2025 (4) TMI 1067 - AT - Service Tax

Construction of a new building or civil structure or a part thereof primarily for the purposes of commerce or industry - Works contract services of construction rendered to education institutions and government office buildings - construction of medians can be considered as works contract in respect of roads or not - time limitation. Whether the works contract services of construction rendered to education institutions and government office buildings can be treated as construction of a new building or civil structure or a part thereof primarily for the purposes of commerce or industry? - HELD THAT - The adjudicating authority has misdirected himself in rendering the finding that it is the bounden duty of the assessee to ensure that they satisfy the conditions set out for making any claim regarding exempted services. Admittedly the Department is seeking to tax the services of the appellant as works contract service under clause ii(b) of the explanation to Section 65(105)(zzzza) as being construction of a new building primarily for the purposes of commerce or industry . Unlike a statutory exemption notification issued in exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act prescribing conditions the circulars issued by CBEC are under Sec. 37B of the Central Excise Act 1944 as applicable for the purposes of service tax vide Sec. 83 of Finance Act 1994 and are instructions and directions issued to the central excise officers for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties. The Hon ble Supreme Court has held in CCE Bolpur v Ratan Melting Wiring Industries 2008 (10) TMI 5 - SUPREME COURT inte-alia that so far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. The definition of taxable service of works contract under Section 65(105)(zzzza) of the Act excludes works contract in respect of roads. The phrase in respect of indicates in connection with as regards or with reference to in its grammatical sense. There is no dispute that the work entrusted with the appellant is that of construction of center-medians in Coimbatore on Highways No.67 (Trichy Road). The Adjudicating Authority concedes the same. However the service tax is sought to be levied on the ground that such service is rendered to an Advertising Agency who in turn is engaged in providing advertising which is done in pure commercial considerations. Tribunal in M/s. RGP Construction versus The Commissioner of CGST Central Excise Salem 2024 (7) TMI 1168 - CESTAT CHENNAI . Therefore considering the aforesaid decisions of this Tribunal which are binding the demand of service tax on the works contract services rendered by the appellant to educational institutions that has been upheld in the impugned OIO cannot sustain and is therefore hereby set aside. Whether the construction of medians can be considered as works contract in respect of roads? - HELD THAT - The definition of works contract service while excluding works contract in respect of roads does not contain any stipulations as to the identity of the service recipient much less the nature of the service recipient s business considerations and the said contention of the Adjudicating Authority is extraneous in determining the appellant s entitlement to the exclusion from the ambit of the definition as claimed. When the work carried out by the appellant is indisputably conceded as that of constructing center-medians on Highway No.67 (Trichy Road) and since center-medians essentially demarcate and divide the road the works contract undertaken by the appellant of constructing center medians is clearly a works contract in respect of roads so as come within the exclusion specified in the definition. The service tax demand on this activity of the appellant is unsustainable and is therefore set aside. Whether the demand is barred by limitation? - HELD THAT - The appellant s claim that it has not discharged service tax on the works contract services of construction rendered to educational institutions on a Bonafide belief taking note of the clarifications issued by the Board as per the Circular dated 17-09-2004 cannot be discounted. There is no positive act of wilful suppression or misstatement of facts by the appellant that has been established by the Department. In these circumstances it is found that the adjudicating authority has grossly erred in invoking the extended period of limitation. The demand is therefore time barred and the issue of limitation is answered in favour of the appellant. Conclusion - i) The demand for service tax on construction services rendered to educational institutions and government buildings holding that such constructions do not fall within the taxable ambit of works contract services primarily for commerce or industry. ii) Since center medians demarcate and divide roads their construction falls within the exclusion. Therefore the Tribunal held that the demand of service tax on construction of center medians is unsustainable and set it aside. iii) The extended period of limitation was wrongly invoked and the demand is time-barred. Appeal allowed.

The core legal questions considered by the Tribunal are:

a) Whether the works contract services of construction rendered to educational institutions and government office buildings qualify as construction of a new building or civil structure primarily for commerce or industry, thereby attracting service tax under the Finance Act, 1994;

b) Whether the construction of center medians on highways constitutes a works contract "in respect of roads" and is thus excluded from the levy of service tax;

c) Whether the demand for service tax raised for the period April 2008 to June 2012 is barred by limitation, particularly regarding invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994.

Issue-wise detailed analysis:

a) Taxability of works contract services for construction of educational institutions and government buildings

The relevant legal framework is Section 65(105)(zzzza) of the Finance Act, 1994, which defines "works contract service" as any service provided in relation to execution of a works contract, excluding works contracts in respect of roads, airports, railways, transport terminals, bridges, tunnels, and dams. The explanation to this clause clarifies that a works contract includes construction of a new building or civil structure primarily for commerce or industry.

CBEC Circular No. 80/10/2004-ST dated 17.09.2004 provides authoritative guidance, clarifying that constructions for organizations or institutions established solely for educational, religious, charitable, health, sanitation, or philanthropic purposes and not for profit are non-taxable as non-commercial in nature. The Circular further explains that government buildings used for residential or office purposes or civic amenities are generally not taxable unless constructed for commercial purposes.

The Tribunal noted that the appellants had undertaken construction services for educational institutions run by charitable trusts and had claimed exemption from service tax based on the Circular. The Department challenged this, alleging that these institutions collected fees and thus the constructions were for commerce, making the services taxable.

The adjudicating authority held that the appellant failed to produce evidence such as trust bye-laws to prove that these institutions were non-profit and philanthropic, and thus invoked the extended period of limitation. However, the Tribunal clarified the distinction between burden of proof and onus of proof: the burden to prove taxability lies on the Revenue, while the onus to disprove taxability shifts to the assessee once the Revenue establishes a prima facie case.

The Tribunal held that the appellant discharged its onus by demonstrating its belief in non-taxability based on the CBEC Circular and evidence from the institutions' websites indicating charitable status. The Revenue failed to produce any evidence that the constructions were primarily for commerce or industry. The Tribunal emphasized that circulars represent the Government's understanding and are binding on the Department, but are not exemption notifications imposing conditions on the assessee.

Further, the Tribunal referred to binding precedents, including a recent decision of the same Tribunal in M/s R.R. Thulasi India Pvt Ltd, which held that service tax is not leviable on construction services for educational institutions when these are non-commercial. The Tribunal also distinguished the Supreme Court's decision in Bangalore Water Supply & Sewerage Board, noting that the eleven-judge bench in T.M.A Pai Foundation clarified that educational institutions are charitable by definition and not commercial enterprises.

Consequently, the Tribunal set aside the demand for service tax on construction services rendered to educational institutions and government buildings, holding that such constructions do not fall within the taxable ambit of works contract services primarily for commerce or industry.

b) Taxability of construction of center medians on highways

The definition of works contract service under Section 65(105)(zzzza) excludes works contracts "in respect of roads." The Tribunal interpreted the phrase "in respect of" in its grammatical sense to mean "in connection with" or "with reference to."

It was undisputed that the appellant constructed center medians on a National Highway. The adjudicating authority sought to levy service tax on the ground that the service recipient was an advertising agency, and thus the construction was for commercial purposes related to advertisement display.

The Tribunal rejected this reasoning as extraneous, holding that the nature of the service recipient's business is irrelevant to the exclusion under the statute. The exclusion depends solely on the nature of the works contract, i.e., whether it is in respect of roads.

Since center medians demarcate and divide roads, their construction falls within the exclusion. Therefore, the Tribunal held that the demand of service tax on construction of center medians is unsustainable and set it aside.

c) Limitation and invocation of extended period

The demand related to the period April 2008 to June 2012, with the Show Cause Notice issued on 21.04.2014, beyond the normal limitation period of one year or eighteen months.

The adjudicating authority invoked the extended period under proviso to Section 73(1) on the ground that the appellant suppressed vital facts with intent to evade tax.

The Tribunal noted that the appellant had declared the nature of services and claimed exemption in its ST-3 returns and filed VAT returns. The appellant's belief in non-taxability was based on a Board Circular, and there was no evidence of wilful suppression or misstatement.

The Tribunal emphasized the statutory responsibility of the Department to scrutinize returns and investigate claims of exemption. Failure of the Department to act promptly cannot be held against the appellant to invoke extended limitation.

Accordingly, the Tribunal held that the extended period of limitation was wrongly invoked, and the demand is time-barred.

Significant holdings:

"The burden of proof lies with the person who has to prove a fact and it never shifts, but the onus of proof shifts. Onus means the duty of adducing evidence. Thus, if the Revenue seeks to tax the assessee under 'Works Contract Service' and particularly under clause (ii)(b) of the explanation, then the burden of proof is on the Revenue to show at first that the construction which the assessee has undertaken is of a building or civil structure or part thereof, primarily for the purposes of commerce or industry. Once the Revenue is able to discharge its burden of proof, then if the assessee is contesting the taxability, the onus shifts on to the assessee to prove that it is not so."

"Such constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purposes of profit are not taxable, being non-commercial in nature." (CBEC Circular No. 80/10/2004-ST dated 17.09.2004)

"The definition of works contract service excluding works contract 'in respect of roads' is predicated on the identity of the infrastructure specified therein... When the work carried out by the appellant is indisputably conceded as that of constructing center-medians on Highway No.67 (Trichy Road)... the works contract undertaken by the appellant of constructing center medians is clearly a 'works contract in respect of roads' so as come within the exclusion specified in the definition."

"The failure to take up the information for scrutiny is not to be held to the detriment of the appellant by invoking the extended period of limitation... There is no positive act of wilful suppression or misstatement of facts by the appellant that has been established by the Department."

In conclusion, the Tribunal set aside the impugned order to the extent it confirmed the demand of service tax, interest, and penalties on the appellant for the works contract services rendered to educational institutions, government buildings, and for construction of center medians on roads. The appeal was allowed with consequential relief.

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