By TIOL News Service

NEW DELHI, FEB 13, 2017: THE appellants are engaged in providing mechanized cleaning service for railways, diesel locomotives, railway station premises, general manager's office, Airports Authority of India and certain colleges and schools.

For the period July 2005 to March 2010, the department has sought to recovery Service Tax under the head 'Cleaning Services'.

The CCE, Bhopal confirmed demand of Rs.1,07,43,890/- and imposed equal amount of penalty.

Before the CESTAT, the appellant submitted that the statutory definition of "cleaning activity" would cover only "commercial or industrial building and premises". Inasmuch as since cleaning of public utility organizations like railway station, railway shed or office premises of the general manager, ordnance factory, airports, schools and colleges[DPS, Jain International School and Hitkarini College and Hospital] cannot be considered as cleaning of commercial premises, therefore, service tax is not leviable. It is further argued that the demand is time barred as the appellant had themselves informed the department on 23.09.2007 about the activities undertaken by them and the tax treatment for the same, but the department did not choose to respond till the time of issuance of the demand notice almost three years later.

The AR submitted that railways, though run by the Central Government, is a commercial organization; managing their finance independently and the operations including staff management are fully sourced by the Revenue receipts and the tariff for passengers and the freight are fixed after due consideration of commercial viability; there is no exemption provided for services rendered to public utility organization. And similar is the case with airports. Moreover, ordnance factory is an industrial premises and as regards cleaning of college and school premises the appellants had failed to produce evidence regarding the nature of organization/ premises before the original authority.

The Bench extracted the definition of taxable service relating to 'cleaning activity' and observed -

+ On the arguments of the appellant that the airport authority and railways are public utilities and cannot be considered as commercial building or premises thereof, we find no legal support to conclude that all public utilities should be straightaway considered as non-commercial organization. There is no legal or logical basis for such a summary conclusion. Neither do we find any bar for a public utility organization to be run on commercial basis.

+ Public utilities are those business undertakings which provide necessary day to day service to the society like dealing in water/ electricity supply, transport etc. Since larger investments are required in providing large-scale public utility service, some amount of monopolistic situation emerges in some of the cases. Necessary regulations/ protections are also evolved by the Government for orderly and uninterrupted public utility service by the organizations providing the same. The term public utility itself has not been statutorily defined.

+ In terms of Section 2(N)(VI) of Industrial Disputes Act, 1947, many industries listed in the first schedule may be declared to be public utility service by the Government. A perusal of the Schedule will show large number of activities are listed which can be declared as public utility service. These are banking, coal, cement, mining, shipping, airport authority etc. The point to be noted is that being a public utility by itself does not provide any immunity from service tax levy. It is apparent that the railways or airport authority are being subjected to service tax under various categories like transport of passengers, freight, advertising etc. Similarly electricity distribution/ transmission is a vital public utility which is subjected to service tax.

+ To hold railways or airport authority as non-commercial organizations only on the ground that they are public utility organizations has no legal basis. Incidentally, it may be noted that the freight revenue of railways is more than double of the activity of passenger revenue. It only shows that substantial railways is in commercial freight transport. Even, with reference to the status of the railway stations, we note that the same cannot be considered as non-commercial building or premises. The commercial nature of the railway stations and its premises is very apparent. …Having examined the scope of activities of railways and the premises of railway stations we are of the opinion that the activities carried out by the appellant relating to mechanical cleaning of station, rail wagon, railway office is covered by the taxable entry – "cleaning activity" .

+ It may not be out of place to mention here that in respect of tax entry "Commercial or Industrial Construction service", services provided to railways are specifically excluded though the tax entry is with reference to commercial industrial construction service.

+ Regarding tax liability on cleaning activities under taken by the appellant in the premises of ordnance factory, we note that the definition covers industrial building and premises thereof. Ordnance factory premises are covered by industrial building. Even otherwise clause (ii) of the definition clearly mentions factory as one of the premises covered for tax liability. The factory in the present case is not in relation to agriculture, horticulture, animal husbandry or for dairying. As such in the absence of any exclusion from the statutory definition, we find the appellants are liable to service tax on this account.

+ Regarding service tax liability with reference to cleaning activity of circuit house, college, hospital and school premises, we find these are not covered by the tax entry either as commercial or industrial building or as a factory building and machinery, tank or reservoir of commercial and industrial building and premises thereof. [Sample bills raised are also submitted.] As such, we find no justification to confirm the service tax liability on these activities.

Limitation:

++ We note that the appellants vide their letter dated 23.09.2007 itself gave details of their activities and also particulars of recipient of service. No clarification or follow up to that letter by the department is seen as per the records. However, the present demand was issued almost 3 years after the intimation given by the appellant.

++ The conduct of the appellant regarding the disclosure of details referring to the earlier meetings with the jurisdictional officers brings out the fact that allegation of suppression or willful misstatement cannot be sustained in this case against the appellant.

Conclusion:

+ Service tax liability of the appellant in respect of the activities which are held to be taxable should be restricted to the normal period of demand; there is no justification to impose penalties on the appellant.

The appeal was partly allowed.

(See 2017-TIOL-413-CESTAT-DEL)