2019 (5) TMI 1493 - AT - Service Tax

Classification of services - sale of the construction material to the Government Department as also to various private parties - Works Contract service or not - HELD THAT - The Commissioner (Appeals) has accepted the fact that the appellant raised invoices for sale of the construction material. However, he has observed that since the consideration was received in cash and invoices do not contain VAT amount it has to be held that the same was a service. We find no merits in the above reasoning of the Revenue. As explained, sale of building material does not invite VAT. Nevertheless same remain State subject. On the other hand, Revenue have also not established as to which service taxable under the Act stands provided by the appellant - As such, no service tax is required to be confirmed against the appellant in respect of sale of building material to private parties - Accordingly demand of ₹ 5,29,556/- confirmed against them on the said ground is set aside alongwith setting aside of penalty. Imposition of penalty - demand under the category of Construction of Residential Complex - HELD THAT - Admittedly the said construction was for U.P. Avas Evam Vikas Parishad. Service tax was deposited by the appellant alongwith interest even before issuance of the show cause notice in which case no notice should have been issued to them in terms of the provision of Section 73(3) of Finance Act, 1994 - also the said services having been provided for Government body, there could be a bona fide belief on the part of the assessee not to pay any tax on the sale, Revenue has not adduced any evidence to show that such non-payment was with any mala fide intention - the penalty imposition on the said ground is not justified. Appeal disposed off.

Summary

Issues:
1. Confirmation of service tax demand for works contract services.
2. Taxability of sale of construction material to government and private parties.
3. Applicability of service tax on sale of building material.
4. Imposition of penalty on the appellant.
5. Tax liability for construction of residential complex for U.P. Avas Evam Vikas Parishad.
6. Justification of penalty imposition for construction services.

Analysis:

1. The appellant, engaged in works contract services, received a show cause notice for a service tax demand of around &8377; 88.55 lakhs. The Additional Commissioner confirmed a demand of &8377; 33,27,535, out of which the appellant had already paid &8377; 13,38,882. The Commissioner (Appeals) upheld part of the demand related to sales to private parties and construction for U.P. Avas Evam Vikas Parishad, reducing the penalty to 50%.

2. The appellant contended that the sale of construction material to private parties should not attract service tax as they were outside the purview of VAT. The Appellate Authority accepted sales to government authorities but confirmed the demand for sales to private parties. The Tribunal agreed that no service tax was applicable on the sale of building material to private parties, setting aside the demand and penalty.

3. Regarding the construction for U.P. Avas Evam Vikas Parishad, the appellant believed they were exempt from tax as they were working for the government. The Tribunal noted the payment of service tax with interest before the show cause notice, indicating a bona fide belief. As no mala fide intention was proven, the penalty imposition was deemed unjustified and set aside.

4. The Tribunal found that the consideration received in cash for the sale of construction material did not make it a service, as VAT was not charged on such sales. Since the Revenue failed to establish any taxable service provided by the appellant, the demand related to sale of building material to private parties was set aside, along with the penalty.

5. In conclusion, the Tribunal disposed of the appeal by setting aside the demand and penalty related to the sale of building material to private parties and the penalty for construction services for U.P. Avas Evam Vikas Parishad, emphasizing the lack of taxable service provision and the appellant's genuine belief in tax exemption for government projects.