Service tax demand fails as Commissioner cannot prove market development works were primarily for commercial purposes under section 65(105)(zzzza)

CESTAT Mumbai held that service tax demand under section 65(105)(zzzza) of Finance Act cannot be sustained for market development works at Biocholim and Ponda by appellant for Goa State Urban Development Agency. Commissioner failed to establish that construction/renovation was primarily for commerce or industry as required under clause (d) of Explanation. Without finding that activity was primarily for commercial/industrial purposes, works contract service provisions cannot apply. Commissioner's order dated 18.03.2015 set aside and appeal allowed.

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Issues Involved:
The classification of service rendered for the development of a market under 'works contract service' and the confirmation of demand with interest and penalty.

Issue 1: Classification of Service under 'Works Contract Service'
The appellant, a contractor, was awarded a contract for the development of a market at two locations. The Commissioner classified the service as 'works contract service' taxable under section 65(105)(zzzza) of the Finance Act, 1994. The Commissioner found that the construction service involved the transfer of property in goods and service, falling under the category of 'Works Contract Service'. The Commissioner held that the renovation and restoration works undertaken by the appellant fulfilled the conditions specified in the Explanation of 'Works Contract' under the Finance Act. The Commissioner rejected the appellant's argument that the service did not fall under 'Commercial or Industrial Construction Service' and concluded that the service was appropriately classifiable under 'Works Contract Service'.

Issue 2: Element of Commerce or Industry
The appellant contested that there was no finding by the Commissioner regarding any element of 'commerce or industry' in the activity undertaken. The appellant argued that the demand could not have been confirmed under section 65(105)(zzzza) of the Finance Act without such a finding. The appellant also challenged the invocation of the extended period of limitation. The department, however, supported the impugned order, stating that an element of commerce was involved in the activity. The Tribunal observed that the Commissioner did not consider whether the construction was primarily for 'commerce or industry', which is a prerequisite for taxation under the Finance Act. As the Commissioner failed to establish this primary purpose, the demand under section 65(105)(zzzza) could not be sustained. Therefore, the order confirming the demand was set aside, and the appeal was allowed.

*(Separate Judgement)*
Separate Judgement by Justice Dilip Gupta:
Justice Dilip Gupta emphasized that the renovation or restoration work must be primarily for the purpose of 'commerce or industry' to fall under the scope of 'Works Contract Service'. The Tribunal held that if a building is not primarily used for commerce or industry, it would not be taxable under the Finance Act. The Tribunal rejected the Commissioner's interpretation that the construction did not need to be solely for commerce or industry to qualify as renovation or restoration work under the Act. The Tribunal concluded that without establishing the primary purpose of 'commerce or industry', the demand under section 65(105)(zzzza) could not be upheld, leading to the setting aside of the Commissioner's order.

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