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of <h1>Service tax demands on construction works contracts and renting property, including pre-2010 period and hospital projects, set aside</h1> Demands under CICS/WCS for construction prior to 01.07.2010 were held unsustainable because projects involving supply of goods are classifiable only as ... Non-payment of Service Tax - intent to evade tax - Commercial or Industrial Construction Service (CICS) - Construction of Residential Complex Service (CRCS) - Works Contract Service (WCS) - Renting of Immovable property Service (RIPS) - invocation of extended period of limitation - penalty. Commercial or Industrial Construction Service - HELD THAT:- The matter is no longer res-integra, as it is now settled issue that no demand can sustain for the period prior 01.07.2010, as clarified by CBEC Circular No. 108/02/2009 – ST dated 29.01.2009, and further, confirmed vide subsequent Circular no. 151/2/2012 – ST. Therefore, the demand made either under the category of CICS or under WCS for the period prior to 01.07.2010 would not sustain, it is not disputed in all these works under taken by the appellant there is an involvement of goods along with services and therefore, it be in the nature of works contract only. In so far as, period beyond 01.07.2010 is concerned, it is found that the appellant is taking a plea that the nature of construction was for certain hospitals etc, and it could not be said to be use for any Commercial or Industrial purposes and that the Department has not made out a case to especially its classification under the category of their scope and definition of the relevant service - this aspect of demand beyond 01.07.2010 is in respect of services provided by them which would fall under the category of WCS and not under the category of CICS as alleged. Renting of immovable property service - HELD THAT:- There is no dispute that Service Tax is leviable in such service. Therefore, there are no infirmity that Service Tax is payable on said services by the appellant. However, it is found that the history of said services being taxable or otherwise has underground various litigations and finally, it was held that the retrospective amendment brought by the Government for levy of Service Tax was valid. Therefore, during the relevant period, it could be bonafide filed that there was no need to pay the Service Tax on renting of immovable property. Therefore, to that extent and in the absence of any other substantive evidence to suggest suitable evasion extended period cannot be invoked for recovering the Service Tax on this service. Works contract service - HELD THAT:- There were certain disputes during the period and various circulars issued by the Board clarifying their position and therefore, there could have been a bonafide belief about non-payment of Service Tax. Moreover, that the appellant have also paid certain Service Tax during the material period. Extended period of limitation - penalty - HELD THAT:- It is found that in the background of the nature of the impugned services, the non-payment of Service Tax on the said services could have been under bonafide belief that they have been covered under exemption or for that matter they were not liable to pay Service Tax at all. Thus, in the absence of any tangible and cogent evidence on record that they have not discharged Service Tax with an intention to evade Service Tax, invocation of extended period would not sustain The demand beyond extended period is set aside and there is no other element which is necessary for imposition of the penalty under Section 78 is also set aside. Since, the entire demand is set aside. The demand will not sustain on grounds of merit and partly on grounds on limitation. Further, imposition of penalties will also not sustain - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether Service Tax demands confirmed under 'Commercial or Industrial Construction Service' and/or 'Works Contract Service' were sustainable for the period prior to 01.07.2010, in view of the circular-based position noted by the Court and the nature of the activities involving supply of goods along with services. (ii) Whether, for the period beyond 01.07.2010, the construction-related demands were correctly classifiable under 'Works Contract Service' rather than 'Commercial or Industrial Construction Service', and whether the Department had made out a case for sustaining the demand on merits. (iii) Whether Service Tax was leviable on 'Renting of Immovable Property Service', and whether the extended period of limitation could be invoked for recovery for the relevant period. (iv) Whether penalties (including under Section 78) could be sustained where the Court found absence of intent to evade and set aside the demand on limitation/merits. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Sustainability of construction-related demand for the period prior to 01.07.2010 (CICS/WCS) Legal framework (as discussed): The Court relied on the position stated to be settled through CBEC Circular No. 108/02/2009-ST dated 29.01.2009 and 'confirmed' by subsequent Circular No. 151/2/2012-ST, to hold that demand could not be sustained for the period prior to 01.07.2010. Interpretation and reasoning: The Court held the issue to be 'no longer res-integra' and concluded that no demand could sustain for the pre-01.07.2010 period. Additionally, the Court recorded that it was not disputed that the works involved 'involvement of goods along with services' and therefore were 'in the nature of works contract only'. On this reasoning, it held that any demand made either under CICS or under WCS for the period prior to 01.07.2010 would not sustain. Conclusion: Construction-related Service Tax demands for the period prior to 01.07.2010, whether confirmed under CICS or WCS, were held unsustainable and were set aside. Issue (ii): Classification and sustainability of construction-related demand beyond 01.07.2010 Legal framework (as discussed): The Court treated the post-01.07.2010 controversy as one of proper classification and whether the Department had established the case within the scope/definition of the alleged taxable category. Interpretation and reasoning: For the period beyond 01.07.2010, the Court noted the assessee's plea that certain constructions (including hospitals) could not be treated as for 'Commercial or Industrial purposes', and further found that the Department had not made out a case 'especially' for classification under the alleged category. The Court expressly found that the post-01.07.2010 services 'would fall under the category of WCS and not under the category of CICS as alleged.' Conclusion: For the post-01.07.2010 period, the Court held that the demand, as framed/confirmed under CICS, was not sustainable and that the services in question fell under WCS rather than CICS; the demand was set aside on merits (and also partly on limitation, where applicable). Issue (iii): Taxability of renting of immovable property and applicability of extended limitation Legal framework (as discussed): The Court accepted that renting of immovable property was a taxable service, and noted that the levy had undergone litigation and was ultimately upheld along with retrospective amendment validating levy. Interpretation and reasoning: On merits, the Court found 'no dispute' that Service Tax is leviable on renting of immovable property and found 'no infirmity' in liability to pay tax on such services. However, it emphasized the history of litigation and the eventual upholding of retrospective amendment, and held that during the relevant period it could 'bonafide' be felt that tax was not required to be paid. In absence of 'any other substantive evidence' suggesting evasion, the Court concluded that the extended period could not be invoked for recovery of Service Tax on renting service. Conclusion: While renting of immovable property was held taxable, the extended period of limitation was held inapplicable; demands beyond the normal period were set aside. Issue (iv): Limitation, intent to evade, and sustainability of penalties Legal framework (as discussed): The Court addressed the proviso-based extended period concept and penalty under Section 78, tying both to intent to evade and evidentiary support. Interpretation and reasoning: The Court found that, considering the nature of the impugned services, non-payment could have occurred under a bona fide belief of exemption/non-liability, reinforced by disputes and circular clarifications in the field. It further noted that certain Service Tax had also been paid during the material period. The Court held that, absent 'tangible and cogent evidence' of intention to evade, invocation of extended period would not sustain. Consequently, penalty under Section 78 was also set aside, and the Court recorded that 'since, the entire demand is set aside', penalties could not survive. Conclusion: Extended limitation was rejected for want of proof of intent to evade; penalties (including under Section 78) were set aside. The demand was held not to sustain on merits and partly on limitation, and the appeal was allowed.
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