Service Tax Applies to Sub-Contractor in MCD Parking Project, Mega Exemption Not Applicable: CESTAT [Read Order]

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) noted that service tax applies to sub-contractor in the Municipal Corporation of Delhi (MCD) project, and that mega exemption was not applicable.

In this case, the department is on appeal. The assessee respondent was engaged in providing construction services for constructing commercial/industrial buildings or civil structures, providing works contract services, supply of tangible goods services, etc.

By going through the assessee’s records, it was found that the appellant has neither paid the service tax nor had filed ST-3 returns. However, the appellant had prepared a reconciliation chart for the period 2010-2011 to 2013- 2014 showing the exempted amount but without any documentary evidence.

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 As per the order issued by the department, a demand of Rs. 1,99,080 (out of Rs. 5.82 crore) and Rs. 9,94,450 (out of Rs. 53.08 lakh) was confirmed, along with interest and penalties. The Committee of Commissioners later reviewed this order on 05.12.2017.

So, one of the demands that were dropped by the adjudicating authority was with regard to the service tax demanded with respect to the service tax liability in relation to the construction of parking for MCD.

The Bench noted that the adjudicating authority erred in dropping the demand with respect to the charges received for constructing parking for MCD. The adjudicating authority considered that the main contractor of MCD was M/s VSK Infrastructure and the assessee was the subcontractor and reached the conclusion that since the main contractor was exempted from paying any service tax, the sub-contractor cannot be held liable to tax for the same project of renting works contract services.

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The CESTAT, by relying on the larger bench of the tribunal in the case of the Commissioner of Service Tax, New Delhi Vs. M/s. Melange Developers Pvt Ltd reported as 2020 (33) GSTL 116 (Tri. LB), observed that the services provided by the respondent are not the services provided to the governmental authority (MCD), but they were provided to a private company, which is M/s VSK Infrastructure Ltd. Otherwise, the parking for MCD is paid parking, and as such, the construction thereof was meant for making profit/revenue generation for the MCD.

The bench noted that M/s VSK Infrastructure, is not a governmental authority and thus the original adjudicating authority, had wrongly relied upon the said notification while dropping the demand for the construction services being provided by the respondent to M/s VSK Infrastructure Ltd./MCD.

The bench set aside the impugned order, dropping the service tax demand with respect to the construction of the MCD parking.

The CESTAT, comprising Dr Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member), partly allowed the department’s appeal.

To Read the full text of the Order CLICK HERE

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