Welfare-oriented school construction not treated as commercial construction, so service tax and penalties could not be sustained.

Construction of a residential educational facility for orphaned, Scheduled Caste, Scheduled Tribe, extremely backward and economically weaker students was treated as welfare-oriented work, not commercial or industrial construction. The end use of the building, rather than the parties' character as commercial concerns, was determinative for service tax liability under the Works Contract head. As the school did not satisfy the description of commercial or industrial construction, the service tax demand could not be sustained, and the connected penalties also failed with the main levy.

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Issues: Whether the construction of Rajkiya Ashram Padhdhati Vidyalaya for a State undertaking was commercial construction liable to service tax under the head Works Contract, and whether the consequential penalties could survive.

Analysis: The construction was for a residential school intended to provide education to orphaned, Scheduled Caste, Scheduled Tribe, extremely backward and economically weaker students. On the admitted facts, the facility was meant for educational and welfare purposes, not for commerce or industry. The classification adopted by the Commissioner proceeded on the premise that the parties were commercial concerns, but the nature of the construction and its end use were determinative for taxability. Since the school construction did not answer the description of commercial or industrial construction, the levy under the Works Contract head could not be sustained. Once the tax demand failed, the penalties imposed under the connected provisions also could not survive.

Conclusion: The construction was not taxable as commercial or industrial construction under the Works Contract head, and the demand of service tax and all penalties were set aside in favour of the assessee.

Ratio Decidendi: Construction of an educational facility meant for welfare-oriented residential schooling, and not for commerce or industry, does not fall within commercial or industrial construction for service tax purposes.

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