No Service Tax payable on collection of toll tax on behalf of NHAI

The Customs, Excise and Service Tax Appellate Tribunal at Chandigarh in a recent order, observed that collection of toll tax on behalf of the NHAI was not tantamount to a taxable service classifiable under the heading of Business Auxiliary Services and it was thus clarified that no Service Tax was payable on such activity.

A Division Bench of Justice Mr. S S Garg, Member (Judicial) and Mr. P Anjani Kumar, Member (Technical), observed it to be held in the Assessee’s own case for past period, that the Assessee in collecting toll tax on behalf of the NHAI, was not performing any function incidental or auxiliary to a service being provided by the NHAI. The Bench also observed that the NHAI itself could not be deemed to be a service provider.

The Appellant-Assessee was represented by Ms. Krati Singh, Advocate, whereas the Respondent-Department was represented by Mr. Harish Kapoor, AR.

The Assessee, engaged in providing services classifiable under the heading of Business Auxiliary Services was served Show Cause Notice during the relevant period, alleging that the Assessee contravened the provisions of Sections 68, 69 and 70 of the Finance Act 1994 and Rules 4-7 of the Service Tax Rules 1994. It was alleged that the Assessee had been providing taxable services without obtaining the requisite registration and without payment of service tax thereon.

The notice stated that the Assessee was collecting toll tax at a toll plaza on behalf of the National Highway Authority of India, for a monthly consideration and for which the Assessee had received a sum of about Rs 4.27 Crores from the NHAI for the relevant period. The Notice alleged that it was on this sum that the Assessee had failed to pay service tax under the heading Business Auxiliary Services under Section 65(19) of the Finance Act 1994.

The Assessee filed a detailed reply claiming to not be liable to pay Service Tax. However, on adjudication, an Order-in-Original came to be passed, confirming tax demand with penalty.

On hearing the contentions of both parties, the Bench noted the sole issue at hand to be whether Toll collection activity was classifiable under the heading of Business Auxiliary Service and whether Service Tax was payable thereon.  

The Bench further noted that the issue at hand had been resolved by the CESTAT in the Assessee’s own case for past AYs, wherein it was held that collection of toll by the Assessee was not to be treated as Business Auxiliary Service provided to the NHAI, since the Assessee was not rendering any service, incidental or auxiliary or on behalf of the NHAI. It was also held that the NHAI was not undertaking any business activity. Therefore, demands raised in the earlier appeals had been set aside.

Following the findings rendered in the Assessee’s own appeal for past period, the Bench set aside the tax demands raised in the present matter.

Cause Title: PNC Infratech Ltd vs. Commissioner of Central Excise [Service Tax Appeal No. 1164 of 2011 / 2023-Enterslice-7-CESTAT-Chand]

Click here to read/download the order

PNC-Infratech-Ltd-vs.-Commissioner-of-Central-Excise