2025 (8) TMI 646 - AT - Service Tax

Road Construction for Non-Commercial Use Exempt Under Notification 24/2009-ST; Penalties Applied for Tax Defaults

The CESTAT Chennai held that construction of roads for non-commercial purposes qualifies for exemption from service tax under Notification No. 24/2009-ST, ... Classification of services - Works Contract Service, Site formation and clearance, excavation and earthmoving and demolition Service, Supply of Tangible Goods Service, Man Power Recruitment or Supply Agency Service and Cleaning service or not - taxability of construction of roads - exemption from service tax claimed by SRK on the ground that most of the works contract executed by him were laying of roads and construction of buildings meant for non-commercial purpose - invocation of extended period of five years under proviso to Section 73(1) of Finance Act, 1994 - levy of penalty u/s 76,77 and 78 of the Act. Whether the activities carried out by SRK are taxable services classifiable under 'Works Contract Service', 'Site formation and clearance, excavation and earthmoving and demolition Service', 'Supply of Tangible Goods Service', “Man Power Recruitment or Supply Agency Service' and 'Cleaning service' or other taxable services and chargeable to service tax in terms of the provisions of erstwhile Section 66 and the present Sec.66B of the Act? - HELD THAT:- Works contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property. However, services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a road, bridge, tunnel or terminal for road transportation for use by general public were exempted vide notification dated 20 June 2012.” A bare reading of the statutory provisions would make it clear that the scope of services provided, inter alia, in respect of roads, are specifically excluded under works contracts or construction services of Commercial or Industrial buildings. In the case of Commissioner of Service Tax v. M/s. Shilpa Construction Pvt. Ltd. [2010 (6) TMI 175 - CESTAT, AHMEDABAD], it was clarified that where construction of roads is a distinct and independent activity, it qualifies for exemption, even if the roads are located within a commercial complex. Applying this principle, the road construction undertaken by the appellant for Madras Cements Ltd. appears to qualify for exemption under Notification No. 24/2009-ST dated 27.07.2009. But, it is needed to examine the scope of work and service activity rendered to arrive at the conclusion that consideration is received for repair or construction of the Roads. The N/N.24/2009- ST dated 27.7.2009 provides for exemption of service tax on management, maintenance or repair of roads and the new Section 97 introduced vide Finance Act, 2012 gave retrospective amendment to this notification w.e.f. 16.06.2005. The above said N/N. 24/2009-ST or amendment N/N. 54/2010-ST dated 21.12.2010 and new Section 97 of Finance Act, 2012 does not state in any place that 'the exemption from payment of service tax is only with respect to public utility roads' - the demand raised in respect of roads and confirmed against the taxpayer cannot sustain. The construction of buildings for the industrial establishments mentioned supra are chargeable to service tax under “Works Contract Service”, since there is transfer of property in goods involved in the execution of such construction. However, in respect of residential construction for workers, the contract copies / scope of activity have to be examined as to the taxability. Whether the exemption from service tax claimed by SRK on the ground that most of the works contract executed by him were laying of roads and construction of buildings meant for non-commercial purpose i.e., educational institutions, hospitals run by charitable organizations is factually correct and legally permissible? - HELD THAT:- The impugned Order-in-Original accepts that the educational institutions are run by charitable trusts but denies the benefit on the ground that there is no exemption to educational institutions being run commercially. This observation is made without appreciating the fact that the definition of ‘works contract service’ specifically refers to 'primarily for the purpose of commerce or industry' and educational institutions run by Trust/Charities and registered under Section 12A/AA of Income Tax are non-profitable and therefore the service activity has to be treated as non-commercial in nature. The impugned Order has confirmed the demand on the ground that the commercial nature of the educational institutions who receive the taxable service is determined on the basis of collection of charges for education by whatever name called or whatever reasons attributed to such collection. It is to be noted that mere charging fees does not make entity a commercial one. There is no finding in the order that the surplus amount has not been used for the objective of the Trust/Charitable institution. So long as there is no finding to the effect that the surplus is used for any other purpose other than the objective of the institution or benefiting the individual Trustees, the observation that the institutions are commercial in nature is erroneous. On perusal of the account statements forming part of this paper book (Pages 137-138), it appears the Appellant is showing service tax as collected from other industrial customers like Vishal Industries, N.R. Krishnamuthi Raja, Vishnu Shankar Mills, and toward construction of Colleges/hospitals/schools etc. This issue needs a thorough verification of actual amount of Service Tax collected and paid as the SCN / Impugned order makes a mention of Tax collected from Madras Cements only. The tax collected as per the SCN is different from the figure admitted by the Appellant. The demand of actual tax so collected is ordered to be deposited to the Revenue along with applicable interest. The Appellant is required to pay equivalent penalty for collecting service tax from its clients and not paying the same to the credit of Government Account. Whether the demand of service tax for the extended period of five years under proviso to Sec. 73(1) of Finance Act, 1994 is correct? - HELD THAT:- The facts of the case clearly establish that the Appellant has deliberately evaded payment of Service tax during the period covered by the impugned order though they have collected the same in some cases from the recipients of services, and therefore, the extended period has been rightly invoked against the Appellant in demanding the same and the case Laws cited by the Appellant will not offer any relief, as it is a case of outright evasion of Tax and malafide intention has been established in collecting the service tax from their customers but not depositing to the Government Account. Whether penalty is imposable under Sec. 76,77 and 78 of the Act for contravention of various provisions of law? - HELD THAT:- The issue of penalty will be decided on the basis of quantum of service tax evaded. The appeal is remanded for fresh adjudication by the Commissioner of Central Excise, Tirunelveli to complete the mathematical exercise and verification within three months of receipt of this order and after strict compliance to the principles of natural justice - Appeal allowed by way of remand. 1. ISSUES:1.1 Whether activities carried out fall within taxable 'Works Contract Service' or other taxable services (including 'Site formation and clearance, excavation and earthmoving and demolition Service', 'Supply of Tangible Goods Service', 'Man Power Recruitment or Supply Agency Service' and 'Cleaning service') under the erstwhile Sec.66 / present Sec.66B of the Finance Act?1.2 Whether construction or maintenance of roads (public or private) is excluded from the levy of service tax and/or covered by Notification No.24/2009-ST and retrospective amendment (Section 97) such that demands cannot be sustained?1.3 Whether construction services rendered to educational institutions, hospitals and other charitable/non'profit entities are taxable where the recipients charge fees, and whether exemption applies irrespective of Section 12A/12AA registration?1.4 Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act is invokable where returns were not filed, service tax was collected from recipients but not deposited, and there is alleged suppression or mala fides?1.5 Whether Section 73A (obligation to pay amounts 'collected' as service tax) applies where tax is collected from recipients and not deposited, and whether penalties under Sections 76, 77 and 78 are imposable?1.6 Whether other specified activities (cleaning, manpower supply, supply of tangible goods, single residential units below threshold) are taxable or exempt under the statutory definitions and notifications.2. RULINGS / HOLDINGS:2.1 On classification of road works: The demand confirmed in respect of roads cannot sustain; 'Construction of roads whether for public or private use is exempted from payment of service tax.' The exclusion of roads from the statutory definition of commercial/industrial construction is dispositive.2.2 On industrial/commercial construction: Construction of buildings and civil structures for industrial establishments are chargeable to service tax under 'Works Contract Service' since there is transfer of property in goods involved and such works are 'primarily for the purposes of commerce or industry'.2.3 On construction for educational institutions and hospitals run by trusts/charities: Exemption is available; constructions 'used, or to be used' for educational, religious, charitable, health, sanitation or philanthropic purposes and not for purpose of profit are not taxable, and the exemption applies 'whether the trusts and charities are registered or not under Section 12A / 12AA of the Income Tax Act, 1961'.2.4 On maintenance/repair of roads: Management, maintenance or repair of roads is exempt under Notification No.24/2009'ST and the retrospective amendment (Section 97) is applicable, so the demand for such services is to be set aside.2.5 On other services not contested: Demands for cleaning service, manpower supply service, supply of tangible goods service and certain other works contract activities held in the impugned order are upheld as taxable and are not disturbed.2.6 On extended period and collected tax: Invocation of the proviso to Section 73(1) for the extended five'year period is justified where there is non'filing of returns, collection of service tax from recipients and retention without deposit, and Section 73A applies since amounts 'collected' must be paid 'forthwith' to the Government; such conduct supports extended period and penalties.2.7 On penalty quantification and remand: Penalty issues will be decided based on the quantum of service tax evaded, and the matter is remanded for determination of tax liability, interest and penalty after detailed verification of scope of works and amounts.3. RATIONALE:3.1 Statutory framework applied includes definitions and provisions in the Finance Act: the declared service concept (Section 66E(h)), the definitions of 'Works Contract' and 'Works contract service' (Section 65(105)(zzzza) / Section 65B), and the definition of 'commercial or industrial construction' (Section 65(25b)). The service definition (post'1 July 2012) under Section 65(44) and interpretation provisions were also considered.3.2 Exclusions and notifications relied upon include Notification No.24/2009'ST (exemption for management, maintenance or repair of roads) and the retrospective effect given by Section 97 (Finance Act, 2012) for periods from 16.06.2005; Notification No.17/2005'S.T. and circulars (CBIC Circular No. 80/10/2004 and Circular No.86/4/2006) informing the test of whether a structure is 'used, or to be used' for commerce or industry were applied.3.3 On roads: A 'bare reading of the statutory provisions' shows roads are specifically excluded from works contract/ commercial construction definitions, and the tribunal followed prior judicial determinations that this exclusion does not distinguish between public or private roads; therefore, road construction/repair falls outside levy.3.4 On educational/charitable recipients: The tribunal applied the test embodied in the circulars and statute that taxability depends on whether the building is 'used, or to be used' 'primarily for the purposes of commerce or industry'; mere collection of fees does not ipso facto render an institution a commercial concern unless surplus is diverted from charitable objectives.3.5 On industrial constructions: Where the contract involves transfer of property in goods and the purpose is 'primarily for the purposes of commerce or industry', such works are within the statutory definition of 'Works Contract Service' and attract service tax.3.6 On collection and deposit obligations: Section 73A imposes an immediate obligation to pay amounts collected as service tax 'forthwith' to Government; retention after collection constitutes conduct supporting invocation of the proviso to Section 73(1) and sustains penalties where wilful non'deposit, suppression or mala fide intent is established.3.7 On concurrent invocation of remedies: The tribunal held Section 73A and the proviso to Section 73(1) can be invoked simultaneously-Section 73A for collected amounts not deposited and the proviso to Section 73(1) where deliberate non'payment/non'filing and concealment justify extended limitation.3.8 On scope of remand and verification: Determination of taxability of individual bill items (e.g., retaining walls, ramps, culverts, lorry yards, site preparation, kiln maintenance, hire charges) requires detailed examination of scope of work, contractual terms and whether activity is repair/maintenance, supply of goods, or works contract; quantum, interest and penalties to be computed on remand in light of these legal conclusions.