The Hon’ble CESTAT vide its order dated 03.01.2024 in the matter of M/s Jyoti Sarup Mittal Vs. Commissioner of Central Tax, GST, Delhi – East in Service Tax Appeal No.s – 50097 Of 2022, 52211 Of 2016, 52133 Of 2022, 52134 Of 202252135 Of 2022 – (2024 Taxo.online 11 – CESTAT , Delhi), held that demands on composite works contract up to 01.06.2007 is not sustainable in view of Supreme Court decision in the matter of Commissioner vs. Larsen & Toubro.  Further, in the show cause notices issued, there was no demand under Section 65 (105) (zzzza) i.e., Works Contract Service and since the appellant has not been put to notice under this clause, demand cannot be sustained under this clause.  If the composite works contracts were charged to service tax under various other clauses i.e., ‘Commercial or Industrial Construction Service’, Construction of complex service or Management, maintenance and repair service’ for the period 1.6.2007 to 1.7.2012, those are liable to be set aside.  It was also held that the construction of Auditorium for a University constituted by an Act of State, would not be taxable during the pre-negative list regime since the same has not been taxed under Works Contract Service, and for the post-negative list, the services provided would be exempted by entry 12(c) of Notification 25/2012.  That in case of composite contracts, the abatement with respect to value of goods involved in the rendition of services, cannot be denied on the ground that there is no evidence that VAT has been paid.  The construction services provided in connection with the Central Government quarters which were outsourced by the Ministry of Housing and Urban Affairs would be exempt from the payment of Service Tax in terms of entry 12 of Notification 25/2012. The renovation work done for SEZ, Noida would be exempt from the payment of Service Tax since the provisions of SEZ Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.  Lastly, with respect to award from arbitration proceedings, it was held that it is for the department to prove that the appellant had received consideration for a service and it is not open to the department to charge service tax on any amount received by the assessee if it cannot establish that the amount was received as a consideration for a service which it had rendered.

The Appellant filed the Appeals before the Hon’ble CESAT Delhi assailing the confirmation of demand of Service Tax by the Orders dated 12.10.2021, 29.02.2016, 22.06.2022 for the construction of services provided by the Appellant.

Facts of the Case: –

• The appellant was registered with the Service Tax Department and was providing ‘Construction Services’ leviable to service tax under section 65 of the Finance Act, 1994.
• Investigations were initiated against the Appellant by the Department and it came to the conclusion that the appellant had rendered Construction of Complex Services as defined in section 65(30a) of the Act and chargeable to service tax as per clause (zzzh) of section 65(105) of the Act, Commercial or industrial construction service as defined in section 65 (25b) and chargeable to service tax under clause (zzq) of section 65(105) of the Act and Management, Maintenance and Repair Service as defined in Section 65 (64) of the Act and chargeable to service tax under clause (zzg) of section 65(105) of the Act.
• Earlier, a show cause notice dated 21.04.2011 was issued to the Appellant proposing demand for the period 2005-06 to 2010-11 and the same was confirmed by the Order-in-Original dated 30.10.2012. Both the Revenue and the assessee appealed against this order.  The Tribunal vide order dated 09.02.2017, rejected the revenue’s appeal and remanded back the Assessee’s Appeal to the Adjudicating authority.  However, a de-novo adjudication order dated 12.10.2021 was passed confirming the demand of Rs. 3,67,98,828 with imposition of penalties under Section 76 & 78.
• Thereafter, six periodical show cause notices were issued to the Appellant. Three of these SCNs dated 23.10.2012, 21.5.2014 and 17.4.2015 were decided by the Commissioner by Order in Original dated 29.2.2016.  Rest of the three show cause notices were decided by the Commissioner by Order in Original dated 22.6.2022.

Appellant’s Submissions: –

         MDU, Rohatak (Construction of Auditorium)

• The appellant constructed a mini auditorium at MDU, Rohtak as a composite works contract. These services were exempted in view of circular No. 80/10/2004 – S.T., dated 17.09.2004 being the services provided to educational institution, and cannot be considered for commercial purpose.
• The adjudicating authority, however, denied the exemption on the ground that the Circular dated 17.09.2004 was withdrawn by Circular No. 96/7/2007 dated 23.08.2007 and no further circulars were issued validating the previous provisions has been issued in this regard. He also held that the auditorium can be used for extra-curricular activities, educational seminars as well as commercial purposes which is an assumption/ presumption without any basis.
• Service tax under section 65(105) (zzzza) can be charged only if it falls within its scope. The explanation to this clause makes it amply clear that construction of a building or structure would fall under this clause only if it is meant for commercial purposes.
• The abatement has been given wrongly and the demand has been confirmed on the higher amount. It is to be noted that in the subsequent period i.e., 2014-15 to 2017-18 (up to June 2017) for the same contract the department has provided abatement of 60%, but in the present case, it has provided 40% abatement.
• During the post negative list period, the construction of structure meant predominantly for use as educational institution is exempt vide entry 12 (c) of Notification No. 25/2012 dated 20.06.2012. Further, entry 12 (a) also provides for exemption for the construction services provided to Government, a local authority or a Government Authority. The MDU, Rohtak, initially established as Rohtak University, came into existence by an Act No. 25 of 1975 of the Haryana Legislative Assembly in 1976 and thus, covered under Government Authority.
• Reliance was placed on the decisions of Vij Construction Pvt. Ltd. Vs. Commissioner of C. Ex., New Delhi – 2018 (11) G.S.T.L. 169 (Tri. -Del.); KMV Projects Ltd. Vs. Commissioner of C. Ex. & S.T., Hyderabad – 2019 (27) G.S.T.L. 388 (Tri. – Hyd.); SRM Engineering Construction Ltd. Vs. Commissioner of S.T., Chennai – II – 2018 (11) G.S.T.L. 174 (Tri. – Chennai); Banna Ram Choudhary Vs. Commissioner of Central Excise, Jaipur – 2017 (3) G.S.T.L. 338; Commissioner of Service Tax, New Delhi Vs. N.S. Associates Pvt. Ltd. – 2018 (11) G.S.T.L. 332 (Tri. – Del.).

          NTPC/APCPL Jharli(Construction of Security Barracks and 10 B-Type quarters at Jharli for IGSTPP)

• The liability was not disputed but it was submitted that in the course of rendering the services, materials were also used and therefore, this was a works contract service and therefore, abatement towards the cost of materials must be given to it. The Appellant duly paid the Service Tax after availing the benefit of Notification 1/2006 dated 01.03.2006. The Appellant paid the tax at 33% of the Gross value after availing abatement of 67% in terms of notification 1/2006.
• It has been wrongly held by the adjudicating authority that the Appellant has not provided any document with respect to payment of local taxes i.e., VAT, though, it has not been disputed by the adjudicating authority that the Services provided are Works Contract Service. Further, it is to be noted that there is no such condition in notification 1/2006 to provide documentary proof with respect to payment of VAT or payment of local taxes.
• The Appendix – I of the agreement entered for this project very specifically shows that the material was used in the execution of the project. Moreover, Schedule – B of the agreement shows the ‘Free of Cost Material’ provided to the Appellant, which was consumed at the time of provision of construction itself. The notification has been wrongly interpreted by the adjudicating authority. Further, the ‘Free of Cost Material’ is not to be included in the gross value for the purpose of abatement under the notification.
• There is no such requirement to provide the details of ‘Free of Cost of Material’ which was provided to the Appellant at the site only and was consumed at the site only, for availing the benefit of the notification.

N.B.C.C. contract for External Development Work Around Social Infrastructure Area at Kidwai Nagar (East), New Delhi

• It was submitted that the said project involves broadly 3 types of work (a) Horticulture, (b) Plumbing Work, involving external water supply system, external sewerage, storm water drainage system, rain water harvesting system, external water supply system, etc. and, (c) Electrical Works, including external light fixtures, supply & laying of LT Cable, etc. And the said work is exempt vide entries 12(a) or 12A(a), 12(e) & 29(h) of Mega exemption notification no. 25/2012 – ST dated 20 June 2012.  Thus, no tax is liable to be paid by the Appellant in this regard.
• The said project was awarded to the Appellant as a sub-contractor by NBCC on behalf of Ministry of Urban Development (MoUD), Government of India (now known as Ministry of Housing and Urban Affairs). Thus, MoUD is aptly covered under the scope of Government as it is a part of central government and headed by a union minister appointed by President.
• Also, the work done by the Appellant includes horticulture also which is covered under the term ‘Agriculture’ as clarified in Para – 4.4.2 of CBEC in Taxation of Services: An Education Guide and the same is not taxable under service tax as per Section 66D(d) of the Act.

HSIIDC (Haryana State Industrial and Infrastructure Development Corporation) for construction of flatted factories at Sonipat Haryana

• It was submitted that the said project was taxable under the category of Works Contract Services, however, the Ld. Adjudicating Authority has demanded service tax under the category of Construction of Industrial Construction service which is wrong as the contract involves supply of material as well as service component.
• Moreover, in the said contract, it was mutually agreed between the parties that applicable service tax would be discharged by the Service Recipiente., HSIIDC for the contract under dispute.
• Further, the Ld. Adjudicating Authority has held that no documentary evidence has been provided regarding payment of tax. Though, a certificate to affirm that the payment of Service Tax on behalf of the Appellant with respect to contract in question, has been issued to the Appellant by HSIIDC.

SCN 17.04.2015(2013-14) – Construction of an auditorium in MDU; Construction in the flattened factories of HSIIDC; EIL (Renovation of Ayakar Bhawan Vaishali, Ghaziabad)

• With respect to contract with EIL, it was submitted that this contract was given by the Income Tax Department to Engineers India Ltd. who, in turn, sub contracted the work to the appellant. It was a contract including the material and hence was a Works Contract Service and the demand under commercial or industrial construction service and management, maintenance and repair service are not sustainable.
• An alternative submission was made that the services, being rendered as a sub-contractor to EIL on a government building (Aayakar Bhavan) being a non-commercial building, is exempted by notification no. 25/2012-ST.

NBCC India Kidwai Nagar; NBCC India SEZ Noida; HSCC India Ltd. – (2016-17 to 2017-18 (upto June,2017)

• With respect to the third contract entered with HSCC India for construction of an auditorium in the Kalpana Chawla Government Medical College, Karnal, it was submitted that this construction is covered by notification no. 30/2012 issued under section 68 of the Finance Act according to which only 50% of the Service tax has to be paid by the service provider and the remaining 50% has to be provided by the service recipient.
• The appellant has already paid the service tax to the extent of 50%. Therefore, no demand of service tax needs to be paid.

Respondents’ Submissions: –

MDU, Rohatak (Construction of Auditorium)

On the behalf of the respondents, the submissions of the impugned order were reiterated.

NTPC/APCPL Jharli(Construction of Security Barracks and 10 B-Type quarters at Jharli for IGSTPP)

On the behalf of the respondents, the impugned order was supported.

N.B.C.C. contract for External Development Work Around Social Infrastructure Area at Kidwai Nagar (East), New Delhi

On the behalf of the respondents, the findings of the impugned order were reiterated.

HSIIDC (Haryana State Industrial and Infrastructure Development Corporation) for construction of flatted factories at Sonipat Haryana

On the behalf of respondents, it was submitted that the adjudicating authority confirmed the demand under this head for the reason that the appellant had not produced documentary evidence that HSIIDC had discharged the tax liability.  Attention was drawn to the certificate issued by HSIIDC and enclosed at pages 635 to 637 of the appeal.

SCN 17.04.2015(2013-14) – Construction of an auditorium in MDU; Construction in the flattened factories of HSIIDC; EIL (Renovation of Ayakar Bhawan Vaishali, Ghaziabad)

On the behalf of the respondents, the findings of the impugned order were reiterated.

Held: –

• The Hon’ble CESAT, Delhi after considering the submissions made, facts of the case and the provisions of the law applicable, found that the undisputed fact of the contracts involved in all these appeals is that they were composite works contracts involving rendering the service and also a transfer or a deemed transfer of property in the material used in executing the works contracts.
• It was observed that initially, under Chapter V of the Finance Act, 1994, few services were taxable and the list expanded from time to time. Whenever rendering the service also involved use of goods resulting in transfer or deemed transfer of property in the goods, abatement towards the cost of the material was provided through various notifications. From 01.6.2007, a separate clause section 65(105) (zzzza) was introduced in the Act to tax ‘works contract services.’  The Hon’ble Supreme Court in the matter of Commissioner vs Larsen & Toubro [2015(324) ELT 646 (SC), held that composite works contracts involving transfer or deemed transfer of property of goods and rendering the services were a separate specie of contracts known to commerce and there was no charge of service tax on such contracts prior to 1.6.2007.  Therefore, it was held by the Hon’ble Bench that all demands on composite works contracts in these appeals up to 1.6.2007 cannot be sustained and need to be set aside.
• Further, If the composite works contracts were charged to service tax under various other clauses for the period 01.6.2007 to 1.7.2012, they cannot be sustained and need to be set aside.
• On the basis of above observations, with respect to contracts entered with DMRC Shahdara; MP warehousing & Logistics Corp, Bhopal for construction of Godown; Karnataka State small Indl. Dev. Corp. Ltd; Nuclear Power Corporation; DDA Shastri park-construction of Barat Ghar; Engineers India Ltd. (IT Building); HPCL-Construction of Dwelling units for HPCL cooperative Group Housing Society, Greater Noida; DDA LIG Houses Rohini; Huda Employees Welfare Organization housing flats Panchkula; IOC – Panipat refinery township-construction of quarters, hostels & classrooms in DPS building; Gurgaon Technology Park Ltd.- Construction of C1Building; MCD-Hastsal – Improvement to drainage system and roads by ready mix concrete, it was held by the Hon’ble CESTAT that the entire demand confirmed was under the heads ‘Commercial or Industrial Construction Service’, ‘Construction of complex service’ or ‘Management, maintenance and repair service’. The charge under these headings applies only to services simplicitor and not to composite works contract services as per Larsen & Toubro. Therefore, the entire demand in the impugned order in this Appeal and interest and consequently all penalties need to be set aside and we do so.
• While dealing with the Appeal for the period 2011-12 to 2013-14, with respect to contracts entered with MCD(improvement of drainage system and roads by ready mix concrete in ward 47& 48 in the west Zone; NBCC Chankyapuri(External Site Development work; NBCC Rohatak(Construction of Mini auditorium at Maharishi Dayanand University Rohatak; EIL(Renovation of Ayakar Bhawan Vaishali, ghaziabad); NTPC/APCPL Jharli(Construction of Security Barracks and 10 BType quarters at Jharli for IGSTPP; HSIIDC (Construction of flatted factories at Sonepat provided to Haryana State and Infrastructure Development corporation Ltd.; EIL (Renovation of Ayakar Bhawan Vaishali, Ghaziabad; HSIIDC (Construction of flatted factories at Sonepat provided to Haryana State and Infrastructure Development corporation Ltd., the Hon’ble Bench found that in this appeal, the first SCN dated 23.10.2012 was issued for the period 2011-12, i.e., pre-negative list regime. The demands were on composite works contracts involving supply of goods and rendering of services. Therefore, the demands on the Contract entered with NBCC Rohatak, NTPC/APCPL Jharli, could have been made only under Works Contract Service. Since the demands were made and confirmed under Commercial or Industrial Construction Service and Management, Maintenance and Repair Service in respect of three of the five contracts, they cannot be sustained.

 MDU, Rohatak (Construction of Auditorium)

• It was found that from 01.6.2007 up to 2012, works contracts could be taxed only if they fell under clause 65 (105) (zzzza) and only under this clause. Insofar as the construction of a building or structure is concerned, this clause applies to findings for commercial purposes. The Hon’ble Bench do not agree with the contention of the Revenue that the auditorium constructed in the university should be considered as a commercial structure. Even if the reasoning of the Commissioner, that it can also be used for commercial purposes is accepted, the essential nature of the building is not commercial. Therefore, it does not fall under section 65(105) (zzzza). The charging section of a tax statute must be strictly constructed and in case of any doubt, the benefit of doubt must go in favour of the assessee and against the Revenue.
• With respect to demand after 01.07.2012, it was held that MDU is a university created by an Act of state legislature and is meant to provide education. Hence, we find that the service of construction of the auditorium in MDU is exempted during after 2012 also. Therefore, the demand of service tax on this contract deserves to be set aside.

NTPC/APCPL Jharli(Construction of Security Barracks and 10 B-Type quarters at Jharli for IGSTPP)

• It was found by the Hon’ble Bench that the undisputed fact is that this contract was a works contract requiring the rendering of service and also transfer or deemed transfer of goods. The demand has also been confirmed under works contract service. Therefore, the appellant will be entitled to abatement towards the materials used in the contract.
• It is immaterial whether the VAT was leviable or not, whether it was levied or not and whether it was paid or not. If VAT was payable and not paid, it is for the state authorities to take action. Under no circumstances can the service tax be levied on the value of the goods transferred. In case of indivisible works contracts where abatement is available towards the value of the goods used, such abatement cannot be denied on the ground that there is no evidence that VAT has been paid. Therefore, it was held that the appellant was liable to pay service tax after abatement on the services rendered under this contract.

N.B.C.C. contract for External Development Work Around Social Infrastructure Area at Kidwai Nagar (East), New Delhi

• The Hon’ble Bench found that it is undisputed that the work was done in connection with the Central Government quarters which were outsourced by the Ministry of Housing and Urban Affairs to National Building Construction Corporation (NBCC) who, in turn, sub-contracted them to the appellant.
• Since the civil structure and other works in this case were clearly not meant for commerce or industry but to provide accommodation to the Central Government employees and were rendered to the Ministry of Housing and Urban Affairs, they would be clearly exempted by S. No. 12A (a) of the notification at the hands of the NBCC. Further, the appellant, as a sub-contractor of NBCC will also be exempt by virtue of S. No. 29(h) of the notification. The demand under this contract cannot be sustained and hence needs to be set aside.

HSIIDC (Haryana State Industrial and Infrastructure Development Corporation) for construction of flatted factories at Sonipat Haryana

• The Hon’ble Bench held that since the dispute is only regarding the certificate that HSIIDC had paid the service tax, we find this a fit case to be remanded to the Commissioner to examine the certificates produced by the appellant.

SCN 17.04.2015(2013-14) – Construction of an auditorium in MDU; Construction in the flattened factories of HSIIDC; EIL (Renovation of Ayakar Bhawan Vaishali, Ghaziabad)

• The Hon’ble Bench after considering the submissions found that in this SCN, three contracts are there and two of which- Construction of an auditorium in MDU and Construction in the flattened factories of HSIIDC– have already been discussed above. Accordingly, the demand on construction of auditorium in MDU is set aside and the demand on the construction on flattened factories for HSIIDC is remanded to the Commissioner for verification.
• With respect to the third and last contract in this SCN, it was found that this contract pertains to EIL (Renovation of Ayakar Bhawan Vaishali, Ghaziabad) and notification no. 25/2012-ST (S. No. – 12A) exempts services rendered to a governmental authority on civil structures other than those meant for commerce, industry or any other business or profession. The building in this case is Income Tax building and it squarely falls under this definition. Therefore, EIL, as a contractor, will get exemption under S. No. 12A. Further, as per S. No. 29 (h) of the same notification, the appellant as a sub-contractor of EIL will get exempted. Hence, no demand of service tax can be sustained on the services rendered in this contract.

NBCC India Kidwai Nagar; NBCC India SEZ Noida; HSCC India Ltd. – (2016-17 to 2017-18 (upto June,2017)

• With respect to these contracts, it was found by the Hon’ble Bench that it has been already held that no service tax is payable on the services rendered by the appellant as the sub-contractor of NBCC, Kidwai Nagar The demand to that extent cannot be sustained.
• As far as the services rendered in NOIDA SEZ are concerned, no service tax can be levied on such services by virtue of section 7 of SEZ Act. As per Section 51 of the SEZ Act, its provisions prevail over any other laws. Therefore, the demand of service tax on the services rendered in the NOIDA SEZ cannot be sustained and need to be set aside.
• The construction contract with HSCC India for construction of an auditorium in the Kalpana Chawla Government Medical College, Karnal, also needs to be remanded back to the Commissioner to examine and decide.
• Therefore, the demands on the contracts for services rendered as sub-contractor to NBCC at Kidwai Nagar and in NOIDA SEZ are liable to be dropped. The demand regarding the contract with HSCC India must be remanded to the Commissioner to examine and record a finding on the claim of the appellant that it was covered by notification no. 30/2012-ST and hence was liable to pay only 50% of the service tax which it had already paid.
• Thereafter, the Hon’ble Bench while dealing with the appeal pertaining to SCN 18.04.2016 (2014-15) – NBCC Rohatak(Construction of Mini auditorium at MDU); EIL (renovation of Ayakar Bhawan), found that it has already been held, the demand of service tax on the services rendered under these two contracts are not sustainable and hence need to be set aside.
• The Hon’ble Bench while dealing with the last appeal, found that this appeal assails five demands. Of these, we have already held that no service tax is payable on No. (1)– work as sub-contractor for ‘NBCC at Kidwai Nagar, New Delhi’, and (2)– work as sub-contractor for ‘NBCC in NOIDA SEZ’. However, as far as S.No.(3) services rendered as a sub-contractor of ‘HSCC in Kalpana Chawla Government Medical college’ is concerned, this matter also needs to be remanded to the Commissioner (as already held above). The demand at S. No. (4) is on an amount which the appellant claims to have received from CPWD not for any service which it rendered but as an award in an arbitration proceeding. On this contract also, the demand is liable to be set aside (as already held above).  The demand at S. No. (5) is on the basis that as per Form 26AS of the appellant, it had received some amounts. Unless the amounts so received are a consideration for a taxable service rendered, no service tax can be levied. Therefore, the demand needs to be set aside.

The Hon’ble Bench with the above observations and findings, disposed off the appeal filed by the Appellant.

To read the complete judgment 2024 Taxo.online 11