2026 (4) TMI 67 - AT - Service Tax

Service tax valuation and commercial construction limits shaped relief on later-period demand, TDS exclusion, and public-use works.

Fresh show cause notice was required after remand before any later-period demand could be sustained against the partnership firm, so the demand for ... Show cause notice to distinct taxable entities - demand for the period after conversion of the proprietorship concern into the partnership firm - Construction activities relating to roads, boundary walls, tunnels, culverts, etc. - extended the benefit of cum-tax, and deducted the value of material involved therein - taxable category of ‘Renting of Immovable Property Services' - taxable value and TDS deduction - Non-Commercial Use - Works Contract Service​​​​​​​ - refundable security deposit and taxable value - Best Judgment Assessment - Principles of Natural Justice. Show cause notice to distinct taxable entities - judicial discipline - HELD THAT: - The Tribunal held that its earlier remand order had already concluded that a single show cause notice covering both the proprietorship concern and the subsequent partnership firm was not executable, while also granting liberty to the Department to issue separate notices in accordance with law. Since no fresh notice to the partnership firm was shown to have been issued after remand, the adjudicating authority could not revive the demand for the later period merely by bifurcating liability in the order. The subordinate authority was bound to follow the remand directions unreservedly. [Paras 10, 11] The demand for the financial years 2009-10 and 2010-11 was set aside. Commercial purpose test in works contract service - community hall construction - fruit and vegetable stalls - HELD THAT: - On the objection that the notice lacked proper classification, the Tribunal found that the assessee had participated in the remand proceedings and understood that the demand was under works contract service, so no prejudice was caused. On merits, it held that a community hall intended for use on payment could not be treated as non-commercial in the absence of supporting evidence, and that fruit and vegetable stalls by their very nature had clear commercial use. The exemption claimed on the basis of non-commercial character was therefore unavailable. [Paras 14, 15] The demand on construction of the community hall and 200 fruit and vegetable stalls was upheld. EWS housing construction - appropriation of tax paid - HELD THAT: - The Tribunal recorded that payment of service tax on the admitted liability relating to EWS houses had been made and appropriated in the impugned order. Since the Department contended that no verification had been carried out, the Tribunal did not disturb the appropriation but reserved liberty to the Revenue to verify whether the amount paid matched the actual service tax liability. [Paras 13] The payment already made was upheld, with liberty to the Department to verify its correctness against the tax liability. Taxable value and TDS deduction - refundable security deposit and taxable value - HELD THAT:- The Tribunal held that TDS is deposited pursuant to a statutory obligation under the income-tax law and is not consideration agreed between the parties for rendition of service; it therefore cannot be added to the gross amount charged for service tax. Likewise, security amounts or deposits, if refundable, do not form part of the consideration for the service. Even on the Department's own objection that refund of the security amount had not been verified, the Tribunal held that such amount was not exigible to tax. [Paras 17, 19, 20] The adjudicating authority was right in excluding TDS and security deposits from the taxable value. Commercial purpose test in works contract service - boundary wall construction - sports complex construction - landscaping for public use facilities - HELD THAT:- The Tribunal held that boundary walls for public or semi-public sites and public projects could not be treated as commercial merely because they were constructed in developed areas, especially when no evidence was produced by Revenue to show profit-oriented commercial use and the record showed that they were meant to protect public property. As regards sports complex construction, the decisive test was the primary or dominant use of the structure; incidental amenities or limited commercial facilities did not alter its essentially non-commercial character as a public sports facility. The same approach was applied to landscaping in the Commonwealth Games practice area, which at the time of construction was meant for use by participants and not for commercial exploitation. [Paras 21, 22, 23] The exemption granted by the adjudicating authority on these works was sustained, and the Revenue's challenge failed. Final Conclusion: The assessee's appeal was partly allowed by setting aside the demand for 2009-10 and 2010-11 for want of a fresh show cause notice to the partnership firm, while sustaining the demand on the community hall and fruit and vegetable stalls and leaving the EWS housing payment open to verification. The Revenue's appeal was dismissed, the Tribunal holding that TDS and security deposits were not includible in taxable value and that the works relating to boundary walls, sports complex and landscaping were not taxable. Issues: (i) Whether the demand for the period 2009-10 and 2010-11 could survive against the partnership firm in the absence of a fresh show cause notice after remand. (ii) Whether the construction of a community hall and fruit and vegetable stalls was taxable as commercial construction. (iii) Whether TDS and refundable security amounts were includible in the taxable value, and whether boundary walls, sports complex and landscaping were exigible to service tax.Issue (i): Whether the demand for the period 2009-10 and 2010-11 could survive against the partnership firm in the absence of a fresh show cause notice after remand.Analysis: The earlier remand had specifically held that a single show cause notice covering both the erstwhile proprietorship concern and the newly formed partnership firm was not executable and had left it open to the Department to issue separate notices in accordance with law. The post-remand adjudication proceeded without any fresh notice addressed to the partnership firm for the later period. In that situation, the demand for the later financial years could not be sustained against the partnership firm.Conclusion: The demand for 2009-10 and 2010-11 was set aside in favour of the assessee.Issue (ii): Whether the construction of a community hall and fruit and vegetable stalls was taxable as commercial construction.Analysis: The community hall was treated as a public utility and the record did not establish that it was non-commercial merely because it served public functions. The fruit and vegetable stalls were inherently commercial structures intended for trade. On the facts, the community hall and the stalls fell within taxable works executed for commercial use, while the assessee's plea of non-commercial character was not accepted.Conclusion: The demand on these items was upheld against the assessee.Issue (iii): Whether TDS and refundable security amounts were includible in the taxable value, and whether boundary walls, sports complex and landscaping were exigible to service tax.Analysis: Service tax was held leviable on the gross amount charged under the valuation provision, but statutory TDS deducted and deposited under income-tax law did not represent consideration for the service and was not includible. Refundable security deposits also did not form part of taxable value. Boundary walls erected for public or semi-public use were treated as non-commercial works, and the Department failed to establish a commercial character. The sports complex and landscaping were found to be for public use and predominantly non-commercial, so the exemption or non-taxability adopted by the adjudicating authority was sustained. As regards the EWS house contracts, the assessee's payment was accepted subject to departmental verification.Conclusion: TDS and refundable security amounts were excluded from valuation, the departmental challenge on boundary walls, sports complex and landscaping failed, and verification was permitted for the EWS house payment.Final Conclusion: The Revenue's appeal failed, while the assessee obtained partial relief by having the later-period demand quashed and by securing exclusion or acceptance of specified valuation components, with certain demands on commercial construction sustained.