2026-VIL-1392-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax – Exemption for sub-contractor providing Works Contract Services – Appellant engaged as sub-contractor to main contractor for execution of earth work, site formation and earth excavation for construction of dam and canals for Government of Andhra Pradesh project – Appellant did not take service tax registration nor file any service tax returns – Department issued Show Cause Notice proposing demand of Service Tax for activities classified as Site Formation Services – Whether appellant qualified for exemption under Section No.29(h) when main contractor was providing exempt WCS and whether extended period of limitation was invokable – HELD – The twin criteria under Section No.29(h) are that sub-contractor is providing WCS to main contractor and main contractor is also providing exempt WCS. There is no dispute that main contractor was executing work of construction of dam and canals to Government which is covered by exemption at Section No.12(d) of Notification No. 25/2012-ST and hence main contractor was executing exempt WCS. The essential nature of work awarded to appellant was not simple contract of service but composite contract involving machinery, fuel and materials to be provided by sub-contractor for execution of earth work - Definition of WCS provides that where transfer of property in goods involved in execution of contract is leviable to tax as sale of goods, such contract is WCS. The term used is leviable to VAT not subjected to VAT. If goods or materials leviable to VAT were used in course of execution of contract, said contract is treated as WCS - The fact that VAT was not charged by appellant was because VAT amount was deducted by main contractor from RA bills and later reimbursed and such reimbursement does not mean work was not leviable as WCS. It was leviable as WCS but exempted under applicable VAT laws during material time. Mere reimbursement of deducted VAT does not tantamount to not paying VAT on work. Scope of work clearly prescribed removal of over burden, excavation including cost of machinery, labour, fuel required for finished item of work and included cost of all materials, machinery and labour - It is not necessary that goods transferred in execution of WCS must be transferred in original form but can be transferred in any other form as long as there is clear indication that goods have been actually used for execution of work. Property in materials used in execution of WCS pass to recipient in any form including where goods are incorporated, chemically altered or consumed during execution. In the facts of case, services of site formation and earth work are in nature of WCS and appellant is entitled for benefit under Section No.29(h) of Notification No. 25/2012-ST in respect of work executed to main contractor – Appellant is eligible for exemption under Section No.29(h) - On merit as well as on the ground of limitation, the impugned order cannot be sustained and set aside – The appeal is allowed - Service Tax – Extended period of limitation – Invokability based on bonafide belief – Appellant sub-contractor did not take service tax registration nor file periodical returns based on understanding that services did not attract service tax – Adjudicating Authority invoked extended period holding that appellant deliberately suppressed facts and had intent to evade service tax – Whether extended period of limitation can be invoked when appellant had bonafide belief about interpretation of tax exemptions and statutory provisions – HELD – In given facts there was genuine bonafide belief that work was covered under exemption and reasonable belief could have been formed by appellant about not being required to pay service tax -Provision under VAT laws existed to exempt them from payment of VAT and because of that they were not required to pay VAT and were exempted. Reimbursement was only because of initial deduction by main contractor but subsequently when pointed out that they were exempted from payment of VAT under State VAT laws, said amount was reimbursed. Deduction by main contractor supports view that work was treated as WCS by main contractor and hence he deducted VAT as no VAT was apparently paid. All these facts indicate different interpretations and conflicting views about applicability of VAT - Whole issue is that of interpretation and there was bonafide belief that appellant was not leviable to any service tax and that is why they had not taken registration nor paid any service tax - Case is one where there has been complex interpretation of tax exemptions and statutory entries and in absence of any other strong and cogent grounds, extended period cannot be invoked. SCN has been issued beyond normal period of limitation applicable during material time – Extended period of limitation is not invokable.
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