CESTAT Ahmedabad Partly Restores Service Tax Demand on APMC Works, Allows Composition & Cum-Tax Benefits

Background of the Dispute

The decision in Commissioner Vs Paresh S Patel (CESTAT Ahmedabad) arises from a Revenue appeal against Order-in-Original No. AHM-EXCUS-003-COM-015-20-21 dated 16.07.2020, by which the adjudicating authority had fully dropped a substantial service tax demand and associated penalties raised through a Show Cause Notice dated 24.10.2013. The assessee, Shri Paresh S Patel, also filed cross-objections in response to the Department’s appeal.

The assessee, a proprietary concern, was engaged in civil construction activities for various government and semi-government entities, including:

  • Road and Building Department
  • Gujarat State Police Housing Corporation Limited (GSPHCL)
  • Agriculture Produce Market Committee (APMC)
  • GETCO and other governmental bodies

For the period 2008-09 to 2011-12, the assessee had not obtained service tax registration and had not discharged service tax on the construction activities executed, which triggered investigation and subsequent proceedings.

Investigation and Department’s Allegations

Initiation of Enquiry

The Department received intelligence inputs indicating that the assessee was executing projects under Construction of Complex service and works contract service for GSPHCL and others without service tax compliance.

Accordingly:

  • Summons dated 13.08.2012 and 11.09.2012 were issued, calling upon the assessee to appear and produce records for the preceding five years.
  • The assessee furnished certain records vide letters dated 25.09.2012 and 11.04.2013.
  • The statement of Shri Paresh S. Patel (Proprietor) was recorded on 21.10.2013.

Financial Data and Service Tax Computation

On examining the records, the Department concluded that the assessee had executed works contracts involving:

  • Construction of residential quarters
  • Other public infrastructure and civil works
  • Payment of VAT/Sales Tax on transfer of goods in execution of works contracts

Receipts from construction of complexes and other works (canals, roads, bridges, irrigation, etc.) were tabulated for the period as under:

  • 2008-09: Rs. 21,41,92,795/-
  • 2009-10: Rs. 19,84,99,642/-
  • 2010-11: Rs. 19,17,78,300/-
  • 2011-12: Rs. 20,23,67,218/-

Additionally, “Carting Expenses” appearing in the books, treated by Revenue as freight expenses attracting reverse charge under Goods Transport Agency (GTA) service, were:

  • Total Carting Expenses (2008-09 to 2011-12): Rs. 1,98,20,730/-

Based on these figures, the Department computed:

  1. Alleged short-payment of service tax of Rs. 2,60,54,847/- under works contract service on receipts aggregating to Rs. 24,08,56,351/-.
  2. Service tax liability of Rs. 5,28,334/- under reverse charge mechanism on GTA services, applying 25% taxable value and relevant rates.

Show Cause Notice and Proposed Actions

The Show Cause Notice dated 24.10.2013 proposed:

  • Recovery of Rs. 2,60,54,847/- as service tax on Section 65(105)(zzzza) works contract service, invoking the extended period under Section 73(1) proviso.
  • Recovery of Rs. 5,28,334/- as service tax under reverse charge for GTA services under Section 65(105)(zzp) read with **Notification No. 6/2004-Service Tax dated 31.12.2004`.
  • Interest under Section 75.
  • Penalties under Sections 76, 77 and 78 for non-registration, non-payment, non-filing of returns, and suppression of facts.

The adjudicating authority, after detailed analysis, dropped the entire demand and penalties, leading to the present Revenue appeal before CESTAT.

Revenue’s Grounds in Appeal

The Department’s challenge to the Order-in-Original focused on the following central arguments:

  1. Incorrect vacation of proceedings:
    The adjudicating authority allegedly failed to properly apply the legal framework for works contract services prevailing during 2008-09 to 2011-12.

  2. **Inapplicability of Notification No. 41/2009-ST & CBEC Circular No.