Leviability of service tax on construction of residential accommodation for IT department under Construction of Complex Services.

PJ/Case Laws/2010-11/1090

Case: Khurana Engineering Ltd v/s Commr of C. Ex, Ahmedabad

Citation: 2011 (21) STR 115 (Tri-Ahmd)

Issue:- Leviability of service tax on construction of residential accommodation for IT department under Construction of Complex Services.

Brief Facts:- Appellant is engaged in construction services. A tender was floated by the Central Public Works Department (CPWD) for construction of 80 residential quarters for Income Tax Department. Appellant entered in contract with CPWD for constructing the said quarters.

Department issued show cause notice demanding service tax from the appellant by treating the service provided of construction of residential quarters as ‘Construction of Complex’ service. Demand was confirmed.

Appellant is challenging the levy of service tax before the Tribunal.

Appellant’s Contention: - Appellant submitted that service was provided by them to Govt. of India for providing the same as residential accommodation for the employees of the IT department. Reference was made to the definition of construction of complex services and it was submitted that personal use, according to the definition includes permitting the complex for use as residence by another person on rent or without consideration. The service provided by the appellant fell under the exclusion clause given in the definition which provides that definition of service does not include the complex which is constructed by a person directly engaging any other person for designing or planning of the layout and the construction of such complex. It was submitted that their case, the Govt of India provided 80 flats to IT department on rent therefore it is excluded from the definition of construction services.

Reliance was placed on reply given by Board to National Building Construction Corporation Limited (NBCC) vide Letter No. 332/16/2010-TRU dated 24.05.2010 in support of their contention.

Appellant had also drawn attention to the Tender which started with the words “Tenders are invited on behalf of the President of India”.

Alternatively, it was submitted Show cause notice was issued on 04.10.2007 whereas the service tax was payable for the period from 16.06.2005 to 30.07.2007 and therefore portion of the demand is time-barred.

Alternatively it was also submitted that the contract between the appellant and CPWD was a works contract and VAT has been paid treating the same as works contract and therefore, no service tax was liable to be paid for the period prior to 01.06.2007.

Respondent’s Contention: - Revenue contended that it is not correct to say that service has been provided to Govt of India directly. The land was owned by the IT Department and the said department has requested the CPWD to construct the quarters for them and funds have been made available to CPWD by Ministry of Finance for this purpose. CPWD in reality has acted as a bridge between IT department and the contractor and after the residential complex is constructed, the same was handed over by CPWD to IT Department and therefore, in terms of the clarification issued by the Board also, the appellant would be liable to pay service tax.

Attention was drawn to the Letter relied upon by the appellant and submitted that in that letter the Board had clarified that if NBCC were to construct the residential accommodation and handover to Govt of India, there would be no liability to service tax. However, if NBCC were to entrust the work to sub-contractor and such sub-contractor constructed the residential complex and handed over to NBCC who in turn handed over the same to Govt of India, service tax would be leviable.

The observation of the Commissioner in its order was also referred wherein it was held that this is not a case where residence is for personal use of a person and is not covered by the explanation given under clause (30a).

Reasoning of Judgment: - The Tribunal held that service has been provided by the appellant to the Govt f India in this case and CPWD and IT Department cannot be treated as separate entities just because service has been provided to CPWD who in turn handed over the same to IT Department. The Tribunal perused the Tender which was issued on behalf of the President of India. It was also found that the guarantee executed by the contractor and agreement entered by the contractor have been accepted by CPWD for and on behalf of the President of India. The Revenue has fairly accepted that they have not got clarification that whether CPWD and IT Department are to be treated as separate or one and same entity.

The Tribunal further held that it is well known that various departments of Govt of India act on behalf of the President of India and therefore, it cannot be said that CPWD can be equated with NBCC which is a public sector undertaking. It is also well settled the PSUs are not considered as Govt departments and also cannot be considered as “STATE”.

It was held that absence of agreement between CPWD and IT Department it cannot be said that they are 2 separate entities. Further, since on behalf of the President of India contractors are entered into, agreements are entered into and bonds are accepted, Govt of India id treated as “Person”. Therefore, the contention of the Revenue that exclusion clause in the definition cannot be applied to the Govt of India is not acceptable.

Reference was made to the definition of Construction of Complex Services and it was held that on facts the case was covered by the explanation given for “Personal use” the definition. In this case the CPWD has engaged the appellant for construction of residential complex for giving it on rent to the employees of IT department and therefore, this service cannot be included in the definition of residential complex services.

The Tribunal accepted the alternative submission and held that appellant would be justified to entertain a belief that CPWD and IT department are to be treated as part of the Govt of India and therefore, services provided by him would not be liable to service tax. There was no case for suppression or mis-declaration on the part of the appellant to evade payment of service tax. Therefore, penalties imposed under the Finance Act, 1994 are liable to be set aside.

With regard to second alternate submission, the Tribunal held that in the case of Cemex Engineers v/s Commissioner of Service Tax, Cochin [2010 (17) STR 534 (Tri-Bang)] is relevant wherein the definition of residential complex service and works contract, the construction of residential complex on the basis of works contract, cannot be leviable to service tax prior to 01.06.2007. This decision was favourable to the appellants.

On merits, impugned order set aside.

Decision: - Appeal allowed with consequential relief.

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