/- has been adjusted from CENVAT A/c and therefore no further liability arises. The Ld. Commissioner has failed to take into cognizance regarding the payment of above tax liability from CENVAT balances. The appellant relies on the case law of PES Engineers Pvt Ltd vs. CCE & ST, Hyderabad – II [2017 (7) GSTL 57 (Tri- Hyd.)] wherein in identical issue was involved for demand pertaining to the period January 2005 to March 2012 under Erection Commissioning and Installation Service. The Hon‟ble Tribunal has held that the services were classifiable under “Works Contract Service” and not “Erection Commissioning and Installation Service”.

2.5 The appellant has provided services to Chittaranjan Locomotive Works (CLW), Indian Railways, in relation to “fettling, machining & assembling” of “134” casnub bogies” during the period of F.Y. 2008-09 to 2011-12. The said service has been classified under “Erection, Commissioning or Installation Service‟ by the department. The Appellant has duly paid applicable sales tax on supply of materials for use in said contract. The demand proposed in the SCN has been dropped by the Ld. Commissioner on the basis of submissions made by the appellant. Out of total admitted tax liability of Rs. 2,52,876/-, the appellant has already paid Rs.2,24,654/- by cash through treasury challans and CENVAT credit as has shown in the ST-3 returns in the normal course of their operations, The balance amount of Rs.28,222/-has not yet been paid by appellant, since the same is being contested. The Appellant submits that the said service rendered cannot be classified in the category of Erection Commissioning and Installation Services but under “Works Contract Services” and therefore the demand cannot be legally sustained.

2.6 The appellant has entered into a contract with the Rajendra Agricultural University in pursuance to the ^„Memorandum of Understanding’ (MOU) dated 06.10.2009 executed between the appellant and the said university. The Scope of Work includes new construction, renovation, special repairs, extension of University’s main campus and extension centres and the appellant would be paid cost of work plus agency charges of 8.5% for the project survey, planning, management, supervision and other consultancy services including architectural services for planning, designing etc. For the purpose of execution of said project, though the appellant has sub­contracted the works to various parties, the appellant is fully responsible for the quality and workmanship of the said project. The Ld. Commissioner has raised demand of service tax of Rs. 95,52,814/-in the category of “Consulting Engineering Service” on the ground that the appellant has received consultancy charges of 8.5% of the cost of project. However, while computing the said demand, the Ld. Commissioner considered the entire value of bills raised on RAU for cost of construction as well as 8.5% profit thereon. The subject services have been rendered for construction of University Building and not merely for rendition of consultancy services. The appellant, in terms of the contract, is responsible for undertaking the entire construction services which includes incidental consultancy services. For the purpose of execution of said project, the appellant has sub­contracted the work to three sub-contractors namely Nandlal & Co., Delco Infrastructure Projects Ltd and Dutsan G Engineering Pvt Ltd. and the appellant has duly deducted Sales Tax (works contract tax under the State Sales Tax law) for the reason that the said contract includes supply of materials and hence constitutes ^„works contract’ from Sales tax point of view. Since the subject work is for construction of University Building, the impugned demand raised by the Ld. Commissioner in the category of Consulting Engineer’s services is not sustainable. Moreover, since the subject services if for construction of University Building belong to Govt of Bihar, the same is also not classifiable under the category of Commercial or Industrial Construction or Works Contract Services for the purpose of levy of service tax. The appellant relies on the decision of the Hon’ble Tribunal in Deccan Construction Company vs. Commissioner of GST & Central Excise – 2025 SCC Online CESTAT 4078 wherein it has been held that construction services provided for construction of buildings for educational institutions is not taxable under commercial and industrial construction services. Further, reliance in this regard is placed on the decision of – Principal Commissioner CGST & Central Excise vs. Aakriti Construction in Service Tax Appeal No. 52714 of 2019 and Aakriti Construction vs. Principal Commissioner CGST & Central Excise in Service Tax Appeal No. 50263 of 2022 (2025 SCC OnLine CESTAT 2373) wherein it has been held that construction services provided to educational institutions is non­commercial in nature and therefore not leviable to service tax.

2.7 It is further submitted that in the SCN, it was also alleged that the Appellant has collected service tax on the margin amount of 8.5%. In the course of adjudication, the Appellant in their defence reply duly submitted that they have not collected the service tax amount. No finding has been given by the Ld. Commissioner in the impugned OIO to the said submissions. Thus, the said allegation of collection of tax amount is merely a vague allegation without any concrete evidence and hence the same cannot be sustained in absence of any specific finding in the adjudication order. In any case, there is no final finding in the OIO that service tax has been collected by the Appellant.

2.8 In respect of the Service Tax demands on the above headings, as per the detailed submissions made, it is prayed that the appeals may be allowed on merits.

2.9 The appellant has availed CENVAT Credit amounting to Rs. 8,62,823/- during the period 2007 to 2012 under the provisions of CENVAT Credit Rules 2004. In the impugned OIO, it has been alleged that the said credit has been availed without any supporting invoices. Further, it has been alleged than an amount of Rs. 2,22,649.00 has been availed and/or utilised in excess of the available CENVAT Credit balances during the relevant period. The Appellant submitted that there was a mistake in not disclosing the credit amount in the returns. Reliance in this regard is placed on the decision in the case of Antares Services Pvt Ltd vs. CCE 2024 (388) ELT 200 (Tri-Chand) and further in the case of M/s. Origin Learning Solutions Pvt Ltd vs. Comm of Service Tax, Chennai [Final Order no. 41698/2011 dated 20.07.2021 in ST Appeal no. 40599 of 2017, Chennai Bench] wherein it has been held that credit cannot be denied merely because the same has not been disclosed in the returns. It is submitted that the Appellant possesses all supporting invoices on the basis of which credit has been obtained. The Appellant prays for a direction for examination of the invoices on the basis of which entitlement of CENVAT Credit can be duly examined by the Authorities.

2.10 In respect of the confirmed demands, it is also the submission of the appellant that the SCN issued on 15.10.2013 by invoking the extended period provisions, the same is hit by time bar for the reasons dismissed below:

2.11 The allegation in the Show Cause Notice that had the Department not intervened, the non-payment of tax would have remained undetected. It is a settled legal position as has been consequently held by the Hon’ble Tribunal that the Department is required to undertake scrutiny/assessing return within the prescribed period of limitation. Having not undertaken the assessment/scrutiny, the Department cannot allege any fraud or suppression. Reliance in this regard is placed on the decision of Sidharth Polysacks Pvt Ltd – 2025 SCC OnLine CESTAT 3067 wherein Excise Returns were filed regularly and classification was questioned during audit, it has been held that classification cannot be questioned invoking extended period of limitation where there is no suppression/fraud on the part of the assessee with an intent to evade payment of duty.

2.12 It is further submitted that it is a settled legal position that there cannot be any case of fraud or with an intent to evade payment of demand that the assessee is a public sector undertaking. Reliance in this regard is placed on the decision of the Hon’ble Delhi Bench of CESTAT in CCE Indore vs. Nepa Ltd. 2013 (298) ELT 225 (Tri-Del).

2.13 Further it is submitted that the appellant is a PSU and cannot have intent to evade payment of duty by wilfully availing wrong credit. In the case of CCE, Chennai vs. Chennai Petroleum Corporation Ltd. 2007 13 Supreme Court cases 393, the assessee being a PSU, was a refinery producing electricity from Refinery Fuel Oil (RFO) which was being sold outside the said refinery. The department raised demand invoking the extended period of limitation. The Hon’ble Supreme Court held that the assessee being a PSU was owned by the Government could not be charged for suppression even though duty was legally payable on the portion of RFO used in generation of electricity sold outside the refinery.

2.14 In view of the above submissions, it is also prayed that the confirmed demands for the extended period may be set aside on account of time bar also.

3. The Ld.AR appearing for the Revenue reiterates the findings of the Adjudicating authority and justifies the confirmed demand.

4. Heard both sides, perused the appeal papers and further submissions made by the appellant.

5. We first take up the smaller issues involved in this appeal.

6. In respect of the services provided to Chittaranjan Locomotive Works (CLW), Indian Railways, the Appellant has duly paid applicable sales tax on supply of materials for use in said contract. A part of the demand proposed in the SCN has been dropped by the Ld. Commissioner on the basis of submissions made by the appellant. The admitted liability by the appellant is to the extent of Rs. 2,52,876/-, against which the appellant has already paid Rs.2,24,654/- by cash through treasury challans and CENVAT credit as has shown in the ST-3 returns in the normal course. Therefore, we hold that they are liable to pay the balance amount of Rs.28,222. The same is required to be paid along with interest. Considering the factual details, we hold that no penalty is required to be paid on this amount.

7. In respect of the disputed confirmed demand on account of cenvat credit availed by the appellant, the appellant has submitted that they possess all supporting invoices on the basis of which credit has been taken. Therefore, they have prayed for a direction to the Adjudicating authority for examination of the invoices on the basis of which entitlement of CENVAT Credit can be finalized. We find this to be a reasonable request from their side. For the demand on this account pertaining to the normal period, excluding the demand for the extended period, we remand the matter to the Adjudicating authority for proper examination of the documentary evidence to the placed by the appellant.

8. We have gone through Agreement between BHEL and the appellant. The relevant portion is extracted below :

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9. A careful reading of the relevant clauses makes it clear that the appellant is responsible to provide labour, materials, consumables, and to use their own equipments, construct temporary storage sheds etc. This shows that material supply is an essential part of the Agreement. It is not a mere contract for providing the service alone. It is also seen what Works Contract related WCT under VAT law is also payable. These factual details make it clear that it is service would be classifiable under Works Contract service.

10. The Chennai Bench of the Tribunal in the case of URC Construction(P)Ltd. Vs Commissioner of Central Excise, Salem 50 STR 147, had similar issue before them. They have held as under :

2. We note that the findings of the adjudicating authority do accept that supply of goods were involved in the contracts and that he was merely sceptical that VAT liability had been discharged on the goods supplied in the contract; whether VAT liability was discharged on the goods or not is irrelevant in the light of the decision of the Hon’ble Supreme Court in re Larsen & Toubro We, therefore, have to merely determine the scope of taxability of ^„works contract service‟ rendered before and after 1st June, 2007 under the Finance Act, 1994.

3. The Hon’ble Supreme Court in re Larsen & Toubro has decided thus

^“24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section65 (105) which defines “taxable service” as “any service provided”. All the services referred to in the said subclauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of properly in goods transferred in the execution of a works contract.‟

5. Insofar as demand for subsequent period till 30th September, 2008 is concerned, it is seen that neither of the two show cause notices adduce to leviability of tax for rendering ^„works contract service‟. On the contrary, the submission of the appellant that they had been providing ^„works contract service‟ had been rejected by the adjudicating authority. Therefore, even as the services rendered by them are taxable for the period from 1st June, 2007 to 30th September, 2008 the narrow confines of the show cause notices do not permit confirmation of demand of tax on any service other than ^„commercial or industrial construction service‟. It is already established in the aforesaid judgment of the Hon’ble Supreme Court that the entry under Section 65(105)(zzd) is liable to be invoked only for construction simpliciter. Therefore, there is no scope for vivisection to isolate the service component of the contract.

6. In view of the above, the impugned orders are set aside and appeals are allowed.

11. We find that to the factual details of the current appeal, the cited case is squarely applicable. Therefore, we set aside on merits, the confirmed demand of Rs.50,87,832 in respect of the services provided to BHEL.

12. In respect of the services rendered to SAIL, against the demand of Rs. 12,89,966/- , noting that bills were not raised to the extent as provided in agreement, the Adjudicating authority has dropped demand of Rs.7,79,457/-. The net demand has been arrived at Rs. 5,10,509/-. The appellant has submitted that this amount has been discharged by utilisation of CENVAT credit. However, while filing the ST 3 Returns, they have shown utilisation of credit of only Rs. 3,68,476/- (2,89,680/­+ 78,796/-) but the balance liability of Rs. 1,42,033/- i.e. (5,10,509 – 3,68,476) has been stated to be paid through CENVAT credit but however the same has been inadvertently not shown in the ST-3 returns. The Ld. Commissioner has not given any finding in this regard. The said amount of Rs.1,42,033/- paid through CENVAT Credit has not been appropriated and has been included the same in the total demanded tax liability. The appellant has also argued that the service rendered to SAIL cannot be classified under Erection Commissioning and Installation Services but under “Works Contract Services” as Section 65(105) (zzzza) of the Finance Act, 1994. They have also relied on case laws to this effect.

13. We find that the appellant themselves in Para (8) of their submissions have admitted that out of the total demand, part of the demand amounting to Rs.7,79,457 has been dropped on the ground that no Invoice was raised by them for the works. We find that the Revenue has not filed any appeal against this dropped demand. In respect of the balance confirmed amount of Rs.5,10,509 it stands admitted by the appellant that they have utilized Cenvat Credit to the extent of Rs.3,68,476 towards this tax due and even the balance of Rs.1,42,033 was also paid by utilizing the Cenvat but they have inadvertently not shown same in the ST 3 Return. This makes it clear that the appellant had not taken any stand on the ground that they are not liable to pay the Service Tax, as is being taken up by them now. They were taking the Cenvat Credit, paying the Service Tax, showing the same in the ST 3 Returns and in one case they have used the Cenvat Credit, but failed to account for the same in ST 3. Therefore, we not find that any case has been made out by them to set aside the confirmed demand of Rs.5,10,509. Rather, the only issue to be settled is to get the fact of the the payments shown in the ST 3 Returns [Rs.3,68,476] and actual payment of the balance Rs.1,42,033 through Cenvat Credit account, [though this was not reflected in the ST 3], to be verified. Only to verify these details we remand the matter to the Adjudicating authority.

14. For the services rendered to Rajendra Agricultural University, we have gone through the MOU entered into between the appellant and the University. The relevant extracts are reproduced below :

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15. From the above MOU, it is seen that the appellant is the ^„Executing Agency’, who is responsible for the overall completion of the project, including appointing of sub-contractor, supply of materials, completion of the project as per the specified by the University.The sole responsibility to complete the project with proper quality and workmanship of the said project, is on the appellant. The appellant has raised the initial issue of the quantification of the demand. As per the appellant, while 8.5% has been mentioned as the ^„Agency Charges’, payable to the appellant, the same is nothing but the profit margin of the appellant. The Service Tax demand, if any, should have been made only on this 8.5% Agency Charges. However, the demand has been raised on the full construction value plus the 8.5% agency charges, because of which the quantification has been highly inflated. Even as we are examining as to whether this 8.5% Agency charges can be termed as profit as is being claimed by the appellant, we fully agree with the appellant that the demand could not have been made on value of the Project Cost + 8.5% thereon [i.e Rs.100 being the project cost + Rs.8.50 being the Agency Charges]. Thus the Service Tax has been demanded on Rs.108.50, whereas the Service Tax, if any, would be demandable only on Rs.8.50 if the same is treated as ^„Consultancy Service’. Hence, the quantification of the Value and Service Tax is required to be re-worked out.

16. Coming to the appellant’s claim that the same is on account of profit margin, we find it difficult to subscribe to this view. The profit margin can be understood if the contract of Rs.100 has been sub­contracted outright to the sub-contractor for Rs.95. Tribunals and Courts have been consistently holding this margin of Rs.5 cannot be treated as ^„commission’ under Business Auxiliary Services and have held that this is clearly the profit margin, which cannot be made exigible to Service Tax. Similar instances have come up in respect of Advertisement Agency commission of 15%, booking of container slot etc., wherein it is seen that the service provider shells out the booking amount and retains the 15% as his profit margin. However, on going through the MOU, It is seen that while the appellant is defined as Executive Agency. it has been provided that they would be given the full cost of the project + 8.5% as Agency Charges at Para 2.2 of the MOU reproduced above. We have already held that the Revenue is in error in adding the full cost of the project, which is nothing but the total cost of the project for which the appellant / his contractor has provided all the materials and related services. This cannot be taken as the consideration received by the appellant. As a matter it is more in the nature of reimbursement of the total project cost incurred by the appellant through his sub-contractor. But since the 8.5% Agency Charges have been specifically provided separately over and above the project cost, the same cannot be treated as ^„Profit margin‟ of the appellant. The Ld Counsel lays particular emphasis on Para 3.11 of the MOU, taking the stand that as Executing Agency, the appellant is responsible for the “quality, structural safety, workmanship and liability for defects”, because of which the entire project cost including the 8.5% should be taken as part of the total CICS service rendered, which is fully exempt since the construction has been undertaken for University [non-commercial entity]. We do not find that Para 3.11 takes away the basic nature of the Agency commission of 8.5% discussed under Para 2.2. The responsibility given under Para 3.11 is only to fortify the already specified elaborate nature of work at Para 2.2. We note that the demand is under Consultancy Service and not under CIC Service. Therefore, we need not enter into the argument as to whether the service is liable to be taxed under CICS. We have already come to a conclusion that in respect of Consultancy Service except for the demand on the consideration of 8.5% [Agency Commission], no other amount can be added to arrive at the demand. Therefore, even as we agree that the re-quantification of demand is required to be done, we hold that the Service Tax is required to be paid on the Agency Charges.

17. Now we take up the issue of time bar raised by the appellant in respect of all the confirmed demands. We note that the appellant is a reputed PSU and is in the business of taking of Works Contract and other works for other PSUs and others. Prima facie, being a Govt. entity, they would not have any willful intent to evade the Service Tax payment. In the case of BHEL transactions, we have seen that the view taken by the Revenue to charge the Service Tax under CICS is completely erroneous. Similarly in the case of service provided to University, the quantification of demand by the Revenue itself is erroneous. Since there are case laws holding that ^„profits‟ not being in the nature of ^„consideration‟, are not liable for Service Tax, the appellant could have held Bonafide belief that they are not required to pay any Service Tax. It is also not the case of the Revenue that the appellants have charged any Service Tax on the clients, but withheld the same being remitted to the exchequer.

18. In the case of CCE, Chennai vs. Chennai Petroleum Corporation Ltd. 2007 13 Supreme Court cases 393, the Hon‟ble Apex Court has held as under :

“7. The question still remains as to whether the Department was right in invoking the extended period of limitation under Section 11A of the Central Excise Act. In this connection, we are of the view that there was no suppression on the part of the assessee. As stated above, the assessee is a Public Sector Company. It is owned by the Government of India. The Department was aware that the assessee was a refinery. Nothing prevented the Department from visiting the site. Nothing prevented the Department from inquiring into the process within the refinery in the matter of production of naptha, sulphur and electricity. Generation of electricity was also used for the running of the refinery. The electricity was supplied to Tamil Nadu Electricity Board (partly). In the circumstances, there was no suppression on the part of the assessee….. ”

19. The Delhi Bench of CESTAT in CCE Indore vs. Nepa Ltd. 2013 (298) ELT225 (Tri-Del) has held as under:

“8. ……. In this regard we find that the respondent is a Public Sector Undertaking wholly owned by the Government of India and in our view it would be absurd to accuse a wholly Government owned company of non-payment of excise duty with intent to evade the tax. In the circumstances of the case, in our view, it would not be correct to allege that the respondent have suppressed the relevant facts from the Department with intent to evade the payment of duty and as such longer limitation period under proviso of Section 11A(1) and the penalty under Section 11AC”

20. We also find that the Show Cause Notice has been issued on 15.10.2012. The last date for issuance of SCN for demand for the period April 2007 to March 2011 was 25^th April 2012 (One year from relevant date). The said period of limitation of One Year was increased to ^„18 months‟ w.e.f. 28.05.2012. The issue as to whether, the extended period could be invoked treating 18 months as normal period, came to be decided by the Hyderabad Bench, in the following case :

2018 (362) E.L.T. 624 (Tri. – Hyd.)
AVECO TECHNOLOGIES PVT. LTD.
Vs COMMISSIONER OF CUS., HYDERABAD

15. We also find that a part of the demand raised in the Notice is barred by limitation. The Commissioner has held in the order that the larger period of limitation available under the proviso to Section 28 is not invocable in the present case as there was no deliberate suppression or misstatement. He has therefore confined the demand for a period of the normal period of limitation. He has however applied two years to be the normal period of limitation and, since the show cause notice was issued on 8-11-2014, all imports made after 8-11-2014 have been held to be falling within the normal period of limitation. The appellant has contested this approach by pointing out that demands for the period from 8­11-2014 till 13-5-2016 was time-barred and therefore could not have been the subject matter of the recovery proceedings. It was pointed out that the normal period of limitation was enhanced from one year to two years with effect from 14­5-2016. This was done by an amendment made to the Customs Act by Finance Act, 2016. The position thus was that as on 13-5-2016 i.e. prior to the Finance Act, 2016 coming into force, demand for the period prior to 13-5-2015 had already become barred by limitation. This amendment made was not professedly a retrospective one and thus demands which had already become barred by limitation could not get revived by the amendment. Thus, demands for the period 8-11-2014 till 13-5-2015 which had already become time-barred could not have been confirmed by the Commissioner by applying the amended period of two years. The fact that the Notice had been issued on 8-11-2016, by which time the limitation period had increased to two years, could not give the Revenue an authority to revive and resurrect demands which had already become dead before the amendment. To do so, would be to give the amended provision a retrospective effect which the Legislature did not do while bringing in the amendment. It is a settled law that any statutory amendment is prospective in its operation unless it is specifically declared to have retrospective operation. The Finance Act, 2016 does not contain any provision according to a retrospective operation to the said Act. As such, demands which had already become irrecoverable as on 13-5-2015 could not, by virtue of the amendment with effect from 14-5-2016 get resurrected or revived.

16. In view of the above, we hold that the demand for the period prior to 13-5­2015 was barred by limitation and could not have been confirmed even if a different view is taken on the merits of the matter. Since we are holding in favour of the appellant on merits, the entire demand for duty is ordered to be set aside. Consequential levy for interest, penalties and fine are also set aside. The appeal is thus allowed.

Affirmed by Supreme Court :
Commissioner v. Aveco Technologies Pvt. Ltd.
2018 (362) E.L.T. A164 (S.C.)]

“Delay condoned.

No ground is made out for our interference with the impugned judgment. The civil appeal is dismissed, accordingly.

Pending application(s), if any, shall stand disposed of.”

21. Considering the factual details and the cited case laws, we hold that the confirmed demand for the extended period is legally not sustainable. Hence, we set the same on account of time bar.

22. We are also making it clear that even as we are holding that the extended period provisions are not applicable, still where the appellant has admitted the liability and has also filed Returns, in such cases, we hold the amounts are required to be paid along with interest. The appellant will have no claim to seek any refund in such cases on the ground that we have entertained their plea of time-bar. In such cases, only the penalty gets waived.

23. To Summarize :

i. In respect of the services pertaining to Chitranjan Locomotives, the appellant is required to pay the balance admitted liability of Rs.28,222 along with interest. This will not attract any penalty.

ii. In respect of the denial of Cenvat to the extent of Rs.10,85,472,
the matter stands remanded to the adjudicating authority to verify the Invoices to be produced by the appellant. We are holding that the demand, if any would be confined to the normal period only.

iii. In respect of the demand of Rs.50,87,832 on account of services rendered to BHEL, the same stands set aside both on account of merits as well as on account of time bar.

iv. In respect of services rendered to SAIL, the service tax payment of Rs.5,10,509 by way of debiting the Cenvat Credit account is to be verified by the Adjudicating authority. Once the debit gets confirmed, irrespective of whether it is shown in the ST 3 Return or not, the same is to be treated as proper discharge of the tax liability by the appellant.

v. In respect of Rajendra University transactions, the demand is required to be re-quantified. The demand is to be re-quantified to the extent of the 8.5% Agency Commission only for the normal period. The re-quantified Service Tax amount is required to be paid by the appellant along with interest. Considering the factual details, the penalty is being set aside.

24. The appeal is disposed in the aforesaid manner.

(Order pronounced in the open court on 21.04.2026.)