Construction services to government bodies for non-commercial purposes exempt from service tax under personal use provision

CESTAT Ahmedabad dismissed the department's appeal regarding service tax levy on construction services. The respondent contractors provided construction services to government bodies including Gujarat State Police Housing Corporation Ltd., Surat Municipal Corporation, and Surat Urban Development Authority. The tribunal held that construction works undertaken by government for non-commercial purposes fall outside service tax purview. Following the Khurana Engineering precedent, services provided to government bodies are treated as services to Government of India directly, with end use by government qualifying as "personal use" under residential complex service definition, making such services non-taxable.

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Issues Involved:
1. Whether the construction services provided by the respondents to Gujarat State Police Housing Corporation Ltd. (GSPHCL), Surat Municipal Corporation (SMC), and Surat Urban Development Authority (SUDA) are liable to service tax.

Issue-wise Detailed Analysis:

Issue 1: Liability of Service Tax on Construction Services for GSPHCL, SMC, and SUDA

Background:
The respondents, M/s Tirupati Construction and M/s A.M. Bhanderi, carried out construction work for government bodies including GSPHCL, SMC, and SUDA during 2007-08 to 2011-12 without registering for service tax. The Revenue department initiated an inquiry, leading to show cause notices for service tax demands, which were dropped by the Commissioner.

Revenue's Argument:
The Deputy Commissioner (AR) argued that:
- The construction services provided to GSPHCL, SMC, and SUDA are taxable under 'Construction of Complex' and 'Works Contract Services' as per Section 65(30a) and 65(91a) of the Finance Act, 1994.
- The complexes built were not for self-use but were meant to be sold or allotted for residential purposes, thus falling outside the exemption for personal use.
- The Commissioner erroneously concluded that the constructions were for non-commercial purposes, despite the fact that residential units were allotted against payment, albeit at subsidized rates.

Respondents' Argument:
The respondents supported the Commissioner’s findings, arguing that:
- The constructions were for government bodies and intended for personal use, thus exempt from service tax.
- They cited several judgments supporting the exemption for constructions intended for personal use by government bodies.

Tribunal’s Findings:
The Tribunal examined the work orders and definitions of 'Works Contract Service' and 'Residential Complex Service':
- Works Contract Service: Includes construction of new buildings or residential complexes, among other activities.
- Residential Complex: Excludes complexes constructed for personal use, including use by another person on rent or without consideration.

Key Judgments Referenced:
- Sima Engineering (2018): Construction for personal use by government bodies is exempt from service tax.
- Khurana Engineering (2011): Services provided to government bodies for residential use by employees are exempt.
- Various CESTAT Decisions (2023): Reaffirmed that constructions for government bodies for non-commercial purposes are outside the purview of service tax.

Conclusion:
The Tribunal upheld the Commissioner’s decision, concluding:
- The constructions were for government bodies and intended for personal use, thus exempt from service tax.
- The definition of residential complex service excludes constructions intended for personal use by government bodies.
- The appeals by the Revenue department were dismissed, and the original orders dropping the service tax demands were upheld.

Final Order:
The Tribunal dismissed the appeals and upheld the Orders-in-Original, confirming that the construction services provided by the respondents to GSPHCL, SMC, and SUDA are not liable to service tax. The cross objections were also disposed of.

Pronouncement:
The judgment was pronounced in the open court on 12.07.2024.

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