2015 (2) TMI 971 - AT - Service Tax

Subcontractors not liable for service tax on residential complex construction for Delhi Police

The subcontractors engaged for building residential complexes for Delhi Police were found not liable to pay service tax as they were not directly ... Taxability of Commercial and Industrial Construction - Exemption for construction undertaken by Government for non-commercial use - Liability of sub-contractors where service is received by Government through contractor - Distinction between Government department and Government-owned enterpriseLiability of sub-contractors where service is received by Government through contractor - Exemption for construction undertaken by Government for non-commercial use - Taxability of Commercial and Industrial Construction - Whether sub-contractors engaged in construction of residential complexes for Delhi Police (Government of India) are liable to pay service tax when the construction is for non-commercial use by the Government. - HELD THAT: - The Tribunal found that the principal beneficiary of the construction project is the Delhi Police (Government of India), M/s HPL being the contractor and the appellants acting as sub-contractors executing the work on behalf of the Government. The intention of the law is not to levy service tax on services received by the Government of India for its non-commercial use merely on the ground that a contractor or sub-contractor is engaged. The legal evolution of the taxable concept of construction services was noted, and it was observed that construction by the Government for non-commercial purposes (such as residential complexes for Government officers) is not taxable, whereas construction for commercial activities is taxable. Consequently, the mere involvement of a contractor or sub-contractor does not alter the non-commercial character of a government project; if the construction is non-commercial and intended for Government use, the service received does not attract service tax. Applying these principles, the Tribunal held that a sub-contractor cannot be directed to pay service tax where the construction is non-commercial and the Government is the ultimate recipient of the service. [Paras 4, 5, 6, 7, 8]Sub-contractors engaged in construction of residential complexes for the Delhi Police, where the construction is non-commercial and for Government use, are not liable to pay service tax.Final Conclusion: Appeal allowed; sub-contractors cannot be directed to pay service tax in respect of construction undertaken by the Government for non-commercial use, subject to provisions of law. Issues Involved:1. Whether sub-contractors engaged for building residential complexes for Delhi Police could be considered for receiving services on behalf of the Government of India and if no service tax liability could be imposed on them.Analysis:The appeal was filed against the rejection of the appellant's appeal by the Order-in-Appeal No. 349/ST/DLH/2012. The Order-in-Original No. 227/ST/SI/REFUND/2011 passed by the Assistant Commissioner Service Tax Division-I, New Delhi was upheld. The appellant contended that they were a sub-contractor working for M/s HPL, a contractor for Delhi Police and the President of India. They argued that no service tax liability could be imposed on the Government of India. The issue revolved around whether the sub-contractors could be considered as providing services on behalf of the Government of India and if they were liable to pay service tax.The Commissioner (Appeals) distinguished between a Government Department and a Public Department, referring to a Board Circular. It was highlighted that if the contractor directly engaged by the Government of India engages a sub-contractor, the sub-contractor would be liable to pay service tax. The key point was whether the sub-contractors were providing services on behalf of the Government of India and if service tax liability could be imposed on them.After hearing both sides and examining the records, it was concluded that the sub-contractors were liable to pay service tax as they had entered into a contract with M/s HPL and not directly with Delhi Police. The major beneficiary of the construction was deemed to be the Delhi Police (Government of India), and the intention was not to levy service tax on services received by the Government through contractors or sub-contractors. The exemption from service tax was analyzed in detail, emphasizing that construction for non-commercial purposes by the Government was not taxable.The judgment emphasized that merely engaging contractors or sub-contractors for construction would not change the nature of the activity from non-commercial to commercial. It was clarified that if the Government undertook a non-commercial project, services received for such projects would not be taxable. Therefore, the subcontractors could not be directed to pay service tax when the construction activity was deemed non-commercial and not taxable. The appeal was allowed, subject to legal provisions.