Construction services to government with materials supplied qualify as works contract service under Section 65(105)(zzzze)

CESTAT Ahmedabad held that construction services provided to government entities with materials supplied were correctly classifiable under works contract service. The demand for service tax was unsustainable as the show cause notice proposed demand under wrong classification head without proper notice to the assessee. Given the appellant's bona fide belief regarding tax liability and services provided to government agencies being transparent, no suppression of facts with mala fide intention existed. The extended period demand was barred by limitation. The adjudicating authority's order confirming service tax demand, interest, and penalties was set aside, and the appeal was allowed.

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Issues involved: Classification of services for taxation, applicability of service tax on construction services provided to government entities, invocation of extended period of limitation for recovery of service tax.

Summary:
The case involved M/s. Dhananjay G. Kela, a firm providing construction services to government entities like GETCO and the local Municipality. The firm believed that as the services were not for commercial or industrial purposes, no service tax was payable. However, a Show Cause Notice was issued proposing recovery of service tax amounting to Rs. 78,09,657/- along with interest and penalty. The firm contested the allegations, stating that the services were not classifiable under 'Commercial or Industrial Construction Service' or 'Works Contract Service' due to the nature of the entities served.

The appellant argued that there was no suppression of facts or wilful misstatement, as they genuinely believed service tax was not applicable. They cited legal precedents to support their stance that the responsibility for proper assessment lies with the tax authorities, not the taxpayer. The appellant also contended that the services provided were correctly classifiable under works contract service, not commercial or industrial construction service, based on the nature of the services and VAT payment.

The Tribunal considered the submissions and records, concluding that the services were correctly classifiable under works contract service. As the demand was raised under the wrong category, the demand was deemed unsustainable. The Tribunal noted that the appellant's bona fide belief in non-liability for service tax, especially when serving government entities, indicated no mala fide intention to evade payment. Therefore, the demand for the extended period was also found to be hit by limitation.

Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief on 17.05.2024.

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