2018 (8) TMI 1112 - AT - Service Tax

Commercial concern or not? - Works contract service - Industrial and commercial construction - service tax on the value of FoC (Free of Charge) materials supplied by the contactees - argument of the Revenue that in the instant case the Maharaja Agarsen Hospital, the said hospital, if they are providing service for consideration, they cease to be for charitable purpose and it amounts to commercial purpose - Held that - The said contention has got no merits in view of the ruling of Hon ble Supreme Court (Const. Bench) in Surat Art & Silk Manufacturers Association 1979 (11) TMI 1 - SUPREME COURT , where it was held that even if a charitable institution charges some amount and/or even if they have some surplus from the operations, that will not render the institution as not for charitable purpose, or a non-profit organisation - the learned Commissioner rightly granted the rebate for the material component under the admitted facts and circumstances. Penalty - works contract service - Held that - It is apparent that that service tax was in arrears due to financial crunch being faced by the appellant assessee. During the relevant period, several employees had left due to its bad financial position, resulting into non-compliance of their tax obligations - penalty set aside by invoking section 80. The appellant shall be liable to deposit the interest on the tax amount for delayed payment, if not deposited so far. Appeal allowed in part.

Summary

Issues:
1. Imposition of penalty under section 76 of the Finance Act on the appellant-assessee.
2. Classification of the work done by the appellant-assessee involving material and service components.
3. Demand of service tax on the construction of Maharaja Agarsen Hospital.
4. Benefit of abatement and certification by the chartered accountant.

Analysis:
1. The appellant was registered for providing construction services but failed to pay service tax on industrial and commercial construction activities. A show cause notice was issued for demanding an amount of ?15,11,31,413. The appellant contested the reduced amount confirmed by the Commissioner, arguing no deliberate default in tax payment due to financial difficulties. The penalty under section 76 was imposed, which the appellant deemed disproportionate. The appellant's appeal highlighted financial losses leading to delayed tax deposits. The Tribunal found grounds for invoking section 80 of the Finance Act and set aside the penalty under section 76, directing interest payment for delayed tax deposit.

2. The appellant conducted construction work involving material and service components. The Commissioner classified the work as a composite contract, aligning with the Supreme Court's decision on works contracts. The appellant did not contest the service tax demand and had already paid it. The Tribunal considered the financial difficulties faced by the appellant, leading to non-compliance with tax obligations. Citing a Tribunal ruling, the penalty under section 76 was waived due to disputed tax liability and financial constraints.

3. The Revenue appealed the Commissioner's decision regarding the construction of Maharaja Agarsen Hospital, arguing it was for commercial purposes and not exempt from service tax. The Tribunal disagreed with the Revenue, citing a Supreme Court ruling that charging for services does not negate charitable status. The Tribunal upheld the Commissioner's decision on granting rebate for the material component in the construction.

4. The Revenue contested the benefit of abatement and certification by the appellant's chartered accountant. The Tribunal found no merit in the Revenue's arguments, upholding the classification of the work as a works contract. The appellant's compliance post-order was noted, leading to the setting aside of the penalty under section 76. The Tribunal allowed the appellant's appeal in part, dismissing the Revenue's appeal.

In conclusion, the Tribunal's judgment addressed the issues of penalty imposition, classification of work, demand on hospital construction, and benefit of abatement, providing detailed reasoning for each decision.