CONSTRUCTION OF PUBLIC PARKING LOT EXEMPT FROM SERVICE TAX

In one of the recent orders dated 13.02.2026 of Principal Bench of CESTAT at New Delhi, it has been held that no Service Tax is payable or Service Tax is exempt on the activities of construction under entry No. 12A of mega exemption Notification No. 25/2012-ST dated 20.06.2012 in respect of construction of public parking lots on behalf of local bodies of State Government. The Tribunal held that the appellant was rendering service to the government, local bodies of civil construction for parking lots as well as for the educational establishment which were not meant for commerce. Merely for a small fee being collected from the users of the parking, the said activity cannot be termed as commercial as was held in Commissioner of Central Excise And S.T., Lucknow Versus M/s Shalimar Corp Ltd. - 2019 (5) TMI 663 - CESTAT ALLAHABAD, wherein the construction of public parking was held to be an activity rendered for the government towards its discharge of public function. [M/s. Road Infrastructure Development Company of Rajasthan Limited (RIDCOR) Versus Commissioner of Central Excise and Customs, Central Goods and Service Tax, Jaipur I - 2026 (2) TMI 783 - CESTAT NEW DELHI]

Factual Matrix

On facts, the appellant, M/s Road Infrastructure Development Company of Rajasthan Limited (RIDCOR) is a Government of Rajasthan initiative engaged in providing taxable services of works contract services, renting of immovable property, consulting engineer's services etc. RIDCOR was promoted as a Joint Venture by Government of Rajasthan and Infrastructure Leasing & Financial Services Limited (IL&FS) registered as a company under Companies Act, 2013 with 50 percent equity contributed by each of them.

Appellant had been awarded civil construction contracts by the Government of Rajasthan (Directorate of Local Bodies) for construction of under-ground parking and allied work at Gandhi Maidan, Jodhpur and Hathiwala Park, Udaipur and multilevel parking and allied work at Nai Sadak, Jodhpur. The Appellant was to execute the development work on actual cost plus 9% of cost of construction on agency charges basis. Further, Tribal Area Development Department (TADD) also awarded contract for construction of school building at Alwar for Tribal /SC/ST boys and girls. The gist of these contracts are as follows:

* Refund allowed by Commissioner (Appeals) vide OIA under Notification No. 25/2012-ST [Entry No. 12(c)] (not disbursed till the time of appeal - 02.09.2023)

The Appellant was availing exemptions under Notification No. 25/2012-ST dated 20.06.2012 under Serial No. 12(a) and 12(c).

The above exemption was withdrawn by the Central Government videNotification No. 6/2015-ST dated 01.03.2015 w.e.f. 01.04.2015. Therefore, the Appellant started charging and depositing service tax on such services w.e.f.01.04.2015. However, the said exemption was restored in the Mega Exemption Notification 25/2012-ST dated 20.06.2012videNotification No. 9/2016-ST dated 01.03.2016 at Sr. No. 12A w.e.f. 01.03.2016 with respect to the contract entered into prior to 01.03.2015 and on which appropriate stamp duty wherever applicable had been paid prior to such date.

VideFinance Act, 2016, the Central Government provided for refund of service tax paid during the period 01.04.2015 to 29.02.2016 under section 102 of the Finance Act, 1994. Accordingly, the assessees were allowed refund of service tax which was paid but would not have been paid in terms of retrospective exemption granted by section 102. This refund claim was to be applied by assessees within a period of six months from the date of enactment of Finance Act, 2016 i.e., 14.05.2016.

Accordingly, the Appellant filed the application for refund of the service tax paid during the relevant period of 01.04.2015 to 29.02.2016 amounting to Rs.1,58,03,017/- on 11.11.2016 on the ground that they had deposited service tax on works contract services which had been paid and later exempted under Section 102(1) of the Finance Act, 1994. The break-up of Service Tax paid / refund claim is as under:

Issues Involved

1. Exemption eligibility under entry No. 12 and 12(A) of Notification No. 25/2012-ST dated 20.06.2012.
2. Rejection of refund claim with respect to the contract entered into prior to 01.03.2015 in respect to Multilevel parking at Nayi Sadak, Jodhpur, Underground parking at Gandhi Maidan, Jodhpur and Hathiwala Park, Udaipur.

Assessee's Contentions

RIDCOR contended that it was eligible for exemption under entries 12 and 12A of Notification No. 25/2012-ST dated 20.06.2012 and section 102 of Finance Act, 2016. These read as follows:

1. Relevant entries of Notification No. 25/2012-ST dated 20.06.2012

12. Services provided to the government, a local authority, or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of-

(a) a civil structure or any other original work meant predominantly for use other than commerce, industry, or any other business or profession ; ....................

....................

(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(W.e.f. 01.07.2012 to 31.03.2015)

12A. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(W.e.f. 01.03.2016 vide Notification No. 9/2016-ST dated 01.03.2016)

1. Special provision for retrospective exemption in certain cases relating to construction of Government buildings (Section 102 of Finance Act, 2016)-

(1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of April, 2015 and ending with the 29th day of February, 2016 (both days inclusive), in respect of taxable services provided to the Government, a local authority or a Governmental authority, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of-

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry or any other business or profession;

(b) a structure meant predominantly for use as-

1. an educational establishment;
2. a clinical establishment; or
3. an art or cultural establishment;

(c) a residential complex predominantly meant for self-use or for the use of their employees or other persons specified in Explanation 1 to clause (44) of section 65B of the said Act, under a contract entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that date.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all the material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

The Appellant fulfills all the conditions of the exemption, viz, date of contract, nature of contract, type of service recipient and intention of service and the learned respondent erred in law by not granting the refund claim as the prime object of construction of parking facility was to provide parking space to the public at large for their convenience and to regulate the traffic on the roads, i.e. public utility services as also provided in Article 243W of the Constitution of India.

The appellant has provided construction related service to State Government / Local Authority which are not commercial concerns and are creatures of Constitution of India meant to provide facilities / amenities / services to general public and in public interest.

It was submitted that in the present case, the principle object of contracts awarded for construction of parking area by the DLB / Nagar Nigam is to maintain and control the traffic in the city and de-congest the roads from road side vehicles. It may happen that the Nagar Nigam collects some charges which are usually nominal for giving this facility to the public at large. The intention behind the collection of parking fees or charges is not to earn revenue or profit but to ensure the proper and judicious use of such public facilities and to maintain these facilities. Moreover, such charges cannot be considered as commercial consideration or the reason for rejection of refund claim.

Further, earning revenue or income out of parking charges cannot be considered as business of Government and the respondent ought to have understood the difference between businesses or commerce in common parlance and Government activities for public welfare.

Any activity can be said to be commercial in nature, if it is carried on as a business to earn profit. Profit motive is essential in determining the transaction for commerce or industry. Whether the activity actually results in profit or loss is immaterial but what is necessary is that the intention must be to earn profit. Similarly, an organization or establishment can be said to be 'commercial concern' if it is run with an intention to make money or earn profit which is not so in the instant case. The same is being run for the public welfare in public interest under the Constitution of India and hence, cannot be treated as a commercial concern.

Department has not considered the legislative intention behind insertion of section 102 in the Finance Act, 1994 by the Finance Act, 2016 which is a special provision for exemption in certain cases relating to construction of Government buildings during the past period. The objective of section 102 was to extend service tax exemption retrospectively for the services specified in the respective sections and was amply made clear by CBEC that relevant services provided during the period under the contracts entered into prior to 01.03.2015 shall be exempt from service tax. The amendment was made with the intent to rationalize taxation and ought to be considered accordingly.

Revenue's Contentions

It was argued by the department that the construction services for parking projects are meant for the local bodies to charge hefty amount from the contractors, who is turn charge high parking fees from the general public. Hence it was rightly considered as an activity in the nature of commerce and industry.

Further, refund claims are not maintainable unless and until the self-assessment has got reviewed/revised. The decision of High Court of Delhi in the case of BT (India) Private Limited Versus Union Of India & Anr. - 2023 (11) TMI 478 - DELHI HIGH COURT and the decision of Supreme Court in the case of ITC LIMITED Versus COMMISSIONER OF CENTRAL EXCISE, KOLKATA -IV - 2019 (9) TMI 802 - Supreme Court (LB) was relied upon.

Issues to be decided by Cestat

Cestat considered following two issues to be adjudicated by it:

1. Whether the appellant is eligible for the exemption benefit of Entry No. 12A of Notification No. 25/2012-ST dated 20.06.2012.
2. Whether the appellant's claim of refund on construction of parking facility for local authority has rightly been rejected or not?

Cestat's Observations

Cestat observed as follows:

• The provisions makes it clear that whenever service is provided to a government, a local authority or a governmental authority by way of construction as mentioned under clause 12A(a) of the exemption Notification No.25/2012 or for the purpose of being used as educational establishment under Section 12A(c) of said Notification No.25/2012 during the relevant period (01.04.2015 to 29.02.2016) as prescribed under Section 102 of the Finance Act, since such activity was held exempted from payment of service tax, if any tax paid during the said relevant period shall be held eligible for being refunded.
• There is difference between activity/service rendered for business or commerce and the government activities rendered for public welfare.
• An activity is said to be commercial in nature, if it is carried on as a business to earn profit. Profit motive is essential in determining the transaction for commerce or industry. Whether the activity actually results in profit or loss is immaterial but what is necessary is that the intention must be to earn profit. Similarly, an organization or establishment can be said to be 'commercial concern' if it is run with an intention to make money or earn profit. In the instant case, the parking's constructed by the government are claimed to be run for the public use / welfare in public interest under the Constitution of India, Article 243W and hence, cannot be treated as a commercial concern.
• The regulation of parking of private vehicles is otherwise covered under constitutional duty of municipalities and as per clause 45 and 253 of the Rajasthan Municipalities Act, 2009, such activities are not meant for commerce.
• The grounds for rejecting the impugned refund claim had been wrongly invoked in the present case. Those were not relevant to the facts and circumstances of the present case.

Verdict / Order

It was therefore, held that the order rejecting refund claim was liable to be set aside and both the issues were decided in favour of RIDCOR and appeal allowed.

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Dr. Sanjiv Agarwal

FCA, FCS, D.Litt.