Whether the services of construction of residential quarters provided to the Government for providing the same as residential accommodation fro the employees is taxable under the category of ‘Construction of Complex Service’.

PJ/Case Laws/2010-11/1109

Prepared By:
CA. Rajani Thanvi &
Arpita Birla

Case: - KHURANA ENGINEERING LTD. V/s COMMR. OF C. EX., AHMEDABAD

Citation: - 2002 (21) S.T.R. 115 (Tri.-Ahmd.)

Issue:- Whether the services of construction of residential quarters provided to the Government for providing the same as residential accommodation fro the employees is taxable under the category of ‘Construction of Complex Service’.

Brief Facts:-
M/s. Khurana Engineering Limited was providing construction services. Central Public Works Department (CPWD) has given a tender for construction of 80 residential quarters for Income Tax department which was executed by them. But the demand under the category of Construction of Complex service was raised with interest and penalty. Whereas the services were provided to Govt. of India for providing the residential accommodation for the employees of the Income Tax department.

Appellant’s Contention:-
The appellant contended that the quarters constructed by the appellant are provided to Govt. for providing the same as residential accommodation for the employees of the Income Tax Department. For this purpose the appellant forced on the analysis of definition of the construction of complex services given under the clause (30a) of Section 65 which provides that personal use includes the complex for use as residence by another person on rent or without consideration. As such the services provided by the appellant is covered y exclusion, 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. Consequently the 80 flats provided by Govt. of India to employees of Income Tax department on rent will be excluded from the definition of construction services. The reliance placed upon the reply given by the Central Board of Customs and Excise to National Building Construction Corporation Limited (NBCC), vide Letter No. F. No. 332/16/2010-TRU., dated 24-5-2010, by the appellant.

Respondent’s Contention:-
According to respondents contention it is not correct to say that service has been provided to Govt. of India directly. He submits that the land is owned by Income Tax department and Income Tax 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 Income tax department and the contractor and after the residential complex is constructed, the same was handed over by CPWD to Income tax department and therefore, in terms of the clarification issued by the Board also, the appellant would be liable to pay service tax.
He also considered the letter relied upon by the learned advocate and submitted that in that letter, it has been clarified by the Board that if NBCC were to construct 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.

Reasoning of Judgment:-
The Learned Tribunal has find that the CPWD and Income Tax department cannot be treated as separate entities just because service has been provided to CPWD who in turn handed over the quarters to Income Tax Department. Further the Tender starts with words “Tenders are invited on behalf of the President of India.” Also 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. 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 under taking. It is also well settled that Public Sector undertakings are not considered as Govt., departments and also cannot be considered as “STATE”. Further, there was no any agreement between Income tax department and CPWD for the purpose of construction of residential complex. Invariably when two parties are independent entities, there would be an agreement. Hence absence of any agreement between CPWD and Income tax department also clears that these are not 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 is treated as “Person”. Therefore the exclusion clause in the definition is applicable to the Govt. of India also.

Further the learned Tribunal also sustained the alternative submissions made by the appellant that the show cause notice was issued on 4-10-2007 whereas, the service tax was payable for the period from 16-6-2005 to 30-7-2007 and therefore, a portion of the demand is time barred. As the CPWD and Income Tax department are to be treated as part of the Govt. of India and therefore, services provide by appellant would not be liable to service tax. Further, as per agreement the service receiver is liable to pay service tax, in case of liability of any tax. So the appellants has not made suppression or mis-declaration of the facts to avoid payment of service tax since if the service tax was liable, as per the contract, CPWD was liable to pay service tax. Under these circumstances, invocation of extended time limit cannot be justified in this case. For the another alternative submission that the contract between the appellant and the 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 1-6-2007, the tribunal find the case of Cemex Engineers v. Commissioner of Service Tax Cochin - 2010 (17)S.T.R. 534 (Tri. - Bang.) relevant to the circumstances.

Decision:
Appeal is allowed with consequential relief to the appellant.

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