Service tax not payable for providing consulting engineer services being related to exempt service of road construction

In M/s Quest Engineers & Consultant Pvt. Ltd. v. Commissioner, Central Goods & Service Tax and Central Excise [Final Order No. 70226/2021 dated September 28, 2021] Hon'ble Customs, Excise and Service Tax Appellate Tribunal, Allahabad ("CESTAT") held that when road construction is exempt, every activity related to the road construction is exempt including consulting engineer services, thus, the assessee providing consulting engineer services in the matter of road construction is entitled to get exemption under Sl. No. 13(a) of the Notification No. 25/2012-Service Tax dated June 20, 2012 ("Mega Exemption Notification").

M/s Quest Engineers & Consultant Pvt. Ltd. ("the Appellant") is registered with the Service tax department and is engaged in providing consulting engineer service related to road construction activities. It appeared to revenue department that the Appellant has not paid/short paid the Service tax for the taxable services provided during the period 2011-12 to 2015-16 and thus, the short paid tax was initially found out to be Rs. 75,26,309/- which was computed on the basis of gross turnover as reflected in Form No. 26AS, under Income Tax Act,1961 ("the IT Act"). A show cause notice raising the demand for the same was given to the Appellant.

The Appellant raised the contention that his Service tax liability has been computed on the basis of figures recorded in Form 26AS where the data is recorded on cash basis or receipt basis of accounting whereas under the provisions of Service tax, the tax liability is computed on the basis of accrual or mercantile system of accounting, which is in contrast to the cash basis of accounting.

Hon'ble CESTAT observed, that Form No. 26AS is maintained on cash basis or receipt basis of accounting as per the provisions of the IT Act, whereas under the service tax provisions, the Service tax is chargeable on mercantile basis or accrual basis thus, held that whole basis of show cause notice is incorrect and/or misconceived.

Relied upon the case of Lord Krishna Real Infra Pvt. Ltd. v. Commissioner of Customs, CE & ST, Noida [Final Order No. 70126/2019 dated December 27, 2018] and observed that when road construction is exempt, every activity is exempt relating to the road construction including consulting engineer services.

Further held that, that the appellant is entitled to exemption under Sl. No. 13(a) of the Mega Exemption Notification for providing consulting engineer services in the matter of road construction.