General information about the case:
Name of case: Mr. Ranga Reddy Male vs P C C T- Hyderabad- Gst
Date of order: 5 December, 2025
Case no.: Appeal No. ST/30239/2025
Name of the Court: Customs, Excise And Service Tax Appellate Tribunal, Hyderabad
Original matter: Appeal arising out of Order-in-Appeal No.HYD-SVTAX-HYC-APP1-155-23-24 dated 11.01.2024, passed by Commissioner of Customs & Central Tax (Appeals-I), Hyderabad
Advocates of various parties: Shri Yashwanth & Shri M. Bhupal Goud, CA for the Appellant. Shri M. Anukathir Surya, Authorised Representative for the Respondent.
Coram: Hon’ble Mr. Angad prasad, member (judicial)
Precedents relied upon:
1. Shapoorji & Company Pvt Ltd., Vs Commissioner of Central Excise and Service Tax and others [2016(3) TMI 832] Patna High Court.
2. M/s Ashish Kumar Joshi Vs Principal Commissioner of CTGST & Central Excise, Raipur [2024(5) TMI(860)]
Question arisen in the matter: Appellant wants to benefit of exemption, under Notification No. 25/2012 ST dated 20.06.2012 on ground that main contractor are exempted under said notification.
Explanation of the order of the Commissioner of Customs & Central Tax (Appeals-I), Hyderabad:
The tribunal order breaks down into five specific financial demands and legal penalties.
Appellant owed Rs. 5,58,299 in unpaid service tax for the 2016-17 financial year, which is the base amount of the service tax imposed on him. This is calculated and demanded u/s 73 of the Finance Act, 1996. It was further ordered to pay interest on that tax amount. The interest starts from the date the tax was originally due and continues until the day it is been actually paid, as specified under the Section 75 of the Finance Act.
As Appellant was held defaulter by the Commissioner, penalty equal to the tax amount was imposed u/s 78 of the Finance Act. It was observed that important facts were hidden from the tax department to avoid paying the tax. Further a separate penalty of 10,000 rupees was added u/s 77(20) of the Finance Act. It was observed that Appellant had contravened to the provisions of section 70 of the Act read with Rule 7 of the Rules, violated the provisions of Section 67. This is for procedural failures, such as not keeping proper accounting books, failing to follow filing rules, and not providing documents as required by the provision of Rule 5A(2) of Service Tax Rules, 1994.
Also a late fee of Rs. 4,700 was confirmed u/s 70 of the Finance Act, 1994 read with Rule 7C of Service Tax Rules 1994, for filing the ST-3 service tax return late for the period of April to September 2016. Thus the total amount ordered consists of the original tax, an equal amount as a penalty, interest, a procedural penalty, and a late filing fee.
Submission of Appellant:
The appellant works as a sub-contractor on government projects in Telangana and Andhra Pradesh, providing consultancy and survey services for civil structures and water pipelines. The tax department issued a notice because the turnover reported in income tax returns was about 37.22 lakh rupees higher than what was reported in service tax returns. The department charged tax and penalties on this difference.
The appellant argues that 27.02 lakh rupees of the turnover is exempt from tax because the work was done directly for municipalities and panchayats under existing tax exemptions as per Notification No. 25/2012 Service Tax dated 20.06.2012. Regarding the remaining turnover, the appellant claims that all their work was done as a sub-contractor for main contractors who were building water and drainage systems for the government. They argue that their consultancy services, such as field surveys, designing and project reports, are essential and inseparable from the main construction project.
The core argument is that since the main government project is exempt from service tax, the sub-contractor’s services for that same project should also be exempt. The appellant contends that the lower authorities wrongly denied this exemption, even though the consultancy work was a necessary part of the exempt government projects.
Submissions of Respondents:
The specific tax exemption (Notification 25/2012) applies to construction, installation, or repair of water and sewage pipelines for government authorities. This exemption extends to sub-contractor if he is performing a works contract. Because the appellant provided consultancy and design services rather than construction or installation work, they do not qualify for the exemption. A government circular Service Tax DOF No. 3334/15/2014 -TRU dated 10.07.2014 explicitly clarified that these types of professional consultancy services are excluded from the tax break. Even though the appellant’s consultancy was necessary for the main contractor to finish the project, it is classified as an input service. Using a service as a building block for a larger project does not change its tax status; the consultancy remains taxable even if the main project is exempt. Hence the tribunal found that since no physical construction or transfer of goods occurred, the professional services provided are fully taxable.
Explanation of provisions under notification, circular and Act:
As per the Notification no. 25/2012, Services provided to the Government, a local authority, or a governmental authority for Construction, installation, repair, or maintenance of historical monuments and archaeological sites of national importance; Construction, installation, repair, or maintenance of canals, dams, or other irrigation works; Construction, installation, repair, or maintenance of pipelines, conduits, or plants used for water supply, water treatment, or sewerage treatment and disposal; Direct services for water supply, public health, sanitation, solid waste management, or slum improvement and up-gradation; Repair or maintenance of a vessel are exempted from service tax.
Services provided by a sub-contractor to a main contractor are exempted if firstly the sub-contractor is providing services through a works contract and secondly the main contractor is also providing exempt works contract services. It is clear that sub-contractor who are providing service by way of works contract are exempted to pay Service Tax but here no such services. Works contract requires transfer of goods in execution of such services as defined under Section 65B (54) of the Finance Act, 1994 as follow:
65B. In this Chapter, unless the context otherwise requires, (54) “works contract” means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;
The services provided by appellant are clarified by circular Service Tax- D.O.F. No. 334/15/2014 – TRU dated 10.07.2014 of which relevant para as thus:
ii) “Services ordinarily provided by a Municipality: For greater clarity, the exemption in respect of services provided to Government or local authority or governmental authority [in entry at Sl.No.25], has been made more specific. Services by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation will continue to remain exempted but the exemption would not be extendable to other services such as consultancy, designing, etc., not directly connected with these specified services”.
Explanation on Precedent:
Appellant relied on Shapoorji and Company Pvt Ltd., in which facts are different, the service was related to works contract, the sub-contractor was provided construction activity. Hence, in the instant case, services are related to consultancy, which are not under exemption as above Notification & clarification.
Respondent relied on M/s Ashish Kumar Joshi, decided by Co-ordinate Bench New Delhi, held that the admitted activity of the appellant are providing advisory / consultancy service against receiving a commission from others. Section 66D does not cover this activity. It becomes clear that the services rendered by the appellant are taxable service.
Thus Appeal was dismissed.
