2024 (7) TMI 1067 - AT - Service Tax

Liability to pay service tax - construction of educational institutions - Works Contract Service for the period 01.10.2008 to 30.06.2012 - The department is of the view that the appellant has to pay service tax for construction service provided to construct educational institutions - extended period of limitation. HELD THAT - The Department vide Circular No.80/10/2004-ST dt. 17.09.2004 has clarified that the constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purpose of profit are not taxable being noncommercial in nature - When the circular issued by the Board specifically clarified that construction services provided for construction of educational institutions are exempted from levy of service tax, there are no reason to hold that these constructions are commercial in nature. The department itself has taken the view that the circular dt. 17.09.2004 is still in force and that the construction provided for educational institutions are exempted from levy of service tax. Needless to say, that the Board circulars are binding on the department. The Hon ble High Court of Karnataka in the case of COMMISSIONER OF CENTRAL EXCISE (APPEALS), BANGALORE VERSUS KVR CONSTRUCTION 2012 (7) TMI 22 - KARNATAKA HIGH COURT had occasion to consider the issue of refund of service tax paid by an assessee on construction services provided for construction of educational institutions. The Hon ble High Court upheld the order passed by the Tribunal that construction of educational institutions is exempt from levy of service tax. In the case of GUJARAT ADANI INSTITUTE OF MEDICAL SCIENCES VERSUS C.C.E. S.T. -RAJKOT 2023 (6) TMI 1000 - CESTAT AHMEDABAD , the Tribunal considered the very same issue as to whether the demand of service tax raised on construction of educational institutions is sustainable or not, and it was held that ' When the property in question is not used by Appellant for commercial purpose then it cannot be liable for payment of service tax as is apparent from Circular dated 17-09-2004. It is apparent that C.B.E. C. circular considered the use of the said property as non-commercial in nature. In these circumstances service tax on construction of said building / property cannot be levied.' In the case of M/S KMV PROJECTS LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, AND SERVICE TAX HYDERABAD 2019 (3) TMI 1439 - CESTAT HYDERABAD , the issue considered by the Tribunal was whether construction of guest house for temples at Srisailam, Kanipakam and also educational institutions would be subject to levy of service tax, where it was held that ' these buildings constructed by the appellant and the services rendered under works contract services are not taxable pre or post 1-7-2012.' Thus, the demand of service tax under WCS for the disputed period for construction of educational institutions cannot sustain. The issue on merits is answered in favour of the appellant and against the Revenue. Time Limitation - HELD THAT - There is no positive act of suppression established by the department against the appellant. The issue is also interpretational in nature as there have been several litigations. The Board has also come forward to clarify the nature of construction services when provided to educational institutions. In such circumstances, there are no grounds for invoking the extended period and the demand is time-barred. The issue of limitation is answered in favour of the appellant and against the Revenue. The impugned order is set aside - appeal allowed.

Issues Involved:
1. Liability of service tax under "Works Contract Service" (WCS) for construction of educational institutions.
2. Applicability of Board Circular No. 80/10/2004-ST dated 17.09.2004.
3. Determination of the commercial nature of educational institutions.
4. Invocation of the extended period for issuing the Show Cause Notice (SCN).
5. Correct quantification of service tax under the Composition Scheme.

Detailed Analysis:

1. Liability of Service Tax under WCS for Construction of Educational Institutions:
The primary issue was whether the appellant was liable to pay service tax under "Works Contract Service" for the period 01.10.2008 to 30.06.2012 for constructing educational institutions. The appellant argued that these constructions were for educational purposes and not for commerce or industry, thus exempt from service tax as per Board Circular No. 80/10/2004-ST dated 17.09.2004. The Tribunal found that the construction of educational buildings, which are non-commercial in nature, is not liable to service tax. The department's view that private educational institutions are commercial due to fee collection was rejected, as the primary use of the buildings was for education.

2. Applicability of Board Circular No. 80/10/2004-ST dated 17.09.2004:
The appellant relied on Circular No. 80/10/2004-ST, which clarified that constructions for educational, charitable, religious, health, sanitation, or philanthropic purposes and not for profit are non-commercial and thus not taxable. The department contended that this circular was withdrawn by Master Circular No. 96/7/2007-ST dated 23.08.2007. However, the Tribunal noted that the said circular was not withdrawn and was still in force during the disputed period. The Tribunal emphasized that Board circulars are binding on the department.

3. Determination of the Commercial Nature of Educational Institutions:
The department argued that private educational institutions are commercial due to the collection of substantial fees. The Tribunal found this argument flawed, stating that charging fees does not make an entity commercial if the surplus is used for educational purposes. The Tribunal cited various precedents where constructions for educational institutions were held non-commercial and thus exempt from service tax.

4. Invocation of the Extended Period for Issuing the SCN:
The appellant argued that the SCN was barred by limitation, as they had regularly filed returns and disclosed turnover under exempted services. The Tribunal agreed, noting that the appellant had disclosed all relevant details and relied on a valid Board circular. The Tribunal found no suppression of facts or intent to evade tax, making the invocation of the extended period unjustified. The demand was thus held time-barred.

5. Correct Quantification of Service Tax under the Composition Scheme:
The appellant contended that the quantification of service tax was incorrect, as it did not consider the Composition Scheme rates of 2% and 4%. The Tribunal did not explicitly address this issue in the judgment, as the primary issue of tax liability was resolved in favor of the appellant.

Conclusion:
The Tribunal set aside the impugned order, holding that the appellant was not liable to pay service tax for constructing educational institutions during the disputed period. The demand was also found to be time-barred due to the absence of suppression or intent to evade tax. The appeal was allowed with consequential relief.

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