Non-commercial governmental construction escapes service tax where residential accommodation remains outside commercial and industrial construction.

Construction of residential accommodation for Delhi Police, used for a non-commercial governmental purpose, fell outside the taxable field of commercial and industrial construction service. The involvement of a contractor and sub-contractor did not change the character of the project into a commercial one, and taxability could not be expanded by a departmental distinction between government departments and government enterprises where the underlying work remained non-commercial. The sub-contractor was therefore not liable to service tax on the construction activity.

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Issues: Whether a sub-contractor engaged in constructing residential accommodation for Delhi Police, a Government of India entity, was liable to service tax when the underlying construction was for non-commercial use.

Analysis: The construction was undertaken for the residential use of Delhi Police and was therefore for a non-commercial governmental purpose. The mere involvement of a contractor and sub-contractor did not alter the nature of the project into a commercial one. The applicable service tax entry covered commercial and industrial construction, while construction for non-commercial governmental use was outside the taxable field. A circular or departmental distinction between government departments and government enterprises could not enlarge taxability where the project itself remained non-commercial.

Conclusion: The sub-contractor was not liable to pay service tax on the impugned construction activity.

Ratio Decidendi: Where construction is for a non-commercial governmental purpose, the participation of a sub-contractor does not by itself create service tax liability under the entry for commercial and industrial construction.

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