2018 (8) TMI 629 - HC - Service Tax

Works Contract Service - Construction of building or civil structure services - Commercial Building or not - Exemption to the Turnkey Projects - Whether the ld. CESTAT was right in law in extending the benefit of exemption to the Turnkey Projects which is available to the construction of building or civil structure services covered under clause (ii)(b) of Works Contract service, but is not available to Turnkey Projects covered under clause (ii)(e) of Works Contract service, as both these services are entirely different? Held that - The hostel which was constructed was a girls hostel and hospital which was need of the Jaipur was constructed. In that view of the matter, it was not commercial building as per the language used and the activities neither fall under commercial activities nor industrial activities, it is purely a social activity where the girls hostel is constructed for girls students in city of Surat and hospital in Jaipur. These are excluded from tax liability under works contract service - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Classification of the construction activities under the appropriate service category.
2. Liability of service tax on the construction activities.
3. Applicability of exemption to the construction of non-commercial buildings.
4. Determination of whether the construction activities fall under "Turnkey Projects" or "Works Contract Service".
5. Consideration of whether the demand is hit by limitation.

Issue-wise Detailed Analysis:

1. Classification of the Construction Activities:
The appellant contended that the construction activities performed by the assessee should be classified under "Turnkey Projects" as per clause (ii)(e) of Works Contract service, rather than under "construction of building or civil structure services" covered under clause (ii)(b). The Tribunal, however, found that the construction activities were related to a student’s hostel and a public hospital, which are non-commercial buildings. Thus, these activities are excluded from tax liability under works contract service.

2. Liability of Service Tax:
The adjudicating authority initially determined that the assessee's activities were covered under Turnkey Projects and thus liable for service tax. However, the Tribunal concluded that since the construction was for non-commercial buildings (a girls' hostel and a hospital), these activities did not attract service tax under works contract service.

3. Applicability of Exemption to Non-Commercial Buildings:
The Tribunal observed that the construction of the girls' hostel and the hospital did not fall under commercial or industrial activities. Therefore, these constructions were considered social activities and were exempt from service tax. The Tribunal's decision was based on the nature of the buildings being constructed for public utility and charitable purposes, thus not qualifying as commercial buildings.

4. Determination of "Turnkey Projects" vs. "Works Contract Service":
The Tribunal noted that the construction activities performed by the assessee were not commercial in nature. The appellant referred to the Bangalore Tribunal's decision in Ramky Infrastructure Ltd. vs. Commr. Of Service Tax, Hyderabad, which classified similar activities under Turnkey Projects. However, the Tribunal in this case distinguished the current activities as non-commercial, thus not falling under Turnkey Projects as defined in clause (ii)(e) of Works Contract service.

5. Consideration of Limitation:
The adjudicating authority’s decision included the observation that the assessee had not paid the applicable service tax on the payments received for the two construction projects. The Tribunal, however, did not delve into the issue of limitation as it concluded that the activities were exempt from service tax.

Conclusion:
The Tribunal concluded that the construction activities related to the girls' hostel and the hospital were non-commercial and thus exempt from service tax under works contract service. The Tribunal's decision was upheld, and the appeal was dismissed, with no substantial question of law arising in the appeal. The Tribunal's findings were based on the nature of the construction activities being for public utility and charitable purposes, thereby not qualifying as commercial or industrial activities.