2025 (4) TMI 316 - AT - Service Tax

Entitlement for exemption under Sl.No.13 of the N/N. 25/2012-ST dated 20.06.2012 - services of works contract provided by the appellant within the residential complex/commercial premises - Penalty imposed under Section 78 and 77 of the Act. HELD THAT - The construction activity performed by the appellant was within the residential complex/commercial premises. The interpretation placed by the appellant by relying on the definition of general public that it refers to body of people which in the present case are the residents of the complex and also the visitors to the residents and is defined by that common quality of public has not merits. The factors stated in the definition are not satisfied when the roads are built for any residential or commercial complex in as much as by its very nature the access to the roads built within the complex has restricted access and is not open to the public at large. The appellant cannot claim that there is any error. On the other hand the appellant had deliberately avoided the proceedings. The plea taken by the appellant in this regard is a lame plea and do not merit consideration. Penalty imposed under Section 78 and 77 of the Act - HELD THAT - The appellant was registered with the Service Tax Department however they had not filed the service tax returns (ST-3). It is also on record that the appellant had collected service tax from the clients but failed to credit the service tax to the Government exchequer. The conduct of the appellant clearly reveals the intent to evade the service tax liability by suppressing the assessment of the taxable value and the liability under the provisions of the Act. There are no reason to differ with the Authorities below in imposing penalty under Section 77 and 78 of the Act. On the same considerations the extended period has been rightly invoked. Conclusion - i) The exemption under Notification No.25/2012-ST is strictly applicable only to roads intended for use by the general public. Roads constructed within private residential or commercial complexes do not qualify for this exemption due to their restricted access nature. The imposition of service tax on the appellant for the services rendered affirmed as they did not meet the exemption criteria. ii) The penalties imposed under Sections 77 and 78 upheld. The impugned order upheld - appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The primary issue presented for consideration was whether the services of works contract provided by the appellant within residential complexes or commercial premises qualify for exemption under Sl.No.13 of Notification No.25/2012-ST dated 20.06.2012. This required determining if the roads constructed within these premises were intended for use by the "general public" as defined in the notification and whether the appellant was liable for service tax on the services provided.

2. ISSUE-WISE DETAILED ANALYSIS

The core legal framework involved the interpretation of Notification No.25/2012-ST, which exempts certain services from service tax, including construction of roads for use by the general public. The appellant argued that the roads constructed within residential and commercial premises were used by both residents and visitors, thus qualifying for the exemption. The Department contended that the exemption was not applicable as the roads were not for use by the general public but rather for the residents and visitors of the complexes, which did not meet the criteria for public use.

The Court analyzed the definition of "Works Contract" under Section 65(105)(zzzza) of the Finance Act, 1994, and the shift in the service tax regime post-2012, which broadened the taxable services under a comprehensive scheme. The Court emphasized that the exemption for road construction under the notification was specific to roads meant for general public use, and the roads within private residential complexes did not meet this criterion due to restricted access.

The appellant relied on precedents from various cases, arguing for a broader interpretation of "general public." However, the Court found these arguments unpersuasive, emphasizing that the exemption notification must be construed strictly. The Court referenced the decision in Warsi Buildcon, which supported the Department's view that roads within private complexes are not for general public use and thus not exempt from service tax.

Regarding the calculation of service tax liability, the appellant challenged the basis on which the tax was assessed. The Department's investigation revealed non-cooperation from the appellant, including failure to provide complete financial records and non-compliance with statutory requirements. The Court found no merit in the appellant's challenge, given the deliberate avoidance of proceedings and lack of transparency in financial disclosures.

On the issue of penalties under Sections 77 and 78 of the Act, the appellant argued against the imposition, citing partial payment prior to the show cause notice. The Court, however, noted the appellant's failure to file service tax returns and the intent to evade tax liability, justifying the penalties and the invocation of the extended period for assessment.

3. SIGNIFICANT HOLDINGS

The Court held that the exemption under Notification No.25/2012-ST is strictly applicable only to roads intended for use by the general public. Roads constructed within private residential or commercial complexes do not qualify for this exemption due to their restricted access nature. The Court affirmed the imposition of service tax on the appellant for the services rendered, as they did not meet the exemption criteria.

The Court upheld the penalties imposed under Sections 77 and 78, citing the appellant's intent to evade tax and non-compliance with statutory obligations. The Court also directed that any amount deposited by the appellant during the investigation should be appropriated towards the determined service tax liability.

The appeal was dismissed, affirming the findings of the lower authorities and reinforcing the principle that exemption notifications must be interpreted strictly, with a clear distinction between public and private use in the context of service tax exemptions.

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