Hostel construction for an educational institution is non-taxable where the building is not used for commercial or industrial purposes.

Construction of a hostel for students of an educational institution was treated as non-taxable because the building was intended for residential use by boys and girls studying in a medical institute, with no allegation of commercial or industrial use. The applicable Board Circular was applied to clarify that service tax under works contract services or commercial or industrial construction services depends on whether the structure is used or intended to be used for commerce or industry. Since the institution was established solely for educational purposes and not for profit, the construction was held to be non-commercial in nature and outside the service tax net. The demand was therefore unsustainable.

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Issues: Whether construction of a hostel for students of an educational institution was liable to service tax under works contract services or commercial or industrial construction services.

Analysis: The hostel was constructed for residence of boys and girls studying in a medical institute, and there was no allegation that the building was used for any commercial or industrial purpose. The applicable Board Circular clarified that service tax depends primarily on whether the building or civil structure is used or intended to be used for commerce or industry, and that constructions for educational institutions established solely for educational purposes and not for profit are not taxable as they are non-commercial in nature.

Conclusion: The construction was not taxable and the demand of service tax was unsustainable.

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