Pranav B Prem

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a service tax demand of Rs. 9.31 crore along with penalties and interest against Rakesh Maintenance Service (RMS), holding that the show cause notice (SCN) was vague, misclassified, and time-barred.

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The bench of Dr. Rachna Gupta (Judicial Member) and A.K. Jyotishi (Technical Member) observed that the Memorandum of Understanding (MoU) between RMS proprietor Rakeshdhar Dubey and Clear Secured Services Pvt. Ltd. (CSSPL) did not establish RMS as a provider of maintenance, manpower, or cleaning services. Instead, it only reflected that RMS was engaged in facilitating disbursement of wages to unskilled workers deployed by CSSPL. “The appellant at the most was providing facilitation to M/s CSSPL being engaged in disbursing wages to the workers… As apparent from the MOU, there is no other activity which was agreed to be performed by the appellant,” the Tribunal noted.

Background

The proceedings originated after the Department alleged that RMS failed to discharge service tax liability between October 2011 and March 2016. According to investigators, the appellant was rendering maintenance and repair services, manpower supply, and cleaning services without proper registration until August 2013, and had misdeclared taxable value in subsequent returns.

On the basis of the MoU and financial documents, the Department issued an SCN on April 21, 2017 demanding Rs. 9.31 crore in service tax along with interest and penalties under Sections 76, 77 and 78 of the Finance Act, 1994. An amount of Rs. 1.35 crore already deposited by RMS was proposed to be appropriated. The adjudicating authority confirmed the demand by order dated September 15, 2020, which led to the present appeal.

Appellant’s Contentions

RMS challenged the SCN as vague and ambiguous, pointing out that the same activity had been categorized under three different service heads. The appellant argued that Dubey merely acted as a pure agent of CSSPL in disbursing salaries and did not independently provide taxable services. It was further contended that reliance on Rule 5 of the Service Tax Valuation Rules was impermissible, since the Supreme Court in Union of India v. Intercontinental Consultants (2018) had already struck it down as unconstitutional for including reimbursable expenses prior to the 2015 amendment.

For the period post-April 2015, the appellant relied on a new agreement which recognized RMS as providing manpower supply services. Under Notification No. 30/2012, such services attracted tax under the reverse charge mechanism, making CSSPL liable, not RMS. The appellant therefore submitted that any further demand would lead to double taxation.

Tribunal’s Findings

The Tribunal found merit in the appellant’s submissions, holding that the MoU could not be construed as an agreement for RMS to provide maintenance, manpower, or cleaning services. It clarified that the appellant’s role was limited to handling salary disbursements on behalf of CSSPL, which could not be taxed under the categories cited in the SCN. “This observation itself is sufficient to hold that the show cause notice has been issued while misclassifying the services. Hence, the demand proposed under such show cause notice is liable to be set aside,” the bench held.

On Rule 5, the Tribunal reiterated that the Supreme Court had invalidated its operation prior to 2015, and no evidence was produced to suggest RMS received anything more than the workers’ wages. The Chartered Accountant’s certificate filed by the appellant confirming the same was accepted as admissible evidence.

Regarding the post-2015 period, the Tribunal held that service tax liability lay with CSSPL under the reverse charge mechanism, as the recipient of manpower supply services. Demanding tax from RMS would result in double taxation.

On limitation, the Tribunal observed that the SCN dated April 21, 2017 sought to recover dues from October 2011. Since the Department already had access to RMS’s records and returns, there was no proof of fraud, suppression, or misrepresentation to justify invocation of the extended period. Referring to precedents such as CCE v. Chemphar Drugs & Liniments and Uniworth Textiles Ltd. v. CCE, the Tribunal held that the extended limitation had been wrongly invoked.

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Decision

Holding the SCN to be vague, misclassified, and time-barred, the Tribunal quashed the entire service tax demand of Rs. 9.31 crore along with interest and penalties. It further noted that once the main demand was set aside, penalty on RMS and its proprietor had “no basis of sustenance.” “Consequent to the above conclusion, we hereby set aside the order under challenge. Resultantly, the appeal is hereby allowed,” the bench concluded

Appearance

Counsel For Appellant: Anurag Mishra, Advocate

Counsel For Respondent: Rajeev Kapoor, Authorised Representative

Cause Title: Rakesh Maintenance Service V. Commissioner of CGST 

Case No: Service Tax Appeal No. 51219 Of 2020

Coram: Dr. Rachna Gupta [Judicial Member], A.K. Jyotishi [Technical Member]