2026-VIL-609-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Grant-in-aid as reimbursement of expenses vs. taxable service - Appellant, a rice mill company, received grant-in-aid from the Ministry of Food Processing Industries under a Government scheme for creation/expansion of food processing and preservation capacities - Department alleged that the grant-in-aid was consideration for rendering a declared service under Section 66E(e) of the Finance Act, 1994 and hence liable to service tax - Whether the grant-in-aid received by the appellant was a taxable service under the Service Tax law – HELD - The grant-in-aid received by the appellant was merely a reimbursement of the expenditure already incurred for setting up a rice milling plant, and not consideration for any service. The Tribunal relied on various decisions of the Tribunal and the Supreme Court which have held that grant-in-aid received from the government is not a taxable service as there is no service provider-service recipient relationship and the grant is merely a reimbursement of expenses - The conditions in the sanction order were general and did not create any contractual obligations or counter obligations on the appellant. The appellant was not engaged in any research and development activities to generate intellectual property rights, but was simply a rice mill - In the absence of any consideration flowing from the government to the appellant, there was no provision of service under Section 65B(44) of the Act. The grant-in-aid was a reimbursement of capital expenditure incurred on the plant and cannot be treated as consideration for a taxable service - The impugned order is set aside and the appeal is allowed
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