EWS quarters construction exempt from service tax as sovereign function but railway platform and drain work taxable as commercial activity

CESTAT New Delhi held that construction of EWS quarters by appellant constituted sovereign government function, not commercial activity, thus exempt from service tax under Works Contract Service/Residential Complex Service. However, construction of railway platform and toy train tracks for amusement park was taxable as commercial activity, with onus on appellant to prove non-commercial nature. Drain construction under JNNURM scheme was taxable as notification exemption came after work completion. Appellant entitled to 60% abatement under Notification 01/2006-ST but cannot claim both abatement and composition benefits simultaneously. Extended limitation period set aside due to lack of evidence proving intentional evasion. Appeal partially allowed.

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Issues Involved:
1. Taxability of construction of EWS quarters under "Residential Complex Service".
2. Taxability of construction of railway platform and laying of railway track for a toy train under "Works Contract Service".
3. Taxability of construction of drain (nallah) under "Works Contract Service".
4. Availability of abatement under Notification No. 01/2006-ST and payment of service tax at composite rate under Work Contract Services.

Summary:

Issue No. 1: Taxability of Construction of EWS Quarters
The Tribunal examined whether the construction of EWS quarters by the appellant fell under the definition of "Residential Complex Service" and was liable for service tax under Works Contract Service. The Tribunal referred to Section 65 (91a) of the Finance Act and noted that the definition requires more than 12 residential units with common areas and facilities. It was found that the constructed houses did not meet these criteria as there was no evidence of common facilities. The service was provided under a welfare scheme by the Government of Rajasthan, not for commercial purposes. Therefore, the Tribunal held that the construction of EWS quarters was not liable to tax as "Residential Complex Service".

Issue No. 2: Taxability of Construction of Railway Platform and Laying of Railway Track
The Tribunal agreed with the adjudicating authority that the activity of constructing a platform and laying a railway track for a toy train constituted a Works Contract Service. The exclusion clause in Section 65 (105) (zzzza) of the Finance Act, which exempts certain works contracts, was not applicable as the railway track was for an amusement park, not for transportation of goods or passengers. The Tribunal upheld the taxability of this service under Works Contract Service.

Issue No. 3: Taxability of Construction of Drain (Nallah)
The construction of the drain system was also deemed a Works Contract Service. The service was provided under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). However, the exemption under Notification No. 25/2012-ST dated 20.06.2012 was not applicable as the work was undertaken before the notification's issuance. The Tribunal upheld the taxability of this service but noted that the construction of drains was not explicitly excluded under Section 65 (105) (zzzza).

Issue No. 4: Availability of Abatement and Composite Rate
The original adjudicating authority denied the benefit of abatement under Notification No. 01/2006 and the composition scheme under Notification No. 32/2007-ST. The Tribunal observed that the appellant did not claim Cenvat credit and had not availed the benefit of Notification No. 12/2003. Therefore, the appellant was entitled to the abatement of 67% under Notification No. 01/2006. However, the appellant could not simultaneously avail the benefits of both abatement and composition scheme. The Tribunal allowed the abatement but denied the composition scheme benefit.

Extended Period and Penalty
The Tribunal found that the non-payment of service tax was due to a bona fide belief and not intentional evasion. Therefore, the extended period for demand was not justified, and penalties under Sections 76 and 78 were not imposable.

Conclusion
The Tribunal set aside the entire demand for the extended period and confirmed the demand for Works Contract Service for laying railway tracks and constructing drains for the normal period with the benefit of abatement at 67%. The demand under Construction of Residential Complex Service was also set aside. The order was modified accordingly, and the appeal was partly allowed.

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