2025 (8) TMI 936 - AT - Service Tax

Appeal allowed: free materials excluded from valuation; charitable, educational and hospital construction non-taxable; extended limitation inapplicable

PRINCIPAL COMMISSIONER CGST & CENTRAL EXCISE, Jaipur (Rajasthan) Versus M/s AAKRITI CONSTRUCTION (Vice-Versa)

PRINCIPAL COMMISSIONER CGST & CENTRAL EXCISE, Jaipur (Rajasthan) Versus M/s AAKRITI CONSTRUCTION (Vice-Versa) - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether abatement under Notification No.1/2006 applies where goods/materials are supplied free of charge by the service recipient and are used in providing construction/industrial construction services, i.e., whether the value of such free supplies must be included in the gross amount for valuation under Section 67. 2. Whether construction services provided to entities described as educational institutes and hospitals (established for non-commercial/charitable/health/educational purposes) are taxable as commercial construction services. 3. Whether construction activities for independent residential houses (individuals' personal houses) fall within taxable 'Construction of Residential Complex Services.' 4. Whether the extended period of limitation can be invoked when an earlier show cause notice on substantially identical facts was already issued (i.e., whether the later show cause notice is time-barred under the principle that relevant facts were already known to authorities). 5. Whether findings in an earlier unchallenged Tribunal order involving identical issues are binding on subsequent periods and preclude relitigation. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Abatement under Notification No.1/2006 - valuation of free supplies Legal framework: 1. Valuation of taxable services governed by Section 67 (gross amount charged for service) and Explanation 3 thereto, with subsection (4) permitting prescribed methods subject to subsections (1)-(3). Notification No.1/2006 grants 67% abatement for certain construction/industrial construction services. Precedent Treatment: 2. Tribunal decision (Bhayana Builders principles) subsequently affirmed by the apex court held that value of goods/materials supplied free by the service recipient is not to be included in the gross amount charged because no price is charged for such materials and no service is provided in relation to those supplied goods; thus abatement applies. The Tribunal followed and applied that apex-court principle. Interpretation and reasoning: 3. The Court reads the phrase 'the gross amount charged by the service provider for such service provided or to be provided by him' in its plain meaning: only amounts actually charged for the service fall within gross amount. Explanation 3 clarifies inclusion of amounts received before/during/after provision of service; where nothing is charged for supplied goods there is nothing to include. Subsection (4) does not displace the primacy of subsections (1)-(3) and no prescribed method requires inclusion of value of free supplies. Ratio vs. Obiter: 4. Ratio: The value of goods/materials supplied free by the service recipient is not includible in the gross amount charged under Section 67; therefore the abatement under Notification No.1/2006 is available. This follows binding precedent and is treated as the operative holding. Conclusions: 5. Abatement of 67% under Notification No.1/2006 correctly applied where free supplies from service recipients were not included in taxable value; the demand on this ground is unsustainable. Issue 2: Taxability of construction services for educational institutes and hospitals Legal framework: 6. Taxability of construction services assessed against the definition of taxable 'Commercial or Industrial Construction Service' and Circular No.80/10/2004-ST which exempts constructions for organisations established solely for educational, religious, charitable, health, sanitation or philanthropic purposes that are non-commercial and not for profit. Precedent Treatment: 7. Tribunal and High Court authorities (as cited) have held that constructions for bona fide educational institutes and hospitals serving charitable/health/educational purposes are non-taxable. The Tribunal relied on prior unchallenged findings in the same appellant's earlier proceedings and consistent authorities supporting exemption for non-commercial construction. Interpretation and reasoning: 8. Applying Circular No.80/10/2004-ST and earlier decisions, the Tribunal views the constructions for the named educational and hospital entities as non-commercial, established for educational/health/charitable purposes, and therefore outside taxable construction services. The nature and purpose of recipients' activities (non-profit, charitable/educational/health) determine non-taxability. Ratio vs. Obiter: 9. Ratio: Construction services provided to bona fide educational and charitable healthcare institutions (not established for profit) do not attract service tax as commercial construction services; this is an essential holding applied to the facts. Conclusions: 10. The demand for service tax on construction services supplied to the identified educational and hospital institutions is not sustainable; such activities fall outside taxable services under the applicable circular and authorities. Issue 3: Taxability of independent residential houses Legal framework: 11. Distinction between 'Construction of Residential Complex Services' and services rendered to individuals for construction of their personal houses; applicable exemption/excepted activity jurisprudence recognizes private residential construction as not falling within the taxable category reserved for complexes. Precedent Treatment: 12. Tribunal earlier held that construction/renovation of independent residential houses for individuals for personal use are excluded from 'Construction of Residential Complex Services.' Those findings in the appellant's earlier unchallenged order were followed. Interpretation and reasoning: 13. The Tribunal accepted documentary evidence (certificates from individual recipients) showing construction/renovation for private individuals, concluding such works were for personal use, not commercial residential complexes, and thus not taxable. Ratio vs. Obiter: 14. Ratio: Construction activities for individual residential houses for personal use are not chargeable to service tax as 'Construction of Residential Complex Services.' Conclusions: 15. Demand based on taxability of independent residential houses is unsustainable on the facts presented. Issue 4: Limitation - invocation of extended period when earlier identical show cause notice existed Legal framework: 16. Limitation provisions allow extended period where suppression or fraud is shown; however, if authorities had knowledge of relevant facts as evidenced by a prior show cause notice, the doctrine that later proceedings cannot rely on extended limitation applies (principle from apex-court authority referenced). Precedent Treatment: 17. Apex-court authority holds that where a first show cause notice on same facts was issued, the authorities were aware of the relevant facts and cannot invoke extended limitation in subsequent proceedings absent new suppression or material facts. Interpretation and reasoning: 18. The two show cause notices in the present record are verbatim and on identical facts; no additional facts or suppressions were demonstrated by the Department to justify extension. Therefore, extended period cannot be invoked and the demand is time-barred. Ratio vs. Obiter: 19. Ratio: Extended period of limitation cannot be invoked when the Department had issued an earlier show cause notice containing the same material facts; subsequent notice on identical facts is time-barred. Conclusions: 20. The assessment/demand based on the later show cause notice is barred by limitation; on this ground alone the appeals must be allowed. Issue 5: Binding effect of earlier unchallenged Tribunal findings Legal framework: 21. Principle of issue estoppel/precedential effect where an earlier tribunal order in the same matter and on identical controversy stands unchallenged such that its findings are binding in subsequent proceedings between same parties on the same facts. Precedent Treatment: 22. The Tribunal relied on its own earlier unchallenged order in the same matter for prior period and applied those findings to the subsequent period; the Department had not appealed that earlier decision. Interpretation and reasoning: 23. The Tribunal held that findings in the earlier unchallenged order are binding and applicable to the subsequent period involving the same controversy, reinforcing the conclusions on abatement, non-taxability of certain constructions and residential houses. Ratio vs. Obiter: 24. Ratio: Unchallenged Tribunal findings on identical issues are binding and preclude relitigation in later periods absent material distinction in facts. Conclusions: 25. Earlier unappealed Tribunal determinations were appropriately applied; they support allowance of the appeal on merits. Disposition 26. The Tribunal allowed the appeal on merits and on limitation grounds, set aside the impugned demand, and rejected the Revenue's contentions that abatement was unavailable. The Revenue appeal against the same order was dismissed as devoid of merit.