Exemption for government housing construction and site formation services defeated service tax demand and related penalties.

Construction of government residential buildings for own use was treated as falling within the relevant exemption notification, so service tax on that activity was not sustainable once the recipient certificate established the factual nature of the work. Site formation, clearance, excavation, earthmoving and demolition services were likewise covered by the applicable exemption notification on the facts found, so the related tax demand could not survive. Because the underlying services were exempt, the consequential penalties also failed. The note records complete relief to the assessee, with the entire service tax demand and penalties set aside.

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Issues: (i) Whether construction of government residential buildings for own use was exempt from service tax under the relevant notification and fell outside the taxable scope of residential complex service; (ii) Whether site formation, clearance, excavation, earthmoving and demolition services were exempt from service tax under the applicable notification, and whether the related demand and penalties could survive.

Issue (i): Whether construction of government residential buildings for own use was exempt from service tax under the relevant notification and fell outside the taxable scope of residential complex service.

Analysis: The certificate from the service recipient showed that the activity was undertaken for construction of government residential buildings for own use. Such activity was treated as exempt under the notification applicable to construction of residential buildings for own use, and the demand was not sustainable once the factual nature of the service was established.

Conclusion: Decided in favour of the assessee. The demand relating to construction of government residential buildings was set aside.

Issue (ii): Whether site formation, clearance, excavation, earthmoving and demolition services were exempt from service tax under the applicable notification, and whether the related demand and penalties could survive.

Analysis: The activity fell within the category of site formation and related services, and the applicable exemption notification covered such service in the circumstances found by the Tribunal. Once the service was held exempt, no tax liability remained and the penalty could not be sustained as a consequence.

Conclusion: Decided in favour of the assessee. The demand on this count and the associated penalties were set aside.

Final Conclusion: The entire service tax demand and the penalties were held unsustainable, resulting in complete relief to the appellant.

Ratio Decidendi: When the evidence establishes that construction was for government residential buildings for own use, or that the activity is covered by a specific exemption notification for site formation and related preparatory services, service tax and consequential penalties cannot be upheld.

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