CESTAT Kolkata Rules No Service Tax On Joint Venture Income; Sets Aside ₹5.72 Crore Demand Against Rahee Infratech
Sangeetha Prathap
The Customs, Excise, and Service Tax Appellate Tribunal, Kolkata Bench has held that an assessee’s or partner’s share of income received from a joint venture cannot be treated as consideration for any taxable service and, therefore, is not liable to service tax. The bench comprising Judicial Member R. Muralidhar and Technical Member K. Anpazhakan allowed the appeal filed by Rahee Infratech Ltd. and set aside the demand of ₹5,72,02,687 along with interest raised through an adjudication order passed in June 2016.
The proceedings originated from a show-cause notice issued to the appellant alleging evasion of service tax by suppressing information relating to services provided and received in periodic ST-3 returns. The Department concluded that the appellant failed to discharge service tax liability since 2011–12 and, based on investigation findings, confirmed the demand of ₹5.72 crore under the Finance Act, 1994, besides imposing an equivalent penalty under Section 78. While ₹71,33,015 collected from clients was appropriated against the demand, the remaining amount was sought to be recovered from the assessee .
A substantial portion of the demand pertained to income arising from a Joint Venture Agreement between the appellant and GPT Infra Projects Limited/GPT Infrastructures Pvt. Ltd. for execution of railway infrastructure work. The Tribunal noted that under the agreement, both profit and loss were to be shared equally and that each co-venturer contributed resources, technical know-how and manpower for the advancement of the joint enterprise. Holding that there was neither a principal–client relationship nor a quid pro quo in such an arrangement, the bench observed that “the activity undertaken by a co-venture (partner) for the furtherance of the joint venture (partnership) cannot be said to be a service rendered by such co-venturer (partner) to the joint venture (partnership)” and that any amount received in such circumstances is profit and not consideration for a taxable service.
The Tribunal also examined the allegation that the assessee had evaded service tax by suppressing taxable activities. It found that the demand was raised solely on the basis of audited financial records and ST-3 returns, which were public documents, and held that the extended period of limitation could not be invoked in the absence of proven suppression with intent to evade. Penalty under Section 78 was also held unsustainable for the same reason.
Regarding appropriation of ₹71,33,015 paid during investigation, the Tribunal noted that the amount had been collected by the appellant from its clients and was therefore payable to the government. On the other hand, the bench held that ₹56,60,104 already paid by the appellant as admitted liability in its ST-3 returns was not refundable. It further held that the appellant was entitled to refund of ₹44,66,029, which had been deposited as pre-deposit under Section 35F of the Central Excise Act, 1944, along with applicable interest.
Having concluded that the share of income received from the joint venture was not liable to service tax and that the extended period could not be invoked, the Customs, Excise, and Service Tax Appellate Tribunal set aside the demand of ₹5,72,02,687 along with interest and penalty, while upholding appropriation of the amount collected from clients and directing refund of the pre-deposit to the appellant with applicable interest.
Appearance
Counsel for Appellant/ Assessee: Ajay Sanwaria
Counsel for Respondent/ Department: Mihir Ranjan
Cause Title: M/s. Rahee Infratech Limited v. Commissioner of Service Tax
Case No: Service Tax Appeal No. 76709 of 2016
Coram: Judicial Member R. Muralidhar, Technical Member K. Anpazhakan
