Entry u/s 65(105)(zzd) invokable only for Construction Simpliciter, Service tax under Category of Commercial or Industrial Construction Not demandable: CESTAT [Read Order]

In a significant case, the Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that Entry under section 65(105)(zzd) the Finance Act, 1994 is invokable only for construction simpliciter and held that service tax under the category of commercial or industrial construction not demandable.

M/s. Raitani Engineering Works Pvt. Ltd. has undertaken the construction of the Jiribam Municipal Corporation building, staff quarter building, Guest House building, overhead tank and R. wall etc. for meeting the social needs of the state of Manipur and for the upliftment of the needy people of the state in terms of the contract awarded by NBCC on behalf of the Ministry of Urban Employment and Poverty Alleviation, Govt. of India.

The fund required for the said construction was released to NBCC by the Government out of a non-lapsable central pool of resources for the development of North Eastern states. The main contract was awarded to NBCC which is a nodal employment agency, which in turn has sub-contracted the entire work on a back-to-back basis by retaining 10% of the total contract value. 

Show Cause Notice dated 15.10.2009 was issued which was adjudicated by the Commissioner vide Order-in-Original dated 31.01.2011 confirming the demand of Service Tax under the category of ‘Commercial Or Industrial Construction Services’. The Commissioner has extended the benefit of abatement @ 67% to exclude the value of goods to arrive at the value of taxable services in terms of Notification No.1/2006-ST dated 01.03.2006 by considering the project to be inclusive of the supply of goods for use in the construction project.

 The Commissioner also observed that the said construction of the Jiribam Municipal Corporation building, staff quarter building, Guest House building, over-head tank and R. wall etc. are being constructed for the local Govt. bodies, and hence, such activity would be considered for commercial purposes.

The Commissioner rejected submissions made by both the Appellants that subject services if at all taxable, would be liable to be taxed under the category of ‘Works Contract Service’ which has not been proposed in the impugned Show Cause Notice. 

It was submitted that since the contract has been undertaken for the construction of accommodation for Urban employed Youth and Women Vendors on behalf of the Ministry of Urban Employment & Poverty Alleviation, Govt. of India, the same cannot be said to be for commercial purposes and, therefore, the classification under the category of Commercial or Industrial Construction is not correct. 

A Coram comprising Shri P K  Choudhary, Member(Judicial) and Shri K Anpazhakan, Member(Technical)  observed that the entry under Section 65(105)(zzd) is liable to be invoked only for construction simpliciter. Therefore, there is no scope for vivisection to isolate the service component of the contract.

It was held that entry under Section 65(105)(zzd) of the Finance Act, 1994 is liable to be invoked only for construction simpliciter and set aside the demand of service tax under the category of Commercial or Industrial Construction.

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