CESTAT Upholds ₹3.54 Lakh Tax on Hot-Mix Plant Rentals, Rejecting the Road-Construction Exemption Claim

The appellant, who was not registered with the service-tax department and had not filed service-tax returns, received consideration for services during 2015–16 and 2016–17.

On the basis of third-party information, the department demanded ₹1,45,14,751 in service tax, with interest and penalties, alleging that the appellant had not paid tax on taxable services.

The Commissioner (Appeals) set aside the demand for 2015–16 as time-barred and held that, for 2016–17, most receipts related to exempt road and drainage works; it sustained tax on ₹27,13,945 received for renting equipment, after allowing cum-tax treatment, resulting in tax of ₹3,53,993.

The appellant appealed to the Tribunal, contending, among other things, that the equipment-related receipts were also exempt and that the extended limitation period was unavailable.

Section 67(2) of the Finance Act, 1994 permits a cum-tax benefit where the consideration received is treated as inclusive of service tax.

Entries 12(e) and 13(a) of Notification No. 25/2012-ST exempted specified services relating to certain government works, including qualifying road and drainage construction or repair, but did not exempt the appellant’s equipment-rental services.

Notification No. 33/2012-ST provided a threshold exemption subject to the prescribed turnover limit; the Tribunal treated the appellant’s taxable receipts in 2015–16 as disqualifying the appellant from that exemption for 2016–17.

The proviso to Section 73(1) permits the extended period where non-payment is attributable to suppression with intent to evade tax; Section 78 provides for penalty in the circumstances found by the Tribunal.

The Tribunal relied on Rajasthan Spinning and Weaving Mills Ltd., 2009 (238) E.L.T. 3 (S.C.), in addressing the penalty.

The Tribunal examined the contracts for the two disputed receipts and found that they were for supplying tangible goods on rent, not for carrying out exempt construction or repair works; accordingly, the exemption under Notification No. 25/2012-ST did not apply.

It rejected the threshold-exemption argument because the appellant’s taxable receipts from equipment rental in 2015–16 were ₹39,34,204, exceeding the ₹10 lakh limit.

On limitation, the Tribunal noted that the appellant was unregistered, had filed no returns, had taxable receipts exceeding the threshold and had offered no plausible explanation for non-compliance or established a bona fide belief that tax was not payable.

It therefore sustained the finding of suppression with intent to evade tax and held the extended period applicable; on that basis, it also upheld the Section 78 penalty.

The demand for 2015–16, already set aside as time-barred by the Commissioner (Appeals), was not revived.