Whether construction of Sports Stadium treated as a commercial or industrial construction?

Case:-B.G. SHIRKE CONSTRUCTION TECHNOLOGY PVT. LTD. VsC.C.E., PUNE-III

Citation:-2014 (33) S.T.R. 77 (Tri. - Mumbai)

Brief Facts:-The appeal is directed against the Order-in-Original No. 11/P-III/STC/COMMR/2011-12, dated 15-9-2011 passed by the Commissioner of Central Excise, Pune-III.
The appellant M/s. B.C. Shirke Construction Technology Pvt. Ltd. constructed a Sports Stadium Complex for Government of Maharashtra at Mahalunge, Balewadi, Pune and this Stadium is known as Shiv Chhatrapati Sports Complex. This stadium was constructed on tender invited by the Government of Maharashtra. As per the tender, the scope of the work is described as follows :-
“The existing sports facility constructed in year 1994 for holding National Games will be supplemented by constructing additional facilities as required by organization of Commonwealth Youth Games - 2008. Construction of new facilities relates to various sports such as :-
(a)        Indoor Badminton Hall of size 60m x 40m
(b)        Fitness Centre
(c)        Shooting Range complex
(d)        Sports Science Centre
(e)        Press and Media Centre.
The tender also involved upgradation of existing facility, such as :-
(a)        Athletic Stadium additional track, warm up track
(b)        Tennis Centre Court and resurfacing of practice courts
(c)        Weightlifting Hall
(d)        Hostels
(e)        Wrestling Hall
(f)         Boxing Hall
(g)        Swimming Pool etc.”
The question involved is whether this construction undertaken by the appellant amounts to ‘Commercial or industrial Construction’ as defined under Section 65(25b) of the Finance Act, 1994. The said section defines the term ‘Commercial or Industrial Construction Service’ as construction of a new building or a civil structure or a part thereof which is used or occupied or engaged, primarily, for commerce and industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
The learned adjudicating authority observed that the facility constructed by the appellant for the State Government of Maharashtra is to be used by the public and others for a consideration, therefore, the entire building/structure is commercial construction and accordingly, he confirmed a demand of Rs. 10,21,11,459/- under Section 73 of the Finance Act, 1994 and also imposed an equivalent amount of penalty under Section 78 of the Finance Act, 1994. Aggrieved with the impugned order, the appellant is before Tribunal.

Appellant contentions:- The learned Counsel for the appellant submits that as per the certificate dated 13-3-2008 procured from the Grampanchayat, Mahalunge, it may be seen that the plot of land on which Shree Shiv Chhatrapati Sports Complex is constructed, is not registered in their records either as for residential or commercial purpose. However, the said plot of land owned by Government of Maharashtra is for the public welfare use. They have further certified that according to their records, the buildings constructed in the said plot of land are not used for commercial purposes.
The learned Counsel further submits that the Director, Directorate of Sports & Youth Services, Pune vide Affidavit dated 9-9-2008 has deposed that the project of building/upgrading of Shiv Chhatrapati Stadium at village Mahalunge was undertaken for holding 3rd Commonwealth Youth Games, 2008 in the month of October, 2008 and the project was financed and funded by the Government and the Stadium is fully controlled by the Department of Youth Affairs and Sports, Govt. of Maharashtra and the said stadium has been built as a non-commercial and non-industrial project. He further declared that stadium will be continued to be used for non-commercial purposes even after the finish of the Commonwealth Youth Games.
The learned Counsel also relies on the Circular issued by the Board vide Circular No. 80/10/2004-S.T., dated 17-9-2004, wherein it has been clarified as under :-
“13.2 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 would not 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.”
He also relies on the Circular No. 151/2/2012-Service Tax dated 10-2-2012, wherein in Para 2.4, it has been clarified as follows :-
“2.4 Conversion Model : Conversion of any hitherto untaxed construction/complex or part thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time.
Clarification : Mere change in use of the building does not involve any taxable service, unless conversion falls within the meaning of commercial or industrial construction service.”
From this circular, it is clear that if in the records maintained by the local authorities, it is not to be used for commercial purposes, then Service Tax liability is not attracted. Further, even if construction built for non-commercial purposes and primarily not used for commercial or industrial purposes, renting out the same later for commercial purpose would not make the construction as commercial or industrial construction. In the light of this, he submitted that the activity undertaken by the appellant does not come within the purview of the Commercial or Industrial Construction Services as defined under Section 65(25b) of the Finance Act, 1994. The only ground/basis on which the demand has been confirmed is a letter dated 5-9-2008 written by C.B.E. & C. to the Director of Sports & Youth Services, State Government of Maharashtra. In the said letter it has been stated that “Commercial or industrial construction service’ and ‘works contract service’ for construction of stadium are leviable to Service Tax provided that such services are primarily for the purposes of commerce or industry. It was further directed in the said letter in Para 5 that in case any further clarification is needed on the issue, the jurisdictional Commissioner may kindly be approached. In view of this letter, the learned Commissioner had confirmed the duty demand.
Learned counsel for the appellant in his rejoinder submits that as per the rate-list the same is for rates for organizing sports competitions. In that category, different rates have been prescribed, a lower rate for schools, slightly higher rates for sports associations, another higher rate for institutions and clubs and the highest rate for usage for commercial purpose. This rate is for corporate bodies who want to undertake sports competitions in the stadium. Merely, because a higher rate has been prescribed for the corporates, it does not mean the use is other than organizing sports competitions and conducting of sports activities cannot be held to be a commercial activity. He further contends that it is not the purpose for which the stadium has been put to use that is relevant for classification purpose and it is how, under the local municipal corporations/municipalities and other local authorities, the construction has been treated. As per the certificate issued by the Gram Panchayat of Mahalunge, the construction has not been treated as a residential construction or for commercial purposes. Since the plot of land is owned by Government of Maharashtra and its use is for public purpose, the classification of construction remains non-commercial. Accordingly, he pleads for allowing the appeal.

Respondent contentions:- Learned Commissioner (AR) reiterates the findings given in the adjudication order by the adjudicating authority in particular, he drew attention to the rates for the use of the stadium prepared by the sports complex. In the rates given, there is a column for usage for commercial purposes which points to the fact that the stadium is being allowed to be used for commercial purposes and separate rates have been fixed for such usage. He also invites attention to Para 2 of the Government Resolution which provides that the Committee shall be competent to use the area to the extent of ¹/₃rd of the total area for commercial purposes, that is to say, for private purposes. Permission for such commercial usage shall be granted for the purpose admissible as per the Development Rules of the Mumbai Municipal Corporation (local Municipal Corporation/Municipalities/planning authority or special planning authority). This clause in the Government Resolution dated 24-2-2003 also makes it clear that apart from sports use, the stadium is also to be used for commercial purposes. Therefore, the construction to be considered as a commercial construction and not as a non-commercial construction.

Reasoning of Judgment:-The learned Tribunal have carefully considered the rival submissions.
The question involved herein is whether the Sports Complex Stadium constructed for the purpose of holding games can be considered as a commercial or industrial construction, merely on the ground that the stadium is allowed to be used by the public and others later on, on payment of user charges. In Tribunal’s view, the Sports Stadia is a public facility for the recreation of the public and it does not come under the category of commercial or industrial construction.
In the case of B.B. Nirman Sahakari Samiti v. State of Rajasthan - AIR 1979 Raj. 209, a question arose as to what is a Public Utility? The Hon’ble High Court held that ‘public utility’ means any work, project which is going to be useful to the members of the public at large. The public benefit aided at or intended to be secured need not be to the whole community but to a considerable number of people. In American Law, the word ‘Public facility’ has been defined as under :-
“‘Public facility’ means the following facilities owned by a State or local government, such as :-
(a)        Any flood control, navigation, irrigation, reclamation, public power, sewage treatment and collection, water supply and distribution, watershed development, or airport facility.
(b)        Any other Federal and street road or highway.
(c)        Any other public building, structure, or system, including those used for educational, recreational, or cultural purposes.
(d)        Any park.”
The Sports Stadia is used for public purpose. Merely because some amount is charged for using the facility, it cannot become a commercial or industrial construction. Even in a Children’s Park, entry fee may be levied for maintenance of the Park. Merely because some amount is charged for using the Park, it cannot be said that it is a commercial or industrial construction. Adopting the same logic, the Sports Stadia in the present case is also a non-commercial construction for use by the public. Therefore, we are of the considered view that the Sports Stadium constructed for conducting Commonwealth Games, is a non-commercial construction.
In view of the foregoing, who hold that Shiv Chhatrapati Sports Complex constructed by the appellant, M/s. B.G. Shirke Construction Technology Pvt. Ltd., is a non-commercial construction and, therefore, it is not liable to Service Tax under the category of ‘Commercial or Industrial Construction Service’. Accordingly, we allow the appeal.

Decision:- Appeal allowed.

Comment:-The crux of the case is that merely because certain fees is charged from the users of the stadium, construction of sports complex which is for benefit of public at large cannot become Commercial or Industrial Construction. Also, the Sports Stadiums is a public facility for the recreation of the public and it does not come under the category of commercial or industrial construction. Moreover, even in case of Children’s Park, entry fee may be levied for maintenance of the Park, it cannot be said that it is a commercial or industrial construction. Adopting the same logic, Sports Stadiums shall also be considered as a non-commercial construction for use by the public and so no service tax is leviable on its construction.

Prepared By:- Meet Jain

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