Tribunal grants appeal on service tax for construction service, clarifies abatement rules

The Tribunal allowed the appellant's appeal against a service tax demand under Commercial or Industrial Construction Service (CICS), agreeing that the service falls under works contract service with 67% abatement. Despite free supplies not being included in the assessable value, the appellant was entitled to the abatement. The Tribunal clarified that construction activity for educational institutions run by charitable organizations is not non-commercial, citing a previous judgment no longer considered good law. The Tribunal ordered a specified pre-deposit with interest and stayed recovery of remaining liabilities pending appeal, subject to compliance within a set timeframe. Failure to comply would result in dismissal of the appeal.

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Issues:
1. Service tax demand under Commercial or Industrial Construction Service (CICS)
2. Denial of 67% abatement on the ground of free supplies not included in assessable value
3. Classification of construction activity for educational institutions run by charitable organization under CICS

Analysis:

1. The appellant filed a stay application and appeal against the Order-in-Original confirming a service tax demand under Commercial or Industrial Construction Service (CICS). The appellant argued that the service rendered should fall under works contract service. The Tribunal observed that CICS is a part of works contract service, and the service tax liability under the compositional scheme is similar with 67% abatement. The Tribunal agreed with the appellant that despite free supplies not being included in the assessable value, the appellant was entitled to 67% abatement based on a previous judgment. Regarding the construction activity for educational institutions run by a charitable organization, the Tribunal noted that even if the organization is charitable under the Income Tax Act, the activities of the institutions cannot be considered non-commercial. The Tribunal referred to a previous judgment but stated that it no longer represents good law based on a CESTAT Larger Bench judgment.

2. The Tribunal ordered a pre-deposit of a specified amount along with interest within a set timeframe. Compliance was required to be reported by a specific date, and subject to such compliance, recovery of the remaining adjudicated liabilities was stayed during the appeal's pendency. The Tribunal warned that in case of default, the appeal would stand dismissed for failure of pre-deposit.

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