Hostel construction for students held non-commercial, keeping it outside service tax on commercial or industrial construction services.

Construction of a hostel for students of a medical institute was treated as non-commercial because the building was meant for residence of students and there was no material showing use or intended use for commercial or industrial purposes. A Board circular covering educational, charitable, health, sanitation and philanthropic structures clarified that such buildings, when not for profit, fall outside the taxable net for commercial or industrial construction services. On that basis, the service tax levy did not apply, and rejection of the refund claim for tax paid under a bona fide view was unsustainable.

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Issues: Whether construction of a hostel for students of a medical institute fell within taxable commercial or industrial construction services, and whether the refund claim of service tax paid under a bona fide view was liable to be rejected.

Analysis: The construction was for a hostel meant for residence of students of a medical institute and there was no material to show that it was used or intended to be used for commercial or industrial purposes. The Board circular governing such constructions clarified that buildings or civil structures used or to be used for educational, religious, charitable, health, sanitation or philanthropic purposes, and not for profit, are non-commercial in nature and not taxable. The earlier tribunal view in the connected matter had already applied the same circular and held the construction to be outside the taxable net.

Conclusion: The construction was not taxable as commercial or industrial construction services, and the rejection of the refund claim was unsustainable; the issue was decided in favour of the assessee.

Ratio Decidendi: Construction of a hostel for students of an educational institution, where the building is not used for commercial or industrial purposes, does not attract service tax under commercial or industrial construction services.

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