2008 (5) TMI 189 - AT - Service Tax

Tribunal exempts appellant from service tax on embassy construction; clarifies taxable service category & pre-deposit rules

The Tribunal ruled in favor of the appellant, a civil contractor involved in constructing an embassy complex, stating that the construction did not fall ... “Commercial or industrial construction service” - appellant is a civil contractor - dispute herein is with respect to the construction of the Embassy Complex and staff quarters for embassy – appellant contend that embassy building/staff quarters have no nexus with commerce or industry, hence not taxable – since appellant has already deposited sum of Rs. 39,85,252/-, stay is granted for remaining amount Issues:Dispute regarding the tax liability on the construction of the Embassy Complex for Tanzania under the category of 'commercial or industrial construction service.'Analysis:The dispute in this case revolves around whether the construction of the Embassy Complex for Tanzania, including residences for the staff of Tanzania High Commission, falls under the taxable service category of 'commercial or industrial construction service.' The appellant, a civil contractor, argues that the service tax liability applies only to constructions used for commerce or industry. They contend that since the embassy building and staff quarters do not have a nexus with commerce or industry, the definition of 'commercial or industrial construction service' does not apply to their construction work.On the other hand, the Revenue argues that the appellant failed to provide complete details of the agreement and the intended use of the building. The Revenue points out that under Section 65(25b) of the Finance Act, the construction must be intended for commerce or industry to attract service tax liability. Additionally, the Revenue references notification No. 33/2007-ST, which exempts taxable services provided for the official use of a diplomatic foreign mission from service tax, subject to compliance with specified procedures. Since the appellant did not follow the procedure, they cannot claim exemption for the construction of the embassy complex. The Revenue also highlights the appellant's non-disclosure of the value of received materials, for which they are liable to penalty, citing a relevant interim order from the Madras High Court.After considering the arguments from both sides, the Tribunal notes that the appellant has already paid a significant portion of the service tax demand before the show cause notice was issued. The Tribunal decides that the appellant is not required to pre-deposit the remaining balance of the service tax amount. Consequently, the Tribunal grants a full waiver and stays the recovery of the outstanding amount until the appeal is disposed of.This judgment provides clarity on the interpretation of 'commercial or industrial construction service' in the context of constructing an embassy complex and addresses the issue of pre-deposit requirements for service tax disputes.