Service tax demand on educational construction services set aside for pre-July 2012 period following Board Circular exemption

CESTAT Chennai held that service tax demand on construction services for educational institutions was unsustainable for the period prior to 01.07.2012, following Board Circular dated 17.09.2004 which exempted educational construction from commercial construction tax. For the period 01.07.2012 to 31.03.2013, the demand was upheld as the appellant had registered under WCS and paid tax before adjudication. However, penalty under Section 78 was set aside due to no willful suppression, while penalty under Section 77 was maintained. The appeal was partly allowed with demand, interest and penalties set aside for pre-July 2012 period.

---

---

Issues Involved:
The judgment involves determining the levy of service tax on construction services provided by the appellant for educational institutions, the sustainability of the demand for different periods, and the imposition of penalties.

Levy of Service Tax for Period Prior to 01.07.2012:
The appellant contended that construction services for educational institutions are exempt from service tax as per Circular No. 80/10/2004. Referring to a previous case, it was argued that demand for this period cannot be sustained. The Tribunal agreed, citing the Circular and setting aside the demand for this period.

Demand for Period from 01.07.2012 to 31.03.2013:
Regarding the demand for this period, the appellant did not contest it on merits but challenged the penalties imposed. The appellant had paid a significant portion of the demand before the Show Cause Notice. The Tribunal found no suppression of facts by the appellant and set aside the penalty under Section 78, upholding the penalty under Section 77.

Penalties Imposed:
The Department argued that penalties were justified due to non-payment of service tax coming to light through their verification. However, the Tribunal found that the appellant had cooperated and paid the service tax before the adjudication order, leading to the setting aside of the penalty under Section 78 while upholding the penalty under Section 77.

Conclusion:
The impugned order was modified to set aside the demand, interest, and penalties for the period prior to 01.07.2012. The demand for the subsequent period was upheld, with the penalty under Section 78 being entirely set aside. The penalty under Section 77 was maintained. The appeal was partly allowed with consequential reliefs, if any, as per law.

---