Whether construction of hospital is a Commercial or Industrial Construction?

PJ-Case law-2012/13-1569

Case:- VISWANATHAN CONSTRUCTIONS (P) LTD. VERSUS COMMR. OF C.EX., COIMBATORE

Citation:-2013(30) S.T.R. 432 (Tri.-Chennai)

Brief Facts:-The appellant is registered as a person providing the service of “commercial or industrial construction services” and has been paying service tax on the said service. During the period 2005 to 2008, they had constructed 3 hospitals and on the said activity, they did not pay any service tax. The department was of the view that construction of hospital also will be covered by the definition “commercial or industrial construction “ as defined under Section 65(105)(zzq) of the Finance Act, 1994. Accordingly, they issued a show cause notice and adjudicated the matter which has resulted in the confirmation of impugned demand of Rs. 19,96,877/- along with interest and penalty.

Appellant Contentions:- The appellant submits that the entry covers only ‘commercial and industrial construction’. In fact, he points out that the C.B.E & C. has issued a clarification advising that approval for construction given by the local authorities should be taken into account for deciding whether a construction is commercial or industrial in nature. The local authorities have different classification for industrial area, commercial area, educational areas, hospital areas etc. and since separate categories were there for hospitals as against industrial and commercial constructions, they had entertained a bona fide belief that their activity of constructing hospital was not covered by the definition and they did not pay tax. Further, he submits that their books of account were regularly audited by Excise authorities during the above said period and the authorities did not point out any tax liability on their account on this issue. Therefore, he has specifically set up a defence of time-bar based on bona fide belief and he also argued on merits that the definition will not cover the main activity.

Respondent Contentions:-The respondent submits that the hospital is not being run as a charity and activity which is carried out by charging appropriate fee compensating cost should be considered as a ‘commercial activity’ and in view of this most of the hospitals are run for commercial purposes only. He points out that, the fact that they constructed the hospital and did not pay tax on consideration received for such activity was never disclosed to the department and, therefore, the plea of limitation is not correct and the extended period of limitation is correctly invoked in this case.

Reasoning of Judgment:-We have considered the submission from both sides and perused the records, we find that the issue whether construction of hospital is a commercial or industrial construction is an arguable point. In view of the clarification issued by the Board at the time of introduction levy on the impugned service and also different classifications being adopted by the State Government for approvals, the appellant cannot be prima facie faulted for having entertained a bona fide belief that their activity was not taxable. Therefore, we consider it proper to waive the requirement of pre-deposit for hearing the appeal.

It is ordered accordingly. There will be stay on collection of dues during the pendency of the appeal.

Decision:-Stay application allowed.

Comment:-The analogy drawn from this case is that for levying service tax under a particular category, the analysis of definition is very crucial. Further, ambiguity on the issue also extends benefit of doubt to the assessee and accordingly the contention of bonafide belief is accepted.

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PJ-Case law-2012/13-1569

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