The Mumbai Bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) in Shapoorji Pallonji & Company Ltd. vs. Commissioner of Central Excise & Service Tax held that construction of a building for use as hospital by a charitable organization does not fall under the category of ‘commercial or industrial construction’ and hence not liable to Service Tax.
The Court also held that Goods Transport Agency (GTA) service provided for the construction of building in Special Economic Zone (SEZ) is not liable to service tax.
The issues before the ITAT was whether the service provided for construction of hospital which is run by the trust is liable to service tax under ‘commercial or industrial construction’ and whether Goods Transport Agency (GTA) service provided for construction of building in Special Economic Zone (SEZ) is liable to service tax.
The Counsel for the appellant argued that the construction of hospital building does not fall under the ‘commercial or industrial construction service’ for the reason that the hospital building is not used for commerce or industry as the hospital in the present case is run by a charitable trust. He further contended that as the charitable trust is not a business or commerce the construction thereof doesn’t fall within the meaning of ‘commercial or industrial construction service’.
Regarding the second issue, he placed reliance on Section 26(1)(e) of the SEZ Act, 2005. According to it the taxable service provided to a developer or a unit to carry on the authorized operations in a special economic zone is exempt. He submitted that the GTA service provided for construction of building for Tata Consultancy Services in the Special Economic Zone shall be exempt under the said provision. He further contended that in any event, on the tax payable, the appellant is entitled for CENVAT Credit even though the service provided is in SEZ is not liable to service tax but the input used are eligible for CENVAT credit under CENVAT Credit Rules 2004. In this context he referred to Rule 6(c) of CENVAT Credit Rules, 2004 and stated that the exercise is revenue neutral.
The Counsel for the Revenue submitted that the construction of hospital falls under the category of ‘commercial or industrial construction service’ for the reason that hospital is also engaged in commercial activities. As the appellant was a recipient of the GTA service who is only located in SEZ, he contended that the exemption provided for SEZ would not be available to the appellant.
The bench comprising of Judicial Member Ramesh Nair and Technical Member C.J. Mathew noted clarifications from a Circular issued by the Board in 2004 & 2006 in which it is stated that construction of a building for non-commercial activity shall not be chargeable to service tax under ‘commercial or industrial construction service’. The bench also relied on various judgments and held that construction of a building for use as the hospital by a charitable organization does not fall under the category of ‘commercial or industrial construction’.
Regarding the non-taxability of GTA service, the bench observed “In the above section in clause (e) it can be seen that the taxable service provided to the developer or unit to carry on the authorised operation under the SEZ is exempted. In the present case, the service of GTA is admittedly provided for construction of building in the SEZ. Therefore, the said service is exempted. Moreover, with regard to the submission of the Learned Counsel that if at all the service tax is payable, the same is available as CENVAT credit to the appellant for the reason appellant is a service provider to SEZ and even though such service is not taxable the appellant is entitled to retain this input credit on the input service in terms of Rule 6A of the CENVAT Credit Rules, 2004. Therefore, it is a revenue neutral exercise. Hence, service tax is not chargeable on the GTA service used for the construction of building in SEZ. Accordingly, the demand in this respect is set aside.”
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