2026 (2) TMI 783 - AT - Service Tax

Refund under Section 102: mandatory for contracts entered before the cut off; Entry 12A exemption applies to government construction services.

Whether construction of parking lots and an educational institute for municipal/local authorities falls within Notification Entry No.12A was decided by ... Eligibility for the exemption benefit of Entry No. 12A of Notification No. 25/2012-ST - Retrospective exemption - refund u/s 102 of the Finance Act, 1994 (as inserted by Finance Act, 2016) - construction for public use versus commercial purpose (profit motive test) - passing on of tax / incidence of tax - distinction between refund under Section 102 and ordinary tax refund regimes - Whether the appellant’s claim of refund on construction of parking facility for local authority has rightly been rejected or not? - HELD THAT:- There is difference between activity/service rendered for business or commerce and the government activities rendered for public welfare. In the instant case, the parking’s constructed by the government are claimed to be run for the public used/welfare in public interest under the Constitution of India, Article 243W and hence, cannot be treated as a commercial concern.” As already observed, the regulation of parking of private vehicles is otherwise covered under constitutional duty of municipalities and as per clause 45 and 253 of the Rajasthan Municipalities Act, 2009, such activities are not meant for commerce. The decision of Krishi Upaj Mandi Samiti [2022 (2) TMI 1113 - SUPREME COURT] is held not applicable to the facts and circumstances of the present case. Construction of educational institutes/schools is specifically exempted under clause 12A(b)(i) of Notification No. 25/2012 dated 20.06.2012. As a result of above discussion, it is held that the appellant was rendering service to the government, local bodies of civil construction for parking lots as well as for the educational establishment which were not meant for commerce. Merely for a small fee being collected from the users of the parking, the said activity cannot be termed as commercial as was held in Shalimar Corp. Ltd. [2019 (5) TMI 663 - CESTAT ALLAHABAD], wherein the construction of public parking was held to be an activity rendered for the government towards its discharge of public function. Issue stands thus decided in favour of the appellant. Passing on of tax / incidence of tax - HELD THAT:- Admittedly, the Chartered Accountant of the appellant has given certificate, the incidence has not been passed on. It was also brought on record that the tax charged and collected from Director Local Bodies, Jaipur was refunded by way of issue of credit notes for the equivalent amount. No evidence has been produced by the department to falsify the said certification/declaration. It is the settled principle that Chartered Accountant Certificate is a sufficiently admissible document for the proof of the content therein. I draw my support from the decision in the case of Akasaka Electronics Ltd. v. Commissioner of Central Excise/Customs, Mumbai [2015 (10) TMI 2612 - CESTAT MUMBAI] Thus, it is held that the grounds for rejecting the impugned refund claim are wrongly been invoked in the present case. Those are not relevant to the facts and circumstances of the present case (as discussed above). It is therefore held that the order rejecting refund claim of the service tax paid for construction of parking lots for Rajasthan Municipal Corporation is liable to be set aside. Thus Issue also stands decided in favour of the appellant. Thus, the order under challenge is hereby set aside and the appeal is allowed. Issues: (i) Whether the appellant is eligible for exemption under Entry No. 12A of Notification No. 25/2012-ST dated 20.06.2012 for services rendered to government/local authority; (ii) Whether the appellant's refund claim of service tax paid on construction of parking facilities for local authority was rightly rejected.Issue (i): Whether services by way of construction of parking lots and an educational institute provided to government/local authority qualify for Entry No. 12A of Notification No. 25/2012-ST dated 20.06.2012.Analysis: Entry No. 12A exempts construction services for civil structures meant predominantly for use other than commerce or industry and structures meant predominantly for educational establishments, where the contract was entered into prior to 01.03.2015. Section 102 of the Finance Act, 1994 provides retrospective exemption for services provided to government/local authority during 01.04.2015 to 29.02.2016 where contracts were entered into before 01.03.2015 and mandates refund of service tax so collected. The nature of an activity is commercial only if carried on with profit motive; nominal user charges for maintenance do not convert a government public-utility function into commercial activity. The parking works were commissioned by municipal/local authorities pursuant to statutory/public welfare functions under Article 243W and related municipal law; the school construction falls within structures predominantly for educational use. The contracts for the projects were executed prior to 01.03.2015 and no stamping requirement was shown to displace eligibility.Conclusion: Issue (i) is decided in favour of the appellant; the construction services qualify for exemption under Entry No. 12A of Notification No. 25/2012-ST dated 20.06.2012 read with Section 102 of the Finance Act, 1994.Issue (ii): Whether rejection of the refund claim for service tax paid on construction of parking facilities was justified on grounds of commercial character, non-production of documents, or passing on of tax.Analysis: Section 102(2) makes refund mandatory for tax collected during the relevant period for services meeting the contract-date criterion. Documentary objections based on revised sanction dates ignored the original contract dates evidenced within the record; no evidence established a requirement of stamp duty that would defeat the contract-date criterion. Certification by a chartered accountant that incidence of tax was not passed on, supported by credit notes/refunds, was not rebutted by the department. Precedents and principles distinguishing the special statutory refund under Section 102 from ordinary refund regimes were applied to invalidate reliance on unrelated authorities concerning general refund principles.Conclusion: Issue (ii) is decided in favour of the appellant; the rejection of the refund claim for construction of parking facilities is set aside and refund is mandated under Section 102 of the Finance Act, 1994.Final Conclusion: The impugned order rejecting the refund claim is set aside and the appeal is allowed, with the appellant entitled to refund of service tax paid for the period 01.04.2015 to 29.02.2016 in respect of construction services falling within Entry No. 12A of Notification No. 25/2012-ST dated 20.06.2012, subject to compliance with statutory claim procedure.Ratio Decidendi: Section 102 of the Finance Act, 1994 mandates mandatory refund of service tax collected for services to government/local authorities during 01.04.2015-29.02.2016 where contracts were entered into before 01.03.2015; nominal user charges do not convert a government public-utility construction into a commercial activity for the purposes of Entry No. 12A of Notification No. 25/2012-ST dated 20.06.2012.