CESTAT Delhi Upholds Service Tax Demand on Works Contract; Says ‘Confusion’ on Taxability No Excuse for Non-Payment
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi Bench, has upheld a service tax demand against a contractor providing works contract services, holding that a plea of “confusion” regarding the taxability of such contracts cannot justify non-payment of tax. The Tribunal, presided over by Dr. Rachna Gupta (Judicial Member), dismissed the appeal and confirmed that the extended period of limitation had been rightly invoked by the Department.
The appellant was engaged in providing works contract services to Rajasthan Vidyut Prasaran Nigam Ltd. (RVPNL) during the period between April 2015 and June 2017. It was alleged that the appellant neither filed the required service tax returns nor discharged service tax to the extent of ₹4,16,572. A show cause notice dated December 29, 2020, was issued proposing recovery of tax, interest and penalties under Sections 77 and 78 of the Finance Act, 1994. During adjudication, certain abatements and exemptions were allowed, reducing the confirmed demand to ₹1,81,995, while rejecting the appellant’s claim of full exemption under Notification Nos. 24/2012-ST and 30/2012-ST.
The appellant argued that the contract essentially involved a combination of goods and services, classifiable as a works contract. It asserted that there was prevailing confusion regarding the taxability of works contract services, which was only clarified when the Supreme Court decided Commissioner of C.Ex. & Cus., Kerala v. Larsen & Toubro Ltd. in 2015. The appellant also maintained that services provided to a government power utility were exempt under Notification No. 11/2010-ST. It was contended that the failure to pay tax was not deliberate, and therefore, invocation of the extended period was unwarranted.
The Department contended that the period in question—2015 to 2017—was entirely subsequent to the Supreme Court’s ruling in Larsen & Toubro, and therefore any claim of confusion was untenable. The failure to self-assess, file returns and discharge tax, according to the Department, amounted to clear non-compliance, and the evasion came to light only upon audit, thereby justifying the use of the extended period of limitation.
Upon examining the records, the Tribunal affirmed that the appellant’s activity fell squarely under works contract service. It noted that the abatements available under the relevant notifications were limited and that the appellant was not entitled to the full exemption claimed. The Tribunal rejected the plea of “confusion,” observing that the legal position on taxability of works contract services had already been settled well before the period under dispute. The Tribunal held that ignorance of law cannot be pleaded as an excuse, particularly when the assessee had failed to file statutory returns or disclose material particulars.
The Tribunal observed that the non-payment of service tax would have remained undetected had there been no audit, demonstrating deliberate conduct on the part of the appellant. It concluded that the appellant’s wrong assessment, resulting in clear short payment or non-payment, amounted to evasion. As a result, the extended period of limitation under the proviso to Section 73(1) was rightly invoked by the Department.
Holding that there was no infirmity in the orders of the adjudicating authority or the Commissioner (Appeals), the Tribunal upheld the service tax demand of ₹1,81,995, along with applicable interest and penalties, and dismissed the appeal in full. The ruling reiterates that after the Larsen & Toubro decision, works contract service providers are presumed to be fully aware of their tax liabilities and cannot claim exemption on the ground of ambiguity.
Appearance
Counsel For Appellant: CA Om P. Agarwal
Counsel For Respondent: AR Rohit Issar
Cause Title: M/s Shri Mohmd. Shafik Contractor Versus Commissioner of CGST-Jodhpur
Case No: Service Tax Appeal No. 55233 of 2023
Coram: Dr. Rachna Gupta (Judicial Member)
