2025 (11) TMI 1279 - AT - Service Tax

Service tax waived on government construction; GTA reverse charge upheld, penalties under Sections 76, 77 sustained, 78 dropped

Mirambica Construction Co Versus Commissioner, CGST & Central Excise, Gandhinagar, Ahmedabad-Gujarat

CESTAT Ahmedabad held that the appellant was not liable to service tax under construction of residential complex/works contract services for projects ... Failure to discharge service tax properly - construction of residential complex service - works contract service - demand of service tax on GTA Service under Reverse Charge basis. Failure to discharge service tax properly - construction of residential complex service - works contract service - period prior to and post 01.06.2007 - HELD THAT:- The issue that M/s GSPHCL are Government and the services provided to them by the sub-contractor are exempt from payment of service tax has already been decided by this Tribunal in the case of CR Patel vs Commissioner of Central Excise & Service Tax-Surat-I [2023 (3) TMI 570 - CESTAT AHMEDABAD]. On query by the bench, the department intimated that the above decision in the case of CR Patel was accepted by the department on monetary grounds - it was held in the said case that 'It is quite clear that C.B.E.&C. also has clarified that in cases like this, service tax need not be paid by the builder/developer who has constructed the complex. If the builder/developer constructs the complex himself, there would be no liability of service tax at all. Further in this case it was different totally, the appellant, has engaged sub- contractors and therefore rightly all the sub-contractors have paid the service tax. In such a situation in our opinion, there is no liability on the appellant to pay the service tax.' Similar view has also been taken by this Tribunal in the case of Khurana Engineering [2010 (11) TMI 81 - CESTAT, AHMEDABAD] has held that 'we hold that the use of the residential complex by (GSPHCL) is excluded from the definition of residential Complex as 'intended for personal use as residence by such persons.' Thus, the services provided by the appellant to M/s GSPHCL and Gujarat Rajya Pathya Pustak Mandal fall under the category of services provided to the government for personal use and hence, no tax liability arises on the appellant in respect of such services. As far as the period prior to 01.06.2007 is concerned, since the services have been provided to the government, therefore, no service tax liability arises on the appellant even for the period prior to 01.06.2007. Demand of service tax on GTA Service under Reverse Charge basis - appellant have challenged the demand of service tax on an amount of Rs. 77,70,736/- on the ground that the charges per trip are less than Rs.1500 which are exempt from service tax under notification No. 34/2004 dated 03.12.2004 - HELD THAT:- Appellant though made claims but, could not produce any documentary evidence contrary to the findings of the Adjudicating authority. Therefore, the plea of the appellant rejected, treating as devoid of merit. The demand of service tax of Rs.9,33,199/- as confirmed by the learned adjudicating authority is upheld along with interest. In the instant case, there is no dispute on non-payment of service tax on GTA service under reverse charge mechanism, delayed registration under service tax as well as non-filing of ST-3 returns for the relevant period. Therefore, the penalty imposed on the appellant under Section 76 and 77 of the Finance Act, 1994 in respect of GTA Service upheld. It is further found that if appellant had paid service tax under reverse charge mechanism at the relevant time, they would have been entitled to cenvat credit of the same. The appellant certainly deserves sympathy on this count as far as imposition of penalty under section 78 is concerned. The penalty imposed on them under section 78 of the Finance Act, 1994 set aside. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether construction services rendered to a government-owned housing corporation fall within the exclusion from 'construction of residential complex' services as 'intended for personal use' and therefore are not leviable to service tax (issues for period prior to 01.06.2007 and for period on/after 01.06.2007). 2. Whether the appellant, as subcontractor to the government-owned housing corporation, is nevertheless liable to service tax on work-contract services (post 01.06.2007) despite the recipient being a government entity, taking into account statutory definition and administrative clarifications. 3. Whether amounts claimed as exempt from service tax under Notification No. 34/2004 (GTA exemption for consignments where gross amount per trip/consignment does not exceed prescribed limits) are allowable on the basis of books and accounts; and whether demand, interest and penalties (Sections 76, 77 and 78 of the Finance Act, 1994) relating to GTA reverse charge liability can be sustained. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Exclusion of 'construction of residential complex' where complex is 'intended for personal use' (pre- and post-01.06.2007) Legal framework: Definition of 'residential complex' / explanation of 'personal use' in Section 65(91a) of the Finance Act, 1994; pre-1.6.2007 law on works contract vis-à-vis service tax; relevant CBIC administrative clarification (Letter/CBIC communication dated 24.05.2010) interpreting when service recipient is Government and exclusion applies. Precedent treatment: Tribunal authorities (including decisions treating complexes built for Government departments as excluded where construction was for personal use of Government/employees, and decisions distinguishing cases where public-sector undertakings or intermediaries engaged sub-contractors) were relied upon. The Tribunal followed prior decisions that applied the exclusion where the contract effectively resulted in construction for Government's personal use and where the builder acted directly for the Government (examples cited and applied in reasoning). Interpretation and reasoning: The Court examined whether the housing corporation was a mere instrumentality/agency of the State such that the end-use was 'personal use' by Government within the statutory explanation. The Court accepted facts showing the housing corporation was 100% government-owned and the quarters were intended for use by government employees, aligning with tests for governmental character (ownership, control, functional connection). The Court analysed CBIC clarification which distinguishes direct contracts with Government (no tax) from arrangements where a contractor engages sub-contractors (sub-contractors liable). Applying facts and earlier Tribunal reasoning, the Court concluded the services were rendered to Government for personal use and thus fall within the exclusion even for the period prior to 01.06.2007. Ratio vs. Obiter: Ratio - where construction is directly for a Government entity (government instrumentality) and the end use qualifies as 'personal use' under the statutory explanation, construction services do not attract service tax; this applies to both pre- and post-01.06.2007 periods where the factual matrix establishes direct provision to Government for personal use. Observations distinguishing situations where an intermediary/main contractor (not Government) engages subcontractors are binding to the extent of the facts; remarks on alternative grounds (limitation, composition scheme) are largely obiter or alternative reasoning, relied upon only where relevant. Conclusions: No service tax liability arises on the appellant for construction of residential quarters provided to the government housing corporation for the use of government employees; this conclusion applies to services rendered both before and after 01.06.2007 on the facts found. Issue 2 - Liability of subcontractor vs. main contractor and applicability of composition scheme / reliance on CBIC circulars Legal framework: Distinction in administrative guidance and Tribunal jurisprudence between (a) a promoter/builder directly contracted by Government for construction intended for personal use (excluded) and (b) subcontractors engaged by a non-Government main contractor (liable). Rule/notification on composition scheme for work-contract services (Notification No. 32/2007 - Rule 3(3) context) and absence of pre-intimation requirement for opting composition. Precedent treatment: The Court considered and applied earlier Tribunal decisions which (i) held that where a public entity acts as the contracting party on behalf of Government and the construction is for Government's personal use, exclusion applies; and (ii) recognized that subcontractors to non-Government main contractors remain liable. Decisions cited by appellant were examined and applied where factually consistent. Interpretation and reasoning: The Court applied the factual finding that the housing corporation acted as a Government instrumentality and that the end use was personal use by Government employees; therefore the exclusion applies and the subcontractor was not liable. On composition scheme, the Court noted the appellant's contention but did not need to grant alternative relief because substantive exclusion disposed of the tax demand. The Court also observed that Rule 3(3) does not require prior intimation and that composition option must be exercised before paying tax; however, this was not determinative given the principal finding on exclusion. Ratio vs. Obiter: Ratio - factual determination that the recipient is a Government instrumentality and that construction is for personal use controls liability irrespective of subcontracting status; obiter - procedural points about composition scheme timing and CBIC circular reliance, addressed but not central once exclusion applied. Conclusions: Subcontractor not liable where the facts establish the recipient as Government and end use as personal use; reliance on CBIC circulars can be persuasive but cannot override facts showing direct provision to Government for personal use. Composition scheme arguments were considered unnecessary to decide given the primary conclusion. Issue 3 - GTA reverse charge demand, Notification No. 34/2004 exemption, evidentiary burden and penalties (Sections 76, 77 and 78) Legal framework: Notification No. 34/2004 (exemption of GTA service where gross amount per trip/consignment does not exceed prescribed limits); reverse charge rules for GTA services; statutory penalty provisions - Section 76 (penalty for failure to pay service tax where tax is assessed), Section 77 (penalty for failure to register/comply), Section 78 (penalty equal to service tax for suppression/mis-declaration) - and Section 80 (discretion to waive penalty). Precedent treatment: The adjudicating authority's interpretation of Notification No. 34/2004 - definition of 'individual consignment' and requirement to prove multiple consignments in a goods carriage - was applied. The Court relied on adjudicative findings and prior practice on evidentiary requirements for claiming GTA exemptions and entitlement to cenvat credit on tax paid under reverse charge. Interpretation and reasoning: The appellant claimed exemption for consignments/trips below threshold and sought remand for detailed proof. The Court held that the burden of proof to establish entitlement to the exemption lay on the appellant and that the adjudicating authority had correctly required proof that individual consignments and trips met the notification thresholds (i.e., proof of multiple consignments per goods carriage where claimed). The appellant failed to produce documentary evidence before the Tribunal to rebut the impugned findings; therefore the demand of service tax for GTA service was upheld. On penalties, the Court found that penalties under Sections 76 and 77 were maintainable in respect of GTA reverse charge, registration and ST-3 filing lapses. However, given circumstances (failure to have paid tax under reverse charge deprived appellant of cenvat credit) the Court exercised discretion and set aside the penalty under Section 78 while upholding penalties under Sections 76 and 77; interest was upheld. Ratio vs. Obiter: Ratio - entitlement to Notification No. 34/2004 exemption requires documentary proof satisfying the definition of 'individual consignment' and trip amount thresholds; where no evidence is produced, exemption cannot be allowed and reverse charge demand with interest and applicable penalties under Sections 76/77 can be sustained. Obiter - expressions of sympathy regarding loss of cenvat credit and discretionary setting aside of Section 78 penalty in light of that hardship. Conclusions: The GTA reverse charge demand (as quantified) is sustained for lack of evidentiary proof of exemption; interest and penalties under Sections 76 and 77 are upheld; penalty under Section 78 is set aside in exercise of discretion due to prejudice from non-payment of reverse charge tax (loss of cenvat credit).