2025 (3) TMI 268 - AT - Service Tax

Development authority's construction activities deemed taxable services despite sovereign immunity claims, abatement benefit wrongly denied

M/s Allahabad Development Authority Versus Commissioner of Central Excise, Allahabad

CESTAT Allahabad ruled that development authority's activities constituted taxable construction of complex services, rejecting claims of sovereign ... Classification of services - construction of complex service or not - services provided by the appellant, Allahabad Development Authority (ADA) - denial of benefit of abatement - extended period of limitation. Classification of services - construction of complex service or not - services provided by the appellant, Allahabad Development Authority (ADA) - HELD THAT:- The issue involved in the present case is squarely covered by the decision of Hon’ble jurisdictional Allahabad High Court in the case of GREATER NOIDA INDUSTRIAL DEV. AUTHORITY VERSUS COMMR. OF CUS., C. EX. [2015 (4) TMI 1231 - ALLAHABAD HIGH COURT] by holding that 'The fee or amount collected as per the provisions of the relevant statute for performing such functions is in the nature of a compulsory levy and are deposited into the Government account. Such activities are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for a consideration. Therefore, such activities assigned to be performed by a sovereign/public authority under the provisions of any law, do not constitute taxable services. Any amount/fee collected in such cases are not to be treated as consideration for the purposes of levy of Service Tax.' The decision of the Tribunal in case Greater Noida Industrial Development Authority [2014 (9) TMI 306 - CESTAT NEW DELHI] has not been agreed to by the larger bench of Tribunal in case of Rajasthan State Industrial Development and Investment Corporation Ltd. [2025 (2) TMI 211 - CESTAT NEW DELHI - LB] and Larger Bench has observed settled the issue stating 'The value of “premium” or “salami” is exigible to service tax under “renting of immovable property” for the period prior to 01.07.2012 under section 65(105)(zzzz) of the Finance Act and from 01.07.2012 under section 66B of the Finance Act.' The submission made by the appellant that they are not liable to pay service tax being government authority in respect of the services in dispute, is thus devoid of merits. Denial of abatement - HELD THAT:- The appellant have claimed benefit of abatement for determination of the value of taxable services provided by them which has been denied for production of sufficient documents admissibility. Denial of such abatement cannot be justified and the value of taxable services needs to be determined after allowing for abatement either under the composition scheme or on the basis of actual documents, if documents produced. The said view is in line with the decision of Hon’ble Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT] wherein following has been held that 'It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994.' For redetermination of value of taxable services, the matter remanded back to the Original Authority after allowing the abatement. Invocation of extended period of limitation - HELD THAT:- Appellant being a development authority duly constituted by the Government under Section-4 of the Uttar Pradesh Town Planning and Development Act on 20 August 1974 by the Government’s release dated 09-08-1974 to solve the complex housing problem arising out of the pressure of this growing population, cannot be imputed with intention to evade payment off service tax. Hence, there are no merits in invocation of extended period of limitation for making this demand - the demand for normal period of limitation upheld. Conclusion - i) ADA's activities are classifiable under 'construction of complex service' and are subject to service tax. ii) The exemptions claimed by ADA were not applicable, as the services were not statutory functions. iii) There are no merits in invocation of extended period of limitation for making this demand. Matter is remanded back to the Original Authority for consideration and de-novo adjudication - Appeal allowed in part. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment were:(i) Whether the services provided by the appellant, Allahabad Development Authority (ADA), fall under the purview of service tax and are appropriately classifiable under 'construction of complex service'.(ii) Whether ADA is eligible for exemptions under various notifications, as claimed by them.(iii) Whether the show cause notice was rightly issued to ADA under the extended period provision.(iv) Whether the demand for service tax is maintainable, interest is leviable, and the proposal for imposition of penalties justified.ISSUE-WISE DETAILED ANALYSIS(i) Classification under 'Construction of Complex Service'The relevant legal framework included Section 65(30a) and Section 65(91a) of the Finance Act, 1994, which define 'construction of complex' and 'residential complex'. The Court examined the statutory provisions and concluded that ADA's activities of constructing and selling residential complexes fall under 'construction of complex service'. The Court relied on the self-acknowledged construction activity by ADA and the statutory provisions to classify the service correctly.(ii) Eligibility for ExemptionsThe Court considered various notifications, including Notification No. 25/2012-ST and Notification No. 1/2006-ST, which provide exemptions and abatements for certain services. The Court noted that ADA claimed exemptions as a government authority under these notifications. However, the Court found that the exemptions did not apply to ADA's activities, as the services provided were not statutory functions performed in the public interest. The Court referenced CBEC Circulars and previous judgments to support its conclusion.(iii) Issuance of Show Cause Notice under Extended PeriodThe Court analyzed whether the extended period for issuing the show cause notice was justified. It found that ADA had not obtained service tax registration, paid service tax, or submitted information to the department, constituting suppression of facts with the intent to evade payment. Thus, the invocation of the extended period was deemed justified.(iv) Maintainability of Service Tax Demand, Interest, and PenaltiesThe Court upheld the demand for service tax, including interest under Section 75 of the Finance Act, 1994, as mandatory. Regarding penalties, the Court found no merits in imposing penalties under Section 78 due to the lack of intent to evade tax by ADA, a government authority. However, penalties under Section 77 for failure to comply with statutory provisions were upheld.SIGNIFICANT HOLDINGSThe Court held that ADA's activities are classifiable under 'construction of complex service' and are subject to service tax. It emphasized that exemptions claimed by ADA were not applicable, as the services were not statutory functions. The Court supported the invocation of the extended period due to ADA's non-compliance and suppression of facts. However, it allowed for the redetermination of taxable value after considering abatement, remanding the matter to the Original Authority for de-novo adjudication.The Court partially allowed the appeal, setting aside the demand for the extended period and penalties under Section 78, while upholding penalties under Section 77. The matter was remanded for reconsideration within three months.