A government-owned subsidiary is not a governmental authority; works-contract services provided to it remain taxable.

The appellant, a proprietorship/partnership concern, provided works-contract and construction services to government departments, Bharat Coking Coal Limited (“BCCL”) and M/s Siddheevinayak Infravillage Private Limited during 2014–15 to 2017–18 (up to June 2017).

The Department alleged non-payment of service tax and failure to obtain registration and file ST-3 returns.

Three show-cause notices covering separate periods were adjudicated by the Commissioner, who confirmed service-tax demands of ₹12,57,670 and ₹22,500, along with interest and penalties under Sections 76 and 77 of the Finance Act, 1994, after corrigenda revised the original demand figures.

The appellant contended that services supplied to the Irrigation Department and BCCL were exempt, and that BCCL had already discharged service tax under the reverse-charge mechanism.

The appeal challenged the confirmed demands, interest and penalties; the Tribunal also allowed the appellant’s miscellaneous application for bringing additional documents on record.

1. Whether the receipts of ₹51,81,151 from the Executive Engineer, Irrigation Department, Varanasi, were exempt from service tax under Notification No. 25/2012-ST dated 20 June 2012, despite the documents having not been considered by the adjudicating authority?

2. Whether the works-contract services involving repair of residential quarters provided to BCCL qualified for exemption as services supplied to a government or governmental authority?

3. Whether payment of 50% of the service tax by BCCL under the reverse-charge mechanism discharged the appellant’s corresponding liability?

4. Whether the service-tax demand of ₹22,500 on receipts from Siddheevinayak Infravillage Private Limited was sustainable in the absence of contractual or other documents establishing exemption?

5. Whether the appellant was liable to interest under Section 75 and penalties under Sections 76, 77(1)(a) and 77(2) of the Finance Act, 1994?

The Tribunal applied Section 73 of the Finance Act, 1994, authorising recovery of unpaid service tax; Section 75, making interest consequential upon delayed payment; Section 76, prescribing civil penalties for failure to pay service tax; and Sections 69, 70 and 77(1)(a), 77(2), concerning registration, filing of returns and related statutory defaults.

Notification No. 25/2012-ST exempted specified construction, repair and works-contract services provided to the Government, a local authority or a governmental authority, including civil works, roads, ghats, canals and irrigation works.

Notification No. 30/2012-ST prescribed reverse charge for specified works-contract services, under which the service provider and a qualifying corporate recipient were each liable for 50% of the service tax.

Rule 2A of the Service Tax (Determination of Value) Rules, 2006 permitted prescribed abatements for determining the taxable service portion of works contracts.

The Tribunal further relied on Gujarat Travancore Agency v. CIT, 1989 (42) ELT 350 (SC), and Usha Martin Construction Steel Ltd., 2014 (306) ELT 270 (All.), for the principle that tax penalties are civil and remedial in nature and generally do not require proof of mens rea where the statute does not prescribe it.

The Tribunal found that the additional documents established that the ₹51,81,151 received from the Irrigation Department related to construction of a road and protection of Narva Ghat on the River Ganga under departmental agreements.

Since these were works supplied to a government department and fell within the exempted category under Notification No. 25/2012-ST, the corresponding demand of ₹5,69,945 was set aside.

In contrast, BCCL was a subsidiary of Coal India Limited and the appellant failed to establish that it was constituted under legislation or satisfied the statutory definition of a governmental authority; its services therefore did not qualify for exemption.

The certificate produced by BCCL showed payment of only its 50% reverse-charge liability.

The appellant remained liable for the other 50%, calculated after the applicable 30% abatement, resulting in service tax of ₹6,87,725.

Regarding Siddheevinayak, the receipt was supported by deduction of tax under Section 194C of the Income-tax Act, indicating payment for contractual work, while the appellant produced no contract, bill or work order to establish exemption or reverse-charge treatment; the ₹22,500 demand was therefore upheld.

Because the appellant had failed to pay the tax by the prescribed dates and had also failed to obtain registration and file returns, interest and the statutory penalties were held sustainable.

The Section 76 penalty was correspondingly reduced to 10% of the surviving tax demand.

The demand of ₹5,69,945 relating to the Irrigation Department receipts for 2014–15 was set aside, while the demands of ₹6,87,725 relating to BCCL and ₹22,500 relating to Siddheevinayak were upheld.

The total service-tax demand was consequently reduced to ₹7,10,225, with applicable interest under Section 75.

The penalty under Section 76 was reduced to ₹71,022, while the penalties under Sections 77(1)(a) and 77(2) were upheld.

The miscellaneous application for additional documents was allowed.