Warehouse construction exemption denied where commercial use could not be ruled out; penalty waived on factual discretion.

Construction of warehouses and godowns for a warehousing corporation was held to fall outside the exemption for buildings used other than for commerce, industry, business or profession, because the warehousing activity could have a commercial character and commercial use could not be ruled out. Service tax demand was therefore sustained on the merits for the period up to 30.06.2012. Penalty was nevertheless waived on the facts, as duty and part of the penalty had already been deposited and the limitation plea was not pressed, so statutory discretion for relief from penalty was applied.

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Issues: (i) Whether the construction of warehouses/godowns for Haryana State Warehousing Corporation and similar authorities was taxable under commercial and industrial construction service or eligible for exemption up to 30.06.2012. (ii) Whether penalty was sustainable in the facts of the case.

Issue (i): Whether the construction of warehouses/godowns for Haryana State Warehousing Corporation and similar authorities was taxable under commercial and industrial construction service or eligible for exemption up to 30.06.2012.

Analysis: The exemption under Entry 12 of Notification No. 25/2012-ST dated 20.06.2012 turned on whether the construction was for use other than commerce, industry, business or profession. The warehouse activity of Haryana State Warehousing Corporation was treated as having a commercial character because the corporation stored agricultural produce as well as other commodities and could derive rent or other service-linked charges. On the facts, commercial use of the warehouse could not be ruled out. The authorities relied on identical factual reasoning in a prior matter involving similar warehouse construction.

Conclusion: The demand of service tax on the merits was sustained in favour of the Revenue for the period up to 30.06.2012.

Issue (ii): Whether penalty was sustainable in the facts of the case.

Analysis: The appellants had already deposited the duty along with part of the penalty, and the claim on limitation was not pressed at the hearing. In these circumstances, the statutory discretion for waiver of penalty was applied.

Conclusion: Penalty was set aside in favour of the assessee under Section 80 of the Finance Act, 1994.

Final Conclusion: The appeal succeeded only to the limited extent of penalty relief, while the service tax demand was maintained on merits.

Ratio Decidendi: Where warehouse construction for a warehousing corporation may serve a commercial purpose, exemption meant for non-commercial construction is unavailable, though penalty may be waived on the facts.

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