2023 (6) TMI 953 - AT - Service Tax

Appellant exempt from service tax for construction services provided to Government for personal use.

M/s East Coast Constructions & Industries Ltd. Versus Commissioner of Service Tax, Kolkata And Commissioner of Service Tax, Kolkata Versus M/s East Coast Constructions & Industries Ltd.

The Tribunal held that the appellant, engaged in constructing residential complexes for Indian Army and West Bengal Power Development Corporation Limited, ... Levy of Service Tax - construction of residential complex for Indian Army and West Bengal Power Development Corporation Limited, the West Bengal Government Undertaking - contention of the assessee is that vide CBEC Circular No.332/16/2010-TRU dated 24.05.2010, which clarified that in case the Government of India is service recipient and the service provided is directly to the Government of India for its personal use, the service tax is not leviable. HELD THAT:- It is not in dispute that the assesse is engaged in the construction of flat for Indian Army and West Bengal Power Development Corporation Limited and these residential complexes are for personal use of Indian Army and WBPDCL. The CBEC has clarified vide its Circular No.332/16/2010-TRU dated 24.05.2010, which holds that if the NBCC, being a party to a direct contract with GOI, engages a sub-contractor for carrying out the whole or part of the construction, then the sub-contractor would be liable to pay service tax as in that case, NBCC would be the service receiver and the construction would not be for their personal use. As it is not in dispute that the residential flats constructed by the assessee, are for personal use of Indian Army and WBPDCL, which are a part of Government of India/State Government. Therefore, the said service provided by the assessee is to Government of India for personal use. Therefore, in the light of the CBEC Circular No.332/16/2010-TRU dated 24.05.2010, the assessee is not liable to pay service tax. The impugned demand confirmed against the assessee is set aside. Consequently, the appeals filed by the assesse are allowed - As no demand is sustainable against the assesse, therefore, question of imposing penalty does not arise. There are no merit in the appeal filed by the Revenue and the same is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether service tax is leviable on construction of residential complexes carried out by a contractor for Government entities where the complexes are intended for the personal use of the Government. 2. Whether the CBEC Circular No.332/16/2010-TRU (24.05.2010) excluding service tax where the Government is the direct service recipient for its personal use applies to the facts and exempts the contractor from service tax liability. 3. Whether earlier Tribunal authority holding that construction services provided directly to Government for end use as residential complex fall within 'personal use' is applicable and controlling. 4. Whether penalty under Sections 76 and 77 of the Finance Act, 1994 is imposable on the assessee in view of any confirmed demand for service tax. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Levy of service tax on construction of residential complexes for Government entities Legal framework: Service tax liability for construction of residential complexes is governed by the definition of 'residential complex' service and the general charging provisions under the Finance Act. The explanatory proviso/definition includes 'personal use' as an exception when the Government is the direct recipient. Precedent treatment: The Tribunal in Khurana Engg. Ltd. held that where service is provided directly to the Government and the end use of the residential complex by the Government is within the definition of 'personal use', service tax is not leviable. That decision was relied upon and followed. Interpretation and reasoning: The Court accepted that the residential flats were constructed for the Indian Army and a State Government undertaking and that such complexes were for 'personal use' of those Government entities. The CBEC Circular clarifies that where Government is the service receiver and the construction is for its personal use, service tax is not leviable on the contractor who has a direct contract with the Government. The Tribunal applied this circular and the Khurana ratio to the present facts, concluding that the contractor's services were directly to the Government for personal use and therefore outside the taxable ambit. Ratio vs. Obiter: Ratio - Where a contractor provides construction of residential complexes directly to the Government and the complexes are for the Government's personal use (including occupancy by Government officers), such services are not subject to service tax. Obiter - Observations regarding the liability of subcontractors when engaged by a Government-contracted party (i.e., NBCC engaging a sub-contractor) are explanatory in the Circular and not determinative of the present facts. Conclusion: The contractor is not liable to pay service tax on construction of residential complexes provided directly to Government for personal use; the impugned demand was set aside. Issue 2 - Application and effect of CBEC Circular No.332/16/2010-TRU (24.05.2010) Legal framework: Administrative circulars from CBEC elucidate tax liability within the statutory framework and are applied to clarify scope of taxable services; they are persuasive in construing departmental position on taxation of Government-directed services for personal use. Precedent treatment: The Tribunal adopted the Circular's specific direction that where Government directly engages a contractor to build residential complexes for its personal use, service tax is not leviable. The Circular also distinguishes the situation where the Government-contracted party engages sub-contractors - those sub-contractors may be taxable as they would be providing services to the contracting party, not the Government. Interpretation and reasoning: The Tribunal reasoned that the circumstances fall squarely within the Circular's example: a direct contract between the Government and the contractor for residential complexes intended for Government's personal use. Therefore, the administrative clarification negated the basis for service tax demand. The distinction in the Circular regarding sub-contractors was noted but inapplicable as the present assessee was a direct contractor, not a sub-contractor. Ratio vs. Obiter: Ratio - The Circular's clarification is binding on similar factual situations and was applied as determinative here. Obiter - The hypothetical consequence for sub-contractors (liability where the contracting party is the service receiver) is an explanatory point and not necessary to the decision. Conclusion: The CBEC Circular applies and supports non-levy of service tax on the direct contractor; therefore the demand cannot be sustained. Issue 3 - Reliance on Tribunal precedent (Khurana Engg. Ltd.) Legal framework: Consistency with prior Tribunal rulings on interpretation of 'personal use' in relation to Government as service recipient. Precedent treatment: The Tribunal expressly followed the earlier Tribunal decision which held that services provided directly to Government for end use as residential complex are covered by the 'personal use' explanation and therefore not taxable. Interpretation and reasoning: The present case facts matched the earlier decision's factual matrix (direct contract with Government; residential complexes for Government personal use). The Tribunal accepted the earlier conclusion and applied it, observing that once merit-based non-levy is established, further aspects need not be considered. Ratio vs. Obiter: Ratio - The Khurana decision constitutes controlling reasoning on identical facts and was followed. No attempt was made to distinguish or overrule that precedent. Conclusion: The prior Tribunal authority was followed and reinforced the conclusion that no service tax is leviable under the facts. Issue 4 - Imposition of penalty under Sections 76 and 77 of the Finance Act, 1994 Legal framework: Penalties under Sections 76 and 77 attach to confirmed short payment/underpayment of service tax and are derivative of a valid demand. Precedent treatment: When no demand is sustainable, penalties predicated on such demand cannot stand; penalty consideration becomes moot if the principal liability is negated. Interpretation and reasoning: The Tribunal held that because the substantive demand for service tax was set aside (no sustainable demand against the assessee), there is no foundation for imposing penalties under Sections 76 and 77. The Revenue's appeal seeking penalties therefore lacked merit. Ratio vs. Obiter: Ratio - Penalties under Sections 76 and 77 are not imposable where the principal tax demand is unsustainable. Obiter - None beyond the necessary conclusion. Conclusion: Penalties under Sections 76 and 77 do not arise once the service tax demand is set aside; Revenue's appeal for penalties is dismissed. Cross-references The conclusions on Issues 1-3 are interdependent: application of the CBEC Circular (Issue 2) and the prior Tribunal ruling (Issue 3) inform the legal determination on levy (Issue 1); the determination on Issue 1 directly renders Issue 4 (penalties) moot.