2025 (3) TMI 199 - AT - Service Tax

Construction services for non-profit organizations and residential units not subject to service tax demands

Commissioner of Service Tax - Delhi III Versus M/s. Globe Civil Projects Pvt. Ltd.

CESTAT NEW DELHI dismissed Revenue's appeal regarding service tax demands on construction services. The tribunal held that construction services provided ... Non-payment of service tax on taxable service relating to ‘Construction of Commercial or Industrial building and civil structure and ‘Works Contract' - Non-payment of Service tax on construction services provided to IIM, DDA, CEAI, Mr. Manoj Arora and Mr. Anuj Dandone - Short payment of Service tax on construction services provided to Sweta Estates Private Limited, AVA Builders Pvt. Ltd. and Birla EduTech Limited - Non-payment of Service tax on ‘Advances’ and ‘Miscellaneous Income’ shown in balance sheet - Non-payment of Service tax on ‘Freight and Cartage Expenses’ shown in balance sheet. Non-payment of Service tax on construction services provided to IIM, DDA, CEAI, Mr. Manoj Arora and Mr. Anuj Dandone - HELD THAT:- IIMs are not-for-profit educational bodies and not in the nature of commercial concerns. It is submitted that services in relation to the construction of Noida campus for IIM, Lucknow were carried out for not-for-profit organization and constructed buildings were not primarily used for commerce or industry. Hence, the impugned services are not covered under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’ - reliance placed in the decision in the case of Banna Ram Choudhary Vs. Commissioner of Central Excise, Jaipur, [2017 (9) TMI 86 - CESTAT NEW DELHI], wherein it was held that buildings used for educational purpose by recognized educational institutions cannot be categorized as ‘commercial buildings’, and the construction thereof is not leviable to Service tax under ‘commercial or industrial construction service’. Similarly Delhi Development Authority (DDA) is observed to be a statutory body established under Delhi Development Act, 1957 (DDA Act) with the primary objective to promote and secure the development of Delhi as stated in Section 6 of the DDA Act. It is an autonomous body which reports directly to the Ministry of Urban Development, Government of India. Hence, construction of Indoor Stadium at Siri Fort Sport Complex was for being used by the Government for holding Commonwealth Games and not for generating any profit from the same. It was a non-commercial project, and the construction was undertaken for national interest. Above all, it is submitted that the stadium is a public used for the recreation of the public. Thus, it cannot be said that construction services were used by DDA primarily for commerce or industry. Further consulting Engineering Association of India Limited (CEAI) is incorporated under Section 25 of the Companies Act, 1956 as a ‘not-for-profit’ company as stated in Preamble of Memorandum of Association (MOA) of CEAI. Clause 5.0 of MOA of CEAI stipulates that “all the income, earnings, movable, immovable properties of the Association shall be solely utilized and applied towards the promotion of its aims and objectives only as set forth in the Memorandum of Association. No profit thereof shall be paid or transferred directly or indirectly by way of dividends, bonus, profits or in any manner whatsoever to the present or past members of the Association who shall have no personal claim on any moveable or immoveable properties of the Association or make any profits whatsoever by virtue of his membership.” - it is clear that CEAI also is a ‘not-for-profit’ organization and not in the nature of commercial concerns. It is submitted that construction services of Secretariat Building for CEAI were carried out for a not-for-profit organization and constructed buildings were not primarily used for commerce or industry. Hence, the impugned services are not covered under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’. All onus is on department to establish that the building was being used for such purposes by which the organization using the same was making profit. We draw our support from the decision in the case of Manisha Projects Pvt. Ltd. Vs. Commissioner of Central Excise & S.T., Ghaziabad [2019 (3) TMI 448 - CESTAT ALLAHABAD]. In view of above discussions, it is held that construction services provided to IIM, DDA and CEAI are not taxable under ‘Commercial or Industrial Construction Service’, ‘Construction of Complex Service’ or ‘Works Contract Service’. Thus, the impugned demand is not sustainable. Construction activities pertaining to private residence of Shri Manish Arora and Shri Anuj Dandone - HELD THAT:- The construction activities pertaining to private residence of Shri Manish Arora and Shri Anuj Dandone were outside the ambit of Service Tax, it is held that the impugned services are not covered under sub-clause (a) to Section 65(25b) and sub-clause (ii)(b) of the Explanation to Section 65(zzzza) of the Act, therefore, not taxable under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’ - In the present case, the respondent had undertaken the construction of single residential unit for Shri Manish Arora and Shri Anuj Dandone, which cannot qualify as ‘residential complex’ as defined under Section 65(91a) for the purpose of sub-clause (a) of Section 65(30a) and sub-clause (ii) (c) of the Explanation to Section 65(zzzza) of the Act. Thus, impugned services are not covered under ‘Construction of Complex Service’ or ‘Works Contract Service’. Construction services provided to Sweta Estates Private Limited, AVA Builders Pvt. Ltd. and Birla Edutech Limited - HELD THAT:- The issue is no longer res integra as the value of free of cost material is not includible in the value of gross amount charged for payment of service tax. The value of free of cost material supplied by M/s. Sweta Estates Private Limited (service recipient) to the Respondent (service provider) was not required to be included in the assessable value for determination of service tax liability as it does not form part of the value charged by the service provider for rendering the services. The value of free of cost material is neither an amount ‘charged’ by the service provider, nor a ‘consideration’ paid by the service recipient. Service tax demand on ‘advances’ and ‘miscellaneous income’ shown in the balance sheet is with respect to the advances received during relevant period includes the amount is respect of the construction services provided to IIM, DDA, CEAI, Shri manish Arora and Shri Anuj Dandone - HELD THAT:- Said advances were also not liable to service tax. Also the amount declared as ‘miscellaneous income’ in the balance sheet during 2009-10 to 2011-12 was not pertaining to any taxable services. The said amount pertained to the unclaimed amount by the creditors and security deposits received by the respondent. The said facts are not in dispute in the present appeal. Thus, the impugned demand of service tax on ‘miscellaneous income’ is not sustainable. Service tax demand on ‘freight and cartage expenses’ that amount shown as ‘Freight and Cartage Expenses’ - HELD THAT:- The amount shown as a ‘cartage’ is related to payments made to the supplier of the goods which included the transportation cost. Transportation and pumping charges are in respect of pumping of ready-mix concrete (RMC) material for construction activity. The aforesaid expenses also include expenses towards insurance and car policy and site expenses (payment made to cab supplier). The said amount/expenses/charges were not paid by the respondent directly to the transporter for transportation of any goods. Thus, the said activity cannot be covered under GTA Services, hence, no service tax liability can be levied on the aforesaid amount/expenses/charges under GTA services. Interest and penalties - invocation of extended period of limitation - HELD THAT:- The respondent followed a reasonable and correct interpretation of law. Therefore, the respondent cannot be alleged to have suppressed fact with the malafide intention - subsequent SCN for the same period could not be issued invoking extended period of limitation. In this regard, reliance is place on J.K. Enterprises Vs. Principal Commissioner of Central Excise, Alwar [2023 (1) TMI 936 - CESTAT NEW DELHI]. Resultantly, no interest is recoverable and no penalties are imposable. Conclusion - i) IIM, CEAI, and DDA are not commercial concerns, and their construction services are not taxable. ii) Single residential unit constructions are not taxable under the relevant service categories. iii) FOC materials are not includible in the taxable value for service tax. iv) Advances related to non-taxable activities and miscellaneous income not linked to taxable services are not subject to service tax. v) There are no suppression of facts or intent of tax evasion by the respondent. Interest, penalt and extended period cannot be invoked. Appeal of Revenue dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the construction services provided to IIM, CEAI, and DDA are taxable under 'Commercial or Industrial Construction Service' or 'Works Contract Service'.Whether the construction services for private residences are liable for service tax.Whether the value of free of cost (FOC) materials should be included in the taxable value of services provided to Sweta Estates Private Limited, AVA Builders Pvt. Ltd., and Birla Edutech Limited.Whether advances and miscellaneous income shown in the balance sheet are subject to service tax.Whether freight and cartage expenses are liable for service tax under Goods Transport Agency (GTA) services.Whether the department's appeal regarding the alleged tax evasion and suppression of facts by the respondent is sustainable.ISSUE-WISE DETAILED ANALYSIS1. Taxability of Construction Services to IIM, CEAI, and DDA- Relevant Legal Framework and Precedents: The court referred to Circular No. 80/10/2004-S.T. and Circular No. 86/4/2006-S.T., which clarify that institutions primarily engaged in non-profit activities are not considered commercial concerns. Precedents such as Banna Ram Choudhary vs. Commissioner of Central Excise and Manisha Projects Pvt. Ltd. vs. Commissioner of Central Excise & S.T. were also considered.- Court's Interpretation and Reasoning: The court found that IIM and CEAI are non-profit organizations, as evidenced by their incorporation documents and tax exemptions. DDA's construction was for public use, not commercial purposes.- Application of Law to Facts: The construction services for these entities were deemed non-commercial and thus not taxable under the relevant service categories.- Conclusions: The services provided to IIM, CEAI, and DDA were not taxable as they were for non-commercial purposes.2. Construction Services for Private Residences- Legal Framework and Precedents: Section 65(91a) of the Act defines a residential complex, and the court referenced Macro Marvel Projects Ltd. vs. Commissioner of Service Tax, Chennai.- Court's Interpretation: The court concluded that single residential units do not qualify as residential complexes under the Act.- Application of Law to Facts: The construction of single residences for Mr. Manish Arora and Mr. Anuj Dandone was not taxable.- Conclusions: The construction services for private residences were outside the ambit of service tax.3. Inclusion of FOC Materials in Taxable Value- Legal Framework and Precedents: The court referenced Bhayana Builders (P) Ltd. vs. CCE, Delhi, which established that FOC materials are not includible in the taxable value.- Court's Interpretation: The value of FOC materials provided by Sweta Estates Private Limited was not part of the consideration for service tax purposes.- Conclusions: The demand for including FOC materials in the taxable value was not sustainable.4. Advances and Miscellaneous Income- Court's Interpretation: Advances related to non-taxable construction activities were not subject to service tax. Miscellaneous income was not linked to taxable activities.- Conclusions: The service tax demand on advances and miscellaneous income was not upheld.5. Freight and Cartage Expenses- Court's Interpretation: The expenses were not directly related to transportation services paid to a transporter, thus not covered under GTA services.- Conclusions: No service tax liability was found on freight and cartage expenses.6. Alleged Tax Evasion and Suppression of Facts- Court's Interpretation: The court found no suppression of facts as the respondent maintained transparency in its records.- Conclusions: The department's appeal on these grounds was dismissed.SIGNIFICANT HOLDINGS- The court upheld that IIM, CEAI, and DDA are not commercial concerns, and their construction services are not taxable.- Single residential unit constructions are not taxable under the relevant service categories.- FOC materials are not includible in the taxable value for service tax.- Advances related to non-taxable activities and miscellaneous income not linked to taxable services are not subject to service tax.- The court dismissed the department's appeal, finding no suppression of facts or intent of tax evasion by the respondent.