CESTAT Rules in Favor of Rahee Infratech Ltd., Sets Aside Service Tax Demand of Over Rs. 5.72 Crores

Tribunal Upholds Exemption for Services Provided to Indian Railways and Joint Ventures, Orders Refund of Pre-deposit

In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Eastern Zonal Bench, Kolkata, has set aside the service tax demand of Rs. 5,72,02,687 against M/s. Rahee Infratech Limited, a prominent infrastructure company. The tribunal's decision is based on multiple grounds, primarily focusing on the exemptions applicable to services provided to Indian Railways and joint ventures.

The case revolved around the classification and taxability of various services provided by Rahee Infratech Ltd., including "Flash Butt Welding" and works contract services related to railway infrastructure projects. The appellant argued that these services were exempt from service tax under Notification No. 25/2012-ST and Section 65(25b) of the Finance Act, 1994. The tribunal concurred, citing that such services provided to railways are exempt under both pre-negative and negative list regimes.

Furthermore, the tribunal addressed the issue of service tax applicability on commission received from overseas entities and transactions within joint ventures. It held that the commission qualifies as export of service and is not taxable, given that the services were rendered on a principal-to-principal basis with payment received in convertible foreign exchange. Additionally, activities within joint ventures were deemed non-taxable as they lack a principal-client relationship and consideration, which are essential for service tax applicability.

The tribunal also found no grounds for the invocation of an extended period of limitation, as there was no suppression of facts with intent to evade duty. The demand was based on audited records and public documents, which did not justify the extended period.

In its order, the tribunal set aside the penalty imposed under Section 78 of the Finance Act, 1994, and directed the refund of the pre-deposit amount of Rs. 44,66,029, along with applicable interest, as the demand of service tax was unsustainable.

The ruling is expected to have wider implications for infrastructure companies engaged in railway projects, reinforcing the scope of exemptions available for such services.

Bottom Line:

Service Tax - Exemption applicability on services provided to Indian Railways - Construction services related to railways are exempt under both pre-negative and negative list regimes of service tax. Services rendered to private entities for railway infrastructure projects are also exempt.

Statutory provision(s): Finance Act, 1994 Section 65(25b), Notification No. 25/2012-ST, Section 78 of the Finance Act, 1994, Section 35F of the Central Excise Act, 1944.

M/s. Rahee Infratech Limited v. Commissioner of Service Tax, (CESTAT)(Eastern Zonal Bench, Kolkata)(Regional Bench) : Law Finder Doc Id # 2811620