2015 (2) TMI 971 - AT - Service Tax

Denial of exemption from service tax - Whether sub-contractors engaged for building residential complexes for Delhi Police could be considered for receiving services on behalf Govt. of India and no service tax liability could be fastened on them - Held that - Commissioner (Appeals) has distinguished that Govt. of India enterprise cannot be equated with any Govt. Department which were on behalf of Government of India or President of India. He also come to conclusion that appellant had entered into contract of service with M/s HPL and referred the construction service with M/s HPL and not to Delhi Police rightly and being a sub-contractor they were liable to pay the service tax. - it is seen that major beneficiary of contractor or residential complex is the Delhi Police (Govt. of India) and M/s HPL is only the contractor executing agency who have provided the service to the Delhi Police through sub- contractor. They have further got the work done from the appellants who were connected as a sub-contractor. I find that intention of the Government is not to levy service tax on the service received by the Government of India through contractor or subcontractor. I have also examined the exemption. If sub-contractor is directed to pay the service tax which have ultimately to be utilizes by the Delhi Police (Govt. of India) only on technicality that a sub-contractor is involved in the construction of building, will ipso facto take away the exemption granted to the Government of India. Further use of housing complex for non-commercial use and will not come under the service leviable to service tax. In this regard definition of the service of commercial and industrial construction service became taxable as per the Section 65 (25b) in 2004. However, the definition and scope of service was changed by Finance Act, 2005 and revised definition is reproduced for appreciation. Building has been got constructed by the Government of India for their own use as residential complexes for Delhi Police, it does not result in construction for commercial purposes further construction by Government for non-commercial purpose was not taxable, however construction by the Government for commercial activities such as civil body construction for shops or commercial complexes laying in the nature of commercial activity were taxable. - merely because the construction has been get done from the contractor/sub-contractor, it will not change the nature or the activity from non-commercial to commercial. Once it comes out that Government has undertaken a project which is non-commercial in nature and not taxable, service received on this account by the Government would not come under the taxability. - even subcontractor cannot be directed to pay service tax when the taxability of the construction is non commercial in nature being not taxable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether sub-contractors engaged for building residential complexes for Delhi Police could be considered for receiving services on behalf of the Government of India and if no service tax liability could be imposed on them.

Analysis:
The appeal was filed against the rejection of the appellant's appeal by the Order-in-Appeal No. 349/ST/DLH/2012. The Order-in-Original No. 227/ST/SI/REFUND/2011 passed by the Assistant Commissioner Service Tax Division-I, New Delhi was upheld. The appellant contended that they were a sub-contractor working for M/s HPL, a contractor for Delhi Police and the President of India. They argued that no service tax liability could be imposed on the Government of India. The issue revolved around whether the sub-contractors could be considered as providing services on behalf of the Government of India and if they were liable to pay service tax.

The Commissioner (Appeals) distinguished between a Government Department and a Public Department, referring to a Board Circular. It was highlighted that if the contractor directly engaged by the Government of India engages a sub-contractor, the sub-contractor would be liable to pay service tax. The key point was whether the sub-contractors were providing services on behalf of the Government of India and if service tax liability could be imposed on them.

After hearing both sides and examining the records, it was concluded that the sub-contractors were liable to pay service tax as they had entered into a contract with M/s HPL and not directly with Delhi Police. The major beneficiary of the construction was deemed to be the Delhi Police (Government of India), and the intention was not to levy service tax on services received by the Government through contractors or sub-contractors. The exemption from service tax was analyzed in detail, emphasizing that construction for non-commercial purposes by the Government was not taxable.

The judgment emphasized that merely engaging contractors or sub-contractors for construction would not change the nature of the activity from non-commercial to commercial. It was clarified that if the Government undertook a non-commercial project, services received for such projects would not be taxable. Therefore, the subcontractors could not be directed to pay service tax when the construction activity was deemed non-commercial and not taxable. The appeal was allowed, subject to legal provisions.