Service tax on works contracts: EWS housing, body corporate recipients, and bridge construction determined exemption and reverse charge scope.

Construction of EWS flats for an Improvement Trust was treated as exempt from service tax up to 31.03.2015 because the project served non-commercial housing purposes; for the later period, the works contract service portion attracted reverse charge liability only to the prescribed 50% extent. Other construction services supplied to entities such as Improvement Trust, PWD, CPWD and Punjab Small Industries & Export Corporation Ltd. were treated as rendered to body corporates for reverse charge purposes, so partial service tax applied. Construction of foot over bridges and similar bridges was covered by the exemption for roads, bridges and other public transportation infrastructure, making that activity exempt.

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Issues: (i) Whether construction of EWS flats up to 31.03.2015 was exempt from service tax under the service tax exemption notification and, after 01.04.2015, liable only to the extent prescribed under the reverse charge notification; (ii) Whether the other construction services were rendered to a business entity registered as a body corporate so as to attract the partial levy under the reverse charge notification; (iii) Whether construction of bridges was exempt as construction of a road, bridge or other public transportation infrastructure.

Issue (i): Whether construction of EWS flats up to 31.03.2015 was exempt from service tax under the service tax exemption notification and, after 01.04.2015, liable only to the extent prescribed under the reverse charge notification.

Analysis: The flats were constructed for an Improvement Trust and were allotted to economically weaker persons at a price far below cost. The activity was not for commercial gain and fell within the exemption covering construction of a structure meant predominantly for non-commercial use and for educational, clinical or similar public purposes where applicable. The subsequent withdrawal of the exemption with effect from 01.04.2015 altered the tax position for later periods. For the later period, the reverse charge notification applied to service portion in execution of works contract, making the service tax liability shared in the prescribed proportion.

Conclusion: The construction of EWS flats was exempt up to 31.03.2015, and for the period after 01.04.2015 the appellant was liable only to the extent of 50% under the reverse charge notification.

Issue (ii): Whether the other construction services were rendered to a business entity registered as a body corporate so as to attract the partial levy under the reverse charge notification.

Analysis: The recipients included Improvement Trust, PWD (B&R), CPWD and Punjab Small Industries & Export Corporation Ltd. The reasoning treated these entities as falling within the expression body corporate by reference to their constituting statutes and the wider definition contained in the Companies Act, 2013. On that basis, the recipient-side condition in the reverse charge notification was satisfied and the services did not escape tax merely because the recipients were governmental or public bodies.

Conclusion: The other construction services were held liable only to the extent of 50% service tax under the reverse charge notification.

Issue (iii): Whether construction of bridges was exempt as construction of a road, bridge or other public transportation infrastructure.

Analysis: The work relating to foot over bridges and similar bridge construction was treated as falling squarely within the exemption for erection or construction of a road, bridge, tunnel or terminal meant for use by the general public. The character of the work, rather than the identity of the recipient, was decisive for this exemption.

Conclusion: Construction of bridges was exempt from service tax.

Final Conclusion: The tax demand was sustained only to the limited extent remaining after granting exemption for EWS flats up to 31.03.2015 and for bridge construction, while the remaining construction services were subjected to the prescribed partial levy and consequential interest and penalty computation.

Ratio Decidendi: In works contract service disputes, exemption depends on the statutory character of the construction and the status of the recipient, and where the recipient is a body corporate or the work is of a public-infrastructure or non-commercial housing character, the applicable notification governs the extent of service tax liability.

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