A landmark ruling by the Customs, Excise & Service Tax Appellate Tribunal has clarified that taxpayers cannot rely on mere assertions to claim exemption under the Mega Exemption Notification. The Tribunal emphasized that complete documentary proof is mandatory to substantiate claims of exemption for works contract services, setting a new standard for compliance in indirect tax litigation.
Background & Facts
The Dispute
The appellant, Om Prakash Garhwal, provided work contract services for construction and repair of labour sheds, roofing, and infrastructure works for the Food Corporation of India (FCI), Executive Engineer PWD, and the Municipal Board, Bandikui. He claimed that these services were exempt from service tax under Entry No.14(d) of the Mega Exemption Notification No.25/2012-ST, which exempts services related to post-harvest infrastructure such as warehouses for agricultural produce.
Procedural History
The case progressed through multiple stages of adjudication:
- 2019: Show cause notice issued for service tax demand of Rs.40.31 lakh for FY 2014-15 to 2016-17
- 2021: Adjudicating Authority confirmed demand of Rs.38.76 lakh plus penalties, citing lack of documentary evidence linking payments to specific work orders
- 2021: Commissioner (Appeals) acknowledged the appellant’s submission of partial documents but found them insufficient to verify exemption eligibility; remanded the matter for fresh adjudication
- 2023: Adjudicating Authority, on remand, imposed a reduced demand of Rs.7.34 lakh (50% of original)
- 2026: Appeal filed before the Customs, Excise & Service Tax Appellate Tribunal
Relief Sought
The appellant sought quashing of the tax demand, arguing that the services rendered to FCI were for post-harvest infrastructure and thus exempt under Entry 14(d). He requested an opportunity to produce complete records to substantiate his claim.
The Legal Issue
The central question was whether a taxpayer claiming exemption under Entry No.14(d) of the Mega Exemption Notification No.25/2012-ST can rely on oral submissions or partial documentation, or whether complete documentary evidence is mandatory to establish eligibility.
Arguments Presented
For the Appellant
The appellant, through counsel Shri Kumud Bhatnagar, argued that the nature of services rendered to FCI - construction of labour sheds and storage infrastructure - fell squarely within the scope of post-harvest infrastructure as contemplated under Entry 14(d). He contended that the lower authorities erred in denying exemption solely due to incomplete record submission, without examining the substance of the services. He cited CIT v. Shree Ram Sugar Mills Ltd. to argue that tax exemptions should be construed liberally in favour of the assessee where the intent of the notification is clear.
For the Respondent
The Department, represented by Shri Aejaz Ahmad, countered that Entry 14(d) requires not just the nature of work but also certification from the service receiver (FCI) confirming that the infrastructure is exclusively for storage of agricultural produce. He emphasized that the appellant failed to produce any work orders, payment vouchers, or certificates from FCI to establish the exempt nature of the services. The Department relied on Commissioner of Central Excise v. M/s. Surya Roshni Ltd. to assert that exemption is a privilege requiring strict compliance with conditions.
The Court's Analysis
The Tribunal examined the statutory framework under the Mega Exemption Notification and the procedural obligations under the Service Tax Rules. It noted that while exemptions are to be interpreted liberally, they are not self-executing. The burden of proof lies squarely on the assessee to demonstrate that all conditions of the exemption are met.
"The appellant has not placed on record any work order, contract, or certificate from FCI to establish that the services rendered were for post-harvest infrastructure as required under Entry 14(d)."
The Tribunal observed that the Commissioner (Appeals) correctly identified the evidentiary gap but erred by remanding only the quantification issue while leaving the exemption claim unaddressed. The Tribunal held that exemption claims are inherently factual and require a full re-examination of all documents, not just partial submissions. It stressed that the absence of documentary corroboration cannot be compensated by subjective assertions, even if the nature of the work appears prima facie exempt.
The Tribunal further clarified that the Department’s requirement for a certificate from the service receiver is not an additional condition but a necessary verification mechanism to prevent misuse of the exemption. Without such proof, the claim remains unverified and legally unsustainable.
The Verdict
The appellant prevailed on procedural grounds. The Tribunal set aside the Commissioner’s order and remanded the matter to the Adjudicating Authority for fresh adjudication. The core holding is that exemption under Entry 14(d) requires complete documentary evidence, including work orders and certification from the service receiver, to be validly claimed.
What This Means For Similar Cases
Documentary Evidence Is Non-Negotiable
- Practitioners must ensure clients retain and produce all work orders, contracts, payment records, and certificates from service recipients when claiming exemptions
- Oral testimony or general descriptions of services will not suffice - only contemporaneous, verifiable documents are admissible
- Taxpayers should obtain and retain written confirmation from government agencies like FCI that services relate to post-harvest infrastructure
Exemption Claims Must Be Fully Adjudicated on Remand
- When an appellate authority remands a case, it must remand the entire issue, including eligibility for exemption, not just quantification
- Lower authorities cannot avoid deciding the core legal question by deferring to "further evidence" without a clear direction to re-evaluate the exemption claim
- Practitioners should file applications under Rule 21 of the Service Tax Rules to formally request record production before final orders are passed
Burden of Proof Remains With the Assessee
- The Tribunal reaffirmed that exemptions are exceptions to taxation and must be strictly construed
- Taxpayers cannot shift the burden to the Department to disprove exemption claims
- A failure to produce documents, even if unintentional, renders the claim legally untenable regardless of the service’s actual nature
