2024 (6) TMI 1110 - AT - Service Tax

Non-payment of service tax - Classification of service - Works Contract Service or not - services to educational institutions during the period from March 2008 to March 2011 - building s constructed for the said educational institutions can be regarded as intended for commerce or industry or not - demand alongwith interest and penalties - extended period of limitation. Classification of service - HELD THAT - Classification of services is a matter relating to chargeability and the burden of proof is squarely upon the Revenue. If the Department intends to classify a service under a particular category, the Department must adduce proper evidence and discharge the burden of proof. The judgments of the Hon ble Supreme Court in UNION OF INDIA VERSUS GARWARE NYLONS LTD. 1996 (9) TMI 123 - SUPREME COURT , HPL CHEMICALS LTD. VERSUS CCE, CHANDIGARH 2006 (4) TMI 1 - SUPREME COURT , PUMA AYURVEDIC HERBAL (P) LTD. VERSUS COMMISSIONER OF C. EX., NAGPUR 2006 (3) TMI 141 - SUPREME COURT , although rendered in the case of classification under the Central Excise Act is also relevant for classification of a service under the FA 1994. Interpretation of phrase primarily for the purposes of commerce or industry - HELD THAT - The statutory definition of a service given for a particular activity (commercial training or coaching) cannot be taken to understand the term commerce or industry used for another service (WCS) when no ambiguity is involved. As a general principle of interpretation, where the words of a statutory provision are plain, and unambiguous, the intention of the Legislature is to be gathered from the language of the provision itself. The term commerce or industry are commonly understood terms and do not require the aid of another definition from the statute to gather its intention. Commercial activities, relate to activities having profit as the primary aim - The department has not discharged the initial burden in establishing chargeability of the service falling under WCS. Merely because the institutions are collecting a fee will not make the institution primarily for the purposes of commerce or industry. The demand must hence fail. Extended period of limitation - HELD THAT - It is settled law that mere failure to register and pay duty does not amount to willful suppression. The Act contemplates a positive action which betrays a negative intention of willful default. There must be some positive act from the side of the assessee to bring a charge of fraud, willful suppression etc with intention to evade payment of duty. No such allegation is found either in the SCN or in the findings of the Original Authority - Normal audit objection based on legal reasoning does not lead to a charge of suppression. Something more is required. In any case the demand having failed on merits the issue of any demand, interest and penalty does not arise. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Taxability of works contract services rendered to educational institutions.
2. Interpretation of "primarily for the purposes of commerce or industry."
3. Applicability of extended period for issuing the Show Cause Notice (SCN).
4. Burden of proof for classification of services.
5. Relevance of cited judgments and circulars.

Detailed Analysis:

1. Taxability of Works Contract Services Rendered to Educational Institutions:
The core issue was whether the works contract services provided for the construction of buildings for educational institutions are taxable under the category of 'Works Contract Service.' The appellant argued that educational institutions, despite collecting fees, are not commercial entities and should not be taxed under this category. However, the Revenue contended that these institutions, by collecting fees, engage in commercial activities, thus making the construction services taxable.

2. Interpretation of "Primarily for the Purposes of Commerce or Industry":
The dispute centered around whether buildings constructed for educational institutions are "primarily for the purposes of commerce or industry." The appellant relied on various judgments and CBEC Circular No.80/10/2004-ST, which clarified that buildings for educational purposes are not commercial. The Tribunal emphasized that "commercial activities" imply profit as the primary aim and referred to the Hon'ble U.S. Supreme Court's definition of "primarily" as "of first importance" or "principally." The Tribunal concluded that educational institutions, even if generating surplus, primarily exist for imparting education and not for profit-making.

3. Applicability of Extended Period for Issuing the SCN:
The appellant argued that the SCN was issued beyond the normal period of 18 months and there was no suppression of facts with intent to evade tax. The Tribunal noted that mere failure to register and pay duty does not amount to willful suppression. There must be a positive act indicating the intention to evade tax, which was not present in this case. Therefore, the demand for the extended period was not justified.

4. Burden of Proof for Classification of Services:
The Tribunal reiterated that the burden of proof for classifying a service under a particular category lies with the Revenue. The Department must provide proper evidence to support its classification. In this case, the Department failed to establish that the construction services for educational institutions were primarily for commercial purposes.

5. Relevance of Cited Judgments and Circulars:
The Tribunal examined various judgments cited by both parties. It found that most judgments favored the appellant's stance that educational institutions are not commercial entities merely because they collect fees. The Tribunal also referred to the Hon'ble Supreme Court's judgment in Queen's Educational Society, which stated that generating a surplus does not make an institution commercial if its primary objective is education. The Tribunal concluded that the Revenue's cited judgments did not support their case, and the appellant's reliance on previous favorable judgments and the CBEC circular was valid.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal and granting consequential relief to the appellant. The Tribunal held that the construction services for educational institutions are not primarily for commercial purposes and thus not taxable under 'Works Contract Service.' The extended period for issuing the SCN was also not applicable due to the absence of willful suppression. The appeal was disposed of accordingly, with the order pronounced in open court on 25.06.2024.