2018 (7) TMI 21 - AT - Service Tax

Works Contract - Commercial or Industrial Construction Service - Construction of EWS quarters for Urban Improvement Trust, Sriganganagar - Construction of milk chilling plant for Rajasthan Co-operative Dairy Milk Federation Ltd. - failure to pay Service Tax - Held that - Since the nature of construction activity involves both supplying of goods as well as service, the same is falling within the category of Works Contract Service and by following the decision of the Hon ble Supreme Court in the case of L&T 2015 (8) TMI 749 - SUPREME COURT , the Service Tax demand cannot be sustained since the activity was carried out prior to introduction of WCS - demand set aside. Construction of milk chilling plant for Rajasthan Co-operative Dairy Milk Federation Ltd. - Held that - The Cooperative society is commercial concern and hence the construction activity carryout for such an organization is liable to be considered as falling within Commercial or Industrial Construction Service - Since there is no dispute about the fact that such a construction activity have been rendered and consideration received - levy of Service Tax upheld. Appeal allowed in part.

Summary

Issues:
1. Classification of construction activity under Service Tax categories.
2. Applicability of Works Contract Service.
3. Determining whether an organization is a commercial concern for Service Tax purposes.

Issue 1: Classification of construction activity under Service Tax categories:
The appeal challenged an Order-in-Appeal regarding Service Tax liability for providing Commercial or Industrial Construction Service. The appellant failed to pay Service Tax for constructing EWS quarters and a milk chilling plant. The appellant argued that the construction activity for EWS quarters should be classified as Works Contract Service, relying on a Supreme Court decision pre-dating the introduction of Works Contract Service. The construction of the milk chilling plant was contested on the grounds that it was carried out for a cooperative society not engaged in commercial activities.

Issue 2: Applicability of Works Contract Service:
The appellant contended that the construction of EWS quarters should be considered Works Contract Service due to the supply of material and service involved. The Tribunal agreed, setting aside the Service Tax demand for this part as the activity pre-dated the introduction of Works Contract Service. Hence, the demand of ?66,095 related to the EWS quarters construction was annulled.

Issue 3: Determining whether an organization is a commercial concern for Service Tax purposes:
Regarding the construction of the milk chilling plant for a cooperative society, the appellant argued that the organization's objective was not commercial, as it aimed to benefit farmers. However, the Tribunal examined the bye-laws and financial records of the society, concluding that despite its focus on milk-related activities, it operated as a limited company with profit-making objectives. Therefore, the construction activity for this organization was deemed to fall under Commercial or Industrial Construction Service, leading to the upholding of the Service Tax demand of ?4,24,259.

In conclusion, the Tribunal set aside the demand related to the EWS quarters construction but upheld the demand for the construction of the milk chilling plant for a cooperative society, emphasizing the commercial nature of the organization.