2025 (3) TMI 1346 - AT - Service Tax

Classification of service - Commercial or Industrial Construction Service or not - construction activities undertaken by the appellant at the police training academy / office premises of Tamil Nadu Police Housing Corporation - Levy of service tax on the repair and maintenance work at police academy which has been carried out by the Appellant - levy of penalty - extended period of limitation. Classification of service - Commercial or Industrial Construction Service or not - construction activities undertaken by the appellant at the police training academy / office premises of Tamil Nadu Police Housing Corporation - HELD THAT - The appellant has placed reliance on the decisions of the Tribunal in RD Contractor Company versus CCE ST Anand vide Final Order No. A/10313-10314/ 2023 dated 22.02.2023 where the Tribunal had considered whether the construction service provided to Gujarat State Police Housing Corporation for construction of residential complex for police staff is liable of service tax and has held that there will be no liability on the appellant therein and has allowed the appeal placing reliance on the decision in the case of S. Kadirvel vs. CCE ST Trichy 2013 (8) TMI 262 - CESTAT CHENNAI which too has been relied upon by the appellant - The proposal in the show cause notice in the instant case is to cover the construction activities of the appellant rendered to police academy/TNHPC under commercial or industrial construction service given the nature of work which is seen more specifically elaborated in Annexure II to the SCN. Moreover the appellant too has not raised any specific pleading that the activities of the appellant are more specifically covered under construction of complex service. The demand of service tax on the services rendered by the appellant in the buildings at police academy/TNHPC is unsustainable. Levy of service tax on the repair and maintenance work at police academy which has been carried out by the Appellant - HELD THAT - When the Department had already proposed to cover the services of the appellant rendered to the aforesaid policy academy under commercial or industrial construction service then we see no reason why the classification of the services rendered by the appellant to police academy in respect of certain activities of repair are thereafter proposed for coverage under the head management maintenance or repair service when the said definition of commercial or industrial construction itself under section 65 (25b) (d) included repair alteration renovation or restoration of or similar services in relation to building or civil structure . As such when the activities of the appellant are prima facie coverable under the limbs of a particular classification being proposed in the SCN then artificially separating some activity and categorizing it under yet another classification is arbitrary and thus wholly untenable - The demand of service tax made in the SCN on the aforesaid activities of the appellant with respect to Police Academy/TNHPC are not tenable and are therefore set aside. Levy of penalty - extended period of limitation - HELD THAT - In the facts and circumstances of the appellants case considering that the tenability of the other demands as proposed in the SCN were of debatable nature even though it is found that grounds for imposition of penalty under Section 78 as invoking of extended period is also held to be tenable nevertheless in the circumstances it is deemed it fit to invoke the provisions of Section 80 as it existed during the relevant period to set aside the penalties imposed - The penalties are set aside but the extended period for demand is upheld. Conclusion - i) The construction activities at government-owned institutions not engaged in commerce or industry are not taxable under Commercial or Industrial Construction Service. ii) The construction of CETP is taxable under Commercial or Industrial Construction Service as it serves commercial establishments. iii) The invocation of the extended period for demand is justified but penalties can be set aside under Section 80 in certain circumstances. Appeal disposed off.

Summary

ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment include:

• Whether the construction activities undertaken by the appellant at the police training academy and Tamil Nadu Police Housing Corporation (TNPHC) fall under the category of "Commercial or Industrial Construction Service" and are liable for service tax.
• The applicability of service tax on the construction of Common Effluent Treatment Plant (CETP) under the "Commercial or Industrial Construction Service" category.
• The appropriateness of invoking the extended period for demand and the imposition of penalties under the Finance Act, 1994.

ISSUE-WISE DETAILED ANALYSIS

1. Construction Activities at Police Academy and TNPHC

• Legal Framework and Precedents: The definition of "Commercial or Industrial Construction" under Section 65(25b) of the Finance Act, 1994, and the exemption under Section 98 of the Finance Act, 2012, were considered. Relevant precedents included decisions in RD Contractor & Company v. CCE & ST, Anand, and S. Kadirvel v. CCE & ST, Trichy.
• Court's Interpretation and Reasoning: The Court found that the construction activities at the police academy and TNPHC did not qualify as "Commercial or Industrial Construction" since these were government-owned institutions not engaged in commerce or industry. The Court emphasized the non-commercial nature of these buildings.
• Key Evidence and Findings: The appellant argued that TNPHC was set up by a government order and operated as an extended arm of the government, primarily providing housing without profit-making intent.
• Application of Law to Facts: The Court held that the services rendered to these institutions were not exigible to service tax as they were not used for commerce or industry.
• Treatment of Competing Arguments: The Court dismissed the respondent's argument that these activities were commercial, noting the lack of evidence showing the use of these buildings for commercial purposes.
• Conclusions: The demand for service tax on these activities was set aside.

2. Construction of Common Effluent Treatment Plant (CETP)

• Legal Framework and Precedents: The Court referred to its previous decision in M/s. Sakthi Engineering Constructions v. CCE, Coimbatore, which addressed the taxability of CETP construction under "Commercial or Industrial Construction Service."
• Court's Interpretation and Reasoning: The Court found that the construction of CETP was primarily for commercial purposes, benefiting dyeing units, and thus fell under the taxable category.
• Key Evidence and Findings: The appellant's reliance on the decision in Green Environment Services Coop Society Ltd was deemed irrelevant as the construction was for commercial establishments.
• Application of Law to Facts: The Court upheld the demand for service tax on CETP construction, aligning with the precedent that CETP construction is a commercial activity.
• Treatment of Competing Arguments: The Court rejected the appellant's argument that CETP construction was in public interest and non-commercial.
• Conclusions: The demand for service tax on CETP construction was upheld.

3. Extended Period for Demand and Penalties

• Legal Framework and Precedents: The invocation of the extended period under the Finance Act, 1994, and the imposition of penalties were considered, with reference to the decision in CST v. Motor World.
• Court's Interpretation and Reasoning: The Court found the invocation of the extended period justified due to the appellant's non-registration and non-filing of returns. However, penalties were set aside under Section 80, considering the debatable nature of other demands.
• Key Evidence and Findings: The appellant's lack of registration and returns contributed to the delay in the show cause notice.
• Application of Law to Facts: The Court balanced the need for penalties with the circumstances, ultimately setting aside penalties while upholding the extended period for demand.
• Treatment of Competing Arguments: The Court acknowledged the appellant's arguments but emphasized the legal obligations under the Finance Act.
• Conclusions: The penalties were set aside, but the extended period for demand was upheld.

SIGNIFICANT HOLDINGS

• The Court established that construction activities at government-owned institutions not engaged in commerce or industry are not taxable under "Commercial or Industrial Construction Service."
• The construction of CETP is taxable under "Commercial or Industrial Construction Service" as it serves commercial establishments.
• The invocation of the extended period for demand is justified, but penalties can be set aside under Section 80 in certain circumstances.
• Verbatim Quote: "The services of construction or repair or maintenance rendered by the appellant to these institutions in these buildings/office premises are not exigible to service tax as commercial or industrial construction services."
• Verbatim Quote: "The construction of common effluent treatment plant undertaken by the appellant is liable to be taxed under 'Commercial or Industrial Construction' service."