The Customs Excise and Service Tax Tribunal (CESTAT) in Mateshwari Indrani Contractors Pvt.Ltd v. C.C.E&S.T held that Service Tax cannot be levied on the activity of collection of VAT on behalf commercial tax department. It also held that the activity of toll collection is not liable to the payment of tax.
The Appellant, Mateshwari Indrani Contractors Pvt.Ltd was engaged as a contractor on behalf of the National Highways Authorities of India (NHAI), Department of Mines and Geology (DMG); and Commercial Tax Department, Rajasthan State (CTD),For the collection of toll tax, royalty on mines and collection of commercial tax respectively. The appellant was awarded the right to collect toll/ royalty/ commercial tax through bids invited by the aforesaid agencies. For the grant of such right, the appellant agreed to pay the bid amount in lump sum. The appellant
collected the toll/royalty/ commercial taxes from the users of highway/ quarry license holders/ assessee who is liable to pay VAT. The amount payable to NHAI/DMG/CTD for grant of such right was firm and any loss/ profit arising out of such collection was to the account of the appellant. Revenue was of the view that if the actual collection was more than the amount paid to the authorities, the additional amount should be considered a commission received by the appellant. The appellant was made liable to pay Service Tax on such commission as a ‘Commission Agent’, under the category of Business Auxiliary Service (BAS) as defined under Section 65 (19) of the Finance Act, 1994. After the due process of adjudication, Service Tax demand amounting to Rs. 1,33,58,700/- was slapped along with interest and equal penalty. Aggrieved by the demand the appellant filed an appeal before the CESTAT.
The CESTAT held that Service Tax under the category of ‘Business Auxiliary Service’ would become liable only if the service is rendered in relation to the ‘business’ of the recipient. In the present case, the appellant, was engaged in collecting statutory levies on behalf of the Government department (CTD)/ statutory authority (NHAI) neither of whom are engaged in any business activity. Therefore the levy of Service Tax cannot be sustained on the Commission retained by the appellant. It is also held that no Service Tax can be levied on activity of toll collection as held by the tribunal in the case of ‘Commissioner v. Intertoll ICS CE Conso & MP Limited, [2013 (31) STR 477 (Tri-Del)].The CESTAT also observed that the appellant is entitled to the benefit of exemption under Notification No. 13/2004-ST dated 10/09/2004 which specifically exempts the services provided by any person to the Government of State in relation to collection of any duties or taxes levied by the Government from the whole of the Service Tax leviable.
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