Whether construction of staff quarters, boys/girls hostel leviable to service tax under works contract?

PJ/Case Law/2014-15/2239

Case:- M/s B RAMA RAO & COMPANY Vs. COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD-IV

Citation:- 2014-TIOL-1195-CESTAT-BANG

Brief facts:- The appellant is providing construction services to their customers. They construct staff quarters, Boys/Girls Hostel, fish tanks, etc. for Polytechnic College for their students and their staff. The department raised demand towards them for providing works contract service. The service provider has also constructed one building and let out building to the students of that college. The department also raised duty liability considering that the building is constructed for commercial purpose. Aggrieved by the order confirming demand with interest and penalties, the appellant has filed appeal to the Tribunal.

Appellant’s contention:- Learned counsel for the appellant, at the outset, submitted that the issues before the Tribunal in two appeals are exactly the same as in the case of the same appellant which had come up before the Tribunal on 23.7.2013. This Tribunal at time of considering the stay application itself considered it appropriate that the matter should be remanded to the original adjudicating authority with the following observations :

Learned advocate submits that the appellant has paid the entire amount of service tax dues with interest which according to them comes to Rs. 32,43,606/-. As regards the balance demand, he submits that this amount relates to works contract undertaken by the appellant for construction of staff quarters, Boys/Girls Hostel, fish tanks, etc. for Polytechnic College. He submits that this activity is not covered by definition of works contract service since only buildings which are constructed for commercial or industrial purpose would be covered by the definition of works contract service. In view of the fact that the entire amount of service tax has been paid, the appeal may be taken up for disposal finally.
Even though learned AR submits that construction of staff quarters, student hostels for polytechnic colleges would amount to construction of residential complex, the tribunal found that this submission was not correct. According to the definition of residential complex in the relevant category, a building was considered as constructed for personal use if it was rented out to the staff and not sold. Therefore, the case before them was not covered by construction of residential complex service. In this case, staff quarters were constructed meant for renting out for staff of the Polytechnic College only. As regards student hostels, they are not able to agree with the view taken by the lower authorities that this amounts to construction of residential complex service. In any case, even if it was a residential complex, the same was not sold but meant for use of students. Therefore, this would also come in the category of personal use. As regards the fish tanks, it cannot be said that construction of fish tanks for the college was covered by the commercial or industrial construction service. They find that the claim of the appellant that the amount of service charges collected by them for construction of staff quarters, fish tanks and students hostels for Polytechnic College was not covered by works contract service was correct.
Further they also stated that from the submissions by the appellant, the appeal itself could be disposed of finally in view of the observations. Accordingly, the requirement of pre-deposit of the balance dues was waived and the appeal was taken up for the disposal.

Respondent’s contention:- The respondent reiterated the findings of the lower authorities.

Reasoning of judgment:- First they condoned the delay in filling appeals for appearing for 2 days after explaining the cause satisfactorily.
After considering the submissions made by both sides they have concluded that the claim of the appellant that they have paid the entire tax liability in respect of works contract services required to be verified since there was a dispute on this issue. For the liability of balance amount attributable to construction of staff quarters, students hostel etc. for Polytechnic College, they held that the demand did not exist. Since there was a dispute regarding the payment of service tax claimed to have been made by the appellant, they considered it appropriate that matter had to be remanded to the original authority for the limited purpose of quantifying the correct amount and verifying the payment made by the appellant. They informed the original authority to intimate the same to the assessee for making payment in case of any discrepancies found. And also informed the assessee to payment of the same in such circumstances at that stage. As regards penalties, the appellants submission regarding non-liability or alternatively request to invoke Section 80 of Finance Act, 1994 may be considered by the original authority.
Accordingly, the impugned orders were set aside and both the appeals were allowed by way of remand to the original adjudicating authority. Thus, COD applications, stay applications and appeals are disposed of.

Decision:-Appeal allowed by way of remand.

Comment:- The crux of the case is that the construction of staff quarters, boys/girls hostels, etc. cannot be considered as commercial or industrial construction so as to classify the same under works contract and leviable to service tax. It was concluded that the said construction was covered by the expression “personal use” and so was not leviable to service tax under the works contract service.

Prepared by:- Kushal Shah

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PJ/Case Law/2014-15/2239

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