Accounted government grants-in-aid are not taxable consideration absent a service-provider relationship.

The Indian Chamber of Commerce, a registered service-tax assessee, received grants-in-aid from Central and State Governments during 2013–14 and 2014–15.

A show-cause notice demanded ₹70,45,319 in service tax on the grants, alleging liability under “Business Exhibition Service,” and a further ₹7,60,232 under reverse charge for services received.

The appellant contended that the grants were accounted for and spent on the relevant activities, with unspent amounts refundable, and that the reverse-charge tax had been paid under different headings.

The adjudicating authority confirmed the demands, prompting the appeal.

Whether the government grants received by the appellant constituted consideration for a taxable service, including “Business Exhibition Service,” and were therefore liable to service tax.

Whether the demand of ₹7,60,232 under reverse charge could be sustained, including whether the extended period was invocable in light of the appellant’s records and the asserted revenue-neutral position.

Under Section 67 of the Finance Act, 1994, service tax valuation is confined to the amount charged for the taxable service; an amount not paid as consideration for that service cannot be included in its value.

In Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., 2018 (10) G.S.T.L. 401 (S.C.), the Supreme Court held that service tax is confined to consideration for the service and that valuation cannot extend beyond the statutory provision.

The Tribunal also applied the principle in APITCO Ltd. v. CST, Hyderabad, 2010 (20) S.T.R. 475 (Tri.-Bang), affirmed by the Supreme Court, that grants fully used to implement government welfare schemes, with no amount received beyond the grants, do not establish a service-provider/client relationship or consideration for a taxable service.

It further relied on Mineral Exploration Corporation Ltd. v. Commissioner, 2015 (38) S.T.R. 421 (Tri.-Mumbai), for the requirement of a service provider, service recipient, and consideration.

For the reverse-charge demand and limitation, the Tribunal relied on the revenue-neutrality and extended-period principles discussed in Ashirwad Foundaries Pvt. Ltd. v. CCGST, Final Order No. 75331/2020 (28 February 2020).

The agreements and grant records required the appellant to account for and certify how the funds were used; the amounts were grants, not payments shown to have been charged for a service.

The Revenue produced no evidence that the appellant provided Business Exhibition Service to the Governments, raised invoices, or received consideration for such a service.

Applying Section 67 and the cited authorities, the Tribunal held that the grants could not be treated as taxable consideration.

As to reverse charge, the appellant produced reconciliation statements, but the Tribunal did not independently verify the figures.

It nevertheless found the entries were recorded in the books and that any reverse-charge tax would be available as Cenvat credit, making the position revenue-neutral; it also found no basis to allege suppression.

The demand was therefore unsustainable on limitation.

It set aside the ₹7,60,232 reverse-charge demand as time-barred.

The appeal was allowed, with consequential relief, if any, in accordance with law.