Soma Enterprise Ltd vs Commissioner Of Central Tax Hyderabad

Anil Choudhary, Member (J)

The issue in this Appeal is whether the extended period of limitation has been rightly invoked, among others.

The Appellant is registered with the department and mainly engaged in the business of construction service to various infrastructure projects. SCN dt.09.09.2020 was issued invoking the extended period of limitation, demanding service tax for the period April, 2015 to June, 2017, alleging that the appellants did not pay service tax properly and further, not made proper disclosures to the department. It was only during verification carried out by the department, the shortage in payment of service tax was found. The SCN was adjudicated on contest, upholding the invokation of extended period of limitation and the following demands were confirmed with interest & imposing equal penalty under Sec 78 on two projects executed by the appellant during the period April 2015 to June 2017. The details of which are as follows:

Service Tax on construction of Rs.18,07,95,801/- (main contractor

1.

Service Tax on construction of

Subansiri Dam/Tunnel

Rs.18,07,95,801/- (main contractor

paid full service tax)

2.

Service Tax on construction of

elevated structure for Bangalore Metro Rail Corporation Ltd (BMRCL)

Sevice Tax amount of

Rs.3,78,31,647/- (paid along with interest before issue of SCN)

3.

Service Tax under RCM on Royalty paid to the State Government

Rs.88,18,485/- (matter sub-judice before the Hon’ble Supreme Court of

India)

Subansiri Project – Construction of Diversion Tunnels, Coffer Dams, Concrete Gravity Dam, Plunge Pool and Cut-off Wall:

The Appellant is engaged in execution of works contracts. During 2004 to 2017, the appellant constructed Dam/Tunnels across Subansiri River in the State of Arunachal Pradesh. The appellant was awarded the work on back to back sub-contract basis by ‘M/s BGS-SGS-SOMA JV’ which was originally awarded the work by National Hydroelectric Power Corporation Ltd (NHPC).

The entire demand is under extended period as the SCN was issued on 09.09.2020. Extended period is not invokable due to the following reasons:-

a) The department, after audit of the accounts in 2014 for the period 2012-13, pointed out that the Works Contract service rendered under Agreement dt.19.01.2004 between the appellant and M/s BGS-SGS-SOMA JV for Subansiri Project is liable for service tax.

b) Consequently, a SCN dt.31.03.2016 was issued by the Commissioner of Service Tax, Hyderabad, demanding service tax for the year 2012-13 on the income received from Subansiri Project under extended period under proviso to Sec 73(1).

c) The above SCN was adjudicated vide OIO dt.27.01.2017 by holding that the activity is taxable from 01.07.2012 and upheld the demand on RA Bill No. 75 under extended period.

d) Subsequently, another round of audit was conducted by the officers of Hyderabad Audit Commissionerate for the period 2013-14 to 2015-16 and Final Audit Report No. 54/2016-17 dt.22.06.2017 was issued, wherein no para was raised on Subansiri Project.

From the above facts, it is clear that the department was fully aware of the activity of the appellant and the SCN dt.09.09.2020 for the period 2015-16 to June, 2017 is clearly barred by limitation as second SCN on the same issue cannot invoke extended period. Relevant case laws of Hon’ble Supreme Court are as follows, relied upon:-

a) Nizam Sugar Factory vs CCE AP [2006 (197) ELT 465 (SC)]

b) ECE Industries Ltd vs CCE, New Delhi [2004 (164) ELT 236 (SC)]

When the principal contractor had paid the service tax, extended period cannot be invoked to demand service tax from sub-contractor, as the issue is purely a question of interpretation and conflicting views have been taken by this Tribunal. In M/s Akash Engineering Services vs CCE, Visakhapatnam – Para 52.4 of the Final Order No. A/30035/2024 dt.24.01.2024, held that the extended period is not available to Revenue. The Ratio of this decision is applicable to the present case.

Bengaluru Metro Rail Project (BMRCL):-

Construction of metro rail was exempted under S.No. 14(a) of Notification No. 25/2012-ST dt.20.06.2012 up to 01.03.2016. The Tender process started in May, 2015 and the service tax was exempted on construction of metro rails under S.No. 14 of Notification No. 25/2012-ST dt.20.06.2012 at that time. Because the exemption was withdrawn at the time of execution of the project, the appellant was corresponding with BMRCL for release of service tax vide letters dt.18.10.2016 & 11.08.2017, in terms of change in legislation as per clause 19.1 of the contract. It took some time to get the service tax released from BMRCL. Even before the investigation started on 27.09.2017, the appellant was making efforts to pay the tax. The appellant paid Rs.1,90,32,604/- before the statement dt.20.12.2017 and balance tax amount with interest was paid by March, 2018, which is much before the issue of SCN. No penalty is to be attracted as per Sec 73(3). There is no case of suppression, but only delayed payment of tax, for reasons beyond control. Reliance is placed on CCE & ST, LTU, Bangalore vs Adecco Flexione Workforce Solutions Ltd [2012 (26) STR 3 (Kar.)], wherein it was held that when the tax and interest were paid before SCN, no notice need to be issued as per Sec 73(3).

RCM demand on Royalty paid to State Government for sand/stone/earth:

The permits were issued in the name of M/s BGS-SGS-SOMA JV and the appellant did not receive any services from Government. They only arranged DDs for JV and got reimbursement.

Hon’ble Supreme Court (7 Judge Bench) in the case of India Cements Ltd & Others vs State of Tamil Nadu & Others [1990 AIR 85] has opined that the ‘Royalty is a tax’ and set aside cess imposed on such Royalty. Matter is now pending before 9 Judge Bench due to contrary view in Kesoram Industries [AIR 2005 SC 1646 (5 Judge Bench)].

In respect of SCN issued for recovery of service tax on Royalty paid to the Mines and Minerals department, has been stayed by Hon’ble Supreme Court in the case of Udaipur Chambers of Commerce & Industry vs UOI [2018 (10) GSTL J167 (SC)] and different Hon’ble High Courts. In case of Sunita Ganguly vs Pr. Commissioner of CGST & CE, Ranchi [2021 (50) GSTL 401 (Jhar.)], the High Court of Jharkhand has stayed the recovery of service tax on Royalty paid to the Mines and Minerals department. In Gujmin Industry Association vs UOI [2019 (020) GSTL 0011 (Guj.)], the Hon’ble High Court of Gujarat has stayed the payment of tax on Royalties paid to the Mines and Minerals Department.

The matter is sub-judice before the Apex Court involving a question of interpretation. Hence, extended period is not attracted.

Accordingly, learned Counsel for the appellant prays for allowing their appeal.

Learned AR for Revenue relies on the impugned order.

Having considered the rival contentions, we find that in view of the aforementioned facts with regard to audit conducted in respect of construction of Subansiri Dam/Tunnel for the period 2012-13 and issue of earlier SCN dt.31.03.2016 on the same issue, the present SCN for the demand of Rs.18,07,95,801/- is clearly time barred as held by Hon’ble Supreme Court in Nizam Sugar Factory vs CCE AP (supra). Learned Counsel has also demonstrated from the RA Bills which are prepared by the main contractor – M/s BGS-SGS-SOMA JV, wherein they have deducted the amount towards service tax from their gross amount. Thus, it is also obvious that appellant was under the impression that they had already suffered the service tax by way of deduction at source, by the main contractor on the said activity. Thus, there does not appear to be any deliberate attempt or intention on the part of the appellant to evade service tax in the facts of the case.

So far the demand of service tax of Rs.3,78,31,647/- is concerned, with respect to construction of elevated structure for BMRCL, admittedly, when the project was awarded to the appellant, the same was exempt from service tax under Notification No. 25/2012-ST. During execution of project, the said exemption was withdrawn w.e.f. 01.03.2016. Thereafter, admittedly, this appellant was pursuing with the Principal BMRCL for release of funds towards payment of service tax, which took some time and upon release of such funds, admittedly, appellant had deposited such tax with interest. Hence, SCN is bad and is hit by the provisions of Sec 73(3) of the Finance Act, which provides that in such cases where tax and interest are paid without dispute, no SCN needs to be issued.

So far the demand of Rs.88,18,485/- is concerned, relating to payment of service tax under RCM on Royalty paid to State Government, evidently, the matter is sub-judice before the Apex Court (9 Judges Bench). Whereas, earlier the 7 Judges Bench of the Apex Court in the case of India Cements Ltd & Others vs State of Tamil Nadu & Others (supra) have held that Royalty is Tax and set aside the cess imposed on such Royalty. Admittedly, no service tax is leviable on the amount of tax. In this view of the matter, the demand is only by change of opinion or interpretation of Statute.

In view of our aforementioned findings and observations, we find that there is no case of fraud or mis-statement, etc., on the part of the appellant. The issue involved is wholly interpretational in nature. In this view of the matter, we hold that the SCN issued invoking extended period of limtiation is bad. Accordingly, appeal is allowed and the impugned order is set aside. Appellant shall be entitled to consequential benefits, in accordance with law.