No Service Tax on activity to Military Engineering Services provided to Government: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that no service tax on activity to military engineering services provided to government. M/s. Dinesh Chandra R Agarwal  Infracon Pvt Ltd, the appellant participated in a tender floated by Military Engineer Services, Ministry of Defense, Government of India for resurfacing of runaway and aircraft operating areas Suratgarh in the state of Rajasthan. The appellant submitted the bid for the tender on 14th June 2016 and they were declared as a successful bidder. The Chief Engineer, (AF) WAC, Military Engineer Service, Palam, Delhi Cantt issued the letter of acceptance dated 14.06.2016 in favour of the appellant on behalf of the President of India.

The appellant entertained a view that their services provided to the Chief Engineer, Military Engineer Services are exempted from payment of service tax vide the notification number 25/2012-ST dated 20.06.2012 as amended from time to time. Based on the intelligence inputs received by the Directorate General of Goods and Service Tax Intelligence, Ahmedabad, an inquiry was initiated against the appellant regarding the difference in taxable value declared in the service tax returns filed by them as compared to the revenue shown in their financial statements. A show cause notice was issued to the appellant on the ground that the appellant is not eligible for exemption under Notification No. 25/2012-ST dated 20.06.2012 as amended and also has misdeclared or suppressed the value of the taxable services.

The show cause notice alleged suppression on the part of the appellant and invoked the extended period of limitation as provided for in the first proviso to section 73(1) of the Finance Act, 1994. It was argued that since the latter had been exempted from paying any central excise duty on the ground that their product was classifiable under Tariff Heading 24.04, the Appellant should get the same benefit. In the circumstances, the court set aside the order of the Tribunal and remanded the matter back to the Tribunal to consider whether the product and process followed by M/s. Chandulal K. Patel & Co. is the same as that of the Appellant product for the chemical analysis if not already done. The Tribunal will thereafter consider the question of classification of the appellant product having regard to the classification of the zKarta Chhap Zardathe chemical analysis report and any other material that may be placed before it by the respective parties.

The Tribunal in a previous judgement held that Service Tax cannot be levied under the category of BAS, which order of the Commissioner attained finality, the Department cannot be permitted to contend in this Appeal that Service Tax under the category of BAS can be levied upon the Appellant. A two-member bench of Ramesh Nair (Judicial Member) and Raju (Technical member) observed that the demand for service tax was dropped on the ground that the services were provided to the government. The CESTAT held that on the activity carried out by them, service tax was not payable on such activity since the services were provided to the central government for the discharge of sovereign function.

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