Whether construction of AyurvedicMedical Colleges, Engineering Colleges are leviable to service tax?

PJ/Case Law/2013-14/1663

Case:-M/s IDEAL CONSTRUCTION VERSUS COMMISSSIONER OF CENTRAL EXCISE, NAGPUR

Citation:-2013-TIOL-806-CESTAT-MUM

Issue:-Whether construction of AyurvedicMedical Colleges, Engineering Colleges are leviable to service tax?

Brief Facts: The appeal and stay application are directed against Order-in-Original no. 47/ST/2012/C dated31.8.2012 passed by the Commissioner of Central Excise, Customs & Service Tax, Nagpur.The appellant M/s Ideal Constructions is registered with Service Tax department under the taxable service category of ‘Commercial or Industrial Construction Services’. During the period 2006-07 to 2010-11 they undertook construction of various buildings such as Ayurvedic Medical Colleges, Engineering Colleges and also some commercial construction such as construction of malls and residential quarters etc. Accordingly, a notice was issued vide notice dated 19.8.2011 by the department demanding Service Tax of Rs.1,65,11,409/- during the period 2006-07 and 2010-11. The same was adjudicated and the demand was confirmed alongwith interest thereon and also by imposing penalty under Sections 76, 77 and 78 of the Finance Act, 1994. Hence, the appellant is before Tribunal.

Appellant Contentions:- The appellant submitted that bulk of constructions they have undertaken are School buildings, Ayurvedic Medical Colleges and Engineering Colleges and so on. As regards buildings of commercial nature, they have undertaken the work as sub-contractor and the principal contractor has discharged the Service Tax liability; therefore, they are not required to pay Service Tax on the same activity. Accordingly, he pleads for stay of the impugned demands.

Respondent Contentions: The Respondent submitted that there are few cases where the buildings constructed are of commercial nature, therefore, the appellant be put to terms with respect to at least those buildings which are in commercial nature.

Reasoning of Judgment:We have considered the submission from both the parties and perused the record, we find that When the ‘Commercial or Industrial Construction Services' brought into the tax net, the CBE&C issued a Circular No.80/10/2004-ST dated 17.9.2004, wherein the Board clarified as under:-
"The leviability of service tax would depend primarily upon whether the building or civil structure is ''used, or to be used'' for commerce or industry. The information about this has to be gathered from the approved plan of the building or civil construction. Such constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purposes of profit are not taxable, being non-commercial in nature. Generally, government buildings or civil constructions are used for residential, office purposes or for providing civic amenities. Thus, normally government constructions wouldnot be taxable.However, if such constructions are for commercial purposes like local government bodies getting shops constructed for letting them out, such activity would be commercial and builders would be subjected to service tax."

From the above circular, it is clear that educational institution, government building etc. do not come under the category of ‘Commercial or Industrial Construction services'. Therefore, prima facie services rendered in respect of educational institutions would not come within the purview of tax liability and, therefore, the demand of Service Tax, in this regard, without verifying the nature of construction as certified by the local authorities, cannot sustain in law.

As regards construction of commercial nature such as factory buildings, residential quarters of factories, the classification of the property has to be seen before levy of service charges. In these circumstances, we are of the view that the matter has to go back to the original adjudicating authority for consideration afresh by taking into account the approval for construction afresh by taking into account the approval for the construction given by the local authorities. The appellant is also directed to co-operate with the department and submit all the documentary evidence with regard to classification of the buildings they have constructed within a period of one month from the date of receipt of this order and thereafter, the adjudicating authority shall decide the matter in accordance with law after granting a reasonable opportunity of hearing to the appellant to make their submissions.

Decision:- Appeal is disposed of.

Comment:-The essence of this case is that in view of Board’s Circular No.80/10/2004-ST dated 17.9.2004, educational institution, government building etc. do not come under the category of ‘Commercial or Industrial Construction services'. Therefore, prima facie services rendered in respect of educational institutions would not come within the purview of service tax liabilityand, therefore, the demand of Service Tax in this regard without verifying the nature of construction as certified by the local authorities, cannot sustain in law.

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PJ/Case Law/2013-14/1663

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