2015 (11) TMI 845 - HC - Service Tax

Demand of service tax - Works contract service - Construction Services provided to to various educational institutions - exemption as per Circular No.80/10/2004 ST, dated 17.9.2004 - Held that - Admittedly, as on the date of passing the impugned proceedings, there was no evidence available before the first respondent to hold that whether the educational institutions to whom the petitioner provided construction services, are profit oriented or whether they are established solely for educational purpose without any profit, etc., While that being so, in the absence of any evidence, there is no justification on the part of the first respondent to hold contrary that too on mere non-production of such evidence by the petitioner. In fact, till the impugned proceedings were passed by the first respondent, it was not known or expected by the petitioner that the first respondent would come to such a contrary conclusion. If at all the first respondent was of such view, he could have very well directed the petitioner by providing an opportunity to produce the relevant documentary evidence regarding the educational institutions to whom, the petitioner provided construction service and thereafter, he could have decided the issue. Petitioner were under bona fide impression that the service tax on the constructions provided to the educational institutions is exempted as per Circular No.80, dated 17.9.2004 and that they only constructed classrooms, hostels, etc., which are primarily used for imparting education and not used either for commerce or industry and without deciding the issue that whether the construction provided by the petitioner to the educational institutions are used or to be used for commerce or industry in order to extend the benefit of exemption under the above said Circular, the first respondent has erroneously dealt with the issue holding that the educational institution to which the petitioner provided constructions, itself is an industry and running for profit - impugned proceedings, dated 28.11.2014 of the first respondent are hereby set aside and the matter is remitted back to the first respondent to deal with the issue in terms of the exemption Circular No.80, dated 17.9.2004 - Decided in favour of assessee.

Summary

Issues Involved:
1. Liability of service tax on construction services provided to educational institutions.
2. Applicability of exemption under Circular No. 80/10/2004-ST, dated 17.9.2004.
3. Determination of whether educational institutions are commercial entities.
4. Imposition of interest and penalty on the petitioner.

Issue-wise Detailed Analysis:

1. Liability of Service Tax on Construction Services Provided to Educational Institutions:
The petitioner, engaged in providing construction services to educational institutions, was directed to pay Rs. 2,27,24,001/- as service tax under the Work Contract Service in terms of Section 66B of the Finance Act, 1994. The respondents noted that the petitioner had not discharged service tax liability for services rendered to various educational institutions and hospitals. The petitioner argued that service tax on construction for educational institutions was exempted until 30.6.2012, and they had been paying service tax from 1.7.2012. The respondents, however, concluded that the petitioner's construction activities fell under the definition of civil construction for commerce or industry, making them liable for service tax.

2. Applicability of Exemption under Circular No. 80/10/2004-ST, dated 17.9.2004:
The petitioner claimed exemption from service tax based on Circular No. 80/10/2004-ST, which exempts construction services for educational institutions. The respondents countered that the exemption applies only to institutions solely for educational purposes and not profit-oriented. The petitioner failed to provide evidence that the educational institutions were non-commercial. The court noted that the first respondent should have given the petitioner an opportunity to provide evidence regarding the nature of the educational institutions before concluding they were commercial entities.

3. Determination of Whether Educational Institutions Are Commercial Entities:
The respondents relied on the decision in Bangalore Water Supply & Sewerage Board vs. R. Rajappa, which categorized educational institutions as industries. The court found this application unnecessary and excessive, as the issue pertains to the Finance Act and service tax exemption, not industrial disputes. The first respondent's conclusion that educational institutions are commercial because they make profits was deemed fallacious. The court emphasized that the exemption applies if the construction is not used for commerce or industry, regardless of the institution's profit status.

4. Imposition of Interest and Penalty on the Petitioner:
The respondents imposed interest and penalty on the petitioner for allegedly suppressing facts related to tax assessment. The petitioner contended that they had been filing ST-3 returns regularly and had no intention of suppression. The court found that the first respondent should have sought additional evidence from the petitioner before concluding suppression of facts. The imposition of interest and penalty without proper consideration of the petitioner's submissions and evidence was deemed unjustified.

Conclusion:
The court set aside the impugned proceedings dated 28.11.2014 and remitted the matter back to the first respondent for fresh consideration. The first respondent is directed to re-evaluate the issue in terms of the exemption Circular No. 80/10/2004-ST, considering whether the constructions provided by the petitioner were for academic or commercial purposes. The first respondent must provide the petitioner an opportunity to submit relevant documents and objections before passing a new order within four weeks. The writ petition was disposed of with no costs, and the connected miscellaneous petition was closed.