The Karnataka High Court, in CCE v. Nithesh Estates Ltd, held that Service Tax cannot be levied on the Corporate Bodies for the construction of residential complex occupied by the employees.
In the instant case, the department levied service tax on the ‘Residential Complex’ constructed by the Respondent Assessee, M/s. Nithesh Estates Limited for the Company, M/s.ITC Limited at Bangalore.
The assessee contended that they are not liable to pay any Service Tax on the said construction activity as the said construction activity fell within the Exclusion Clause of the definition of ‘Residential Complex’ as defined in Section 65(91a) of the Finance Act, 1994.
Relying on a CBEC Circular, the Tribunal concluded the matter in favour of the assessee and noted that the ‘Residential Complex’ constructed for Central Government, Ministry of Urban Development Department by the National Building Construction Corporation (NBCC) would not be exigible to Service Tax as NBCC provides service to the Government of India for its personal use.
The circular also clarified that the main contract of NBCC where it engages the services of particular Contractors for carrying out full or part of the construction then such sub-contractor would be liable to pay Service Tax as in that case, the NBCC would be the Service Receiver and construction would not be for their personal use.
The division bench comprising Justice Dr. Vineet Kothari and S Sujatha held that “In view of this clear position of law indicated by the CBE&C itself, we are of the considered opinion that the Revenue cannot be allowed to argue against the legal position rightly explained by the CBE&C itself which can certainly be invoked and applied by this Court for interpreting the provisions of law on the Principles of interpretation of Contemporanea Expositio and the Central Board of Excise and Customs or the highest Administrative body of the Respondent Department itself has interpreted the provisions that the construction activities of this nature where Bi-parte or Tri-partite Agreements are entered into is clearly indicated in the said Circular, which clearly and rightly hold the sub-contractors liable to pay the Service Tax as it is the Sub-contractor who actually undertakes the construction activity,”
Upholding the Tribunal order, the bench held that “the Tribunal was perfectly justified and correct in applying the Circular dated 24/05/2010 also, while holding that if the Government of India Department could be treated as using the ‘Residential Complex’ in question constructed by NBCC for its ‘personal use’, how another Corporate body like M/s.ITC Limited in the present case could be denied the benefit of that type of user of ‘Residential Complex’ to be occupied by its Managerial Staff. The law does not envisage any such distinction among the Private Sector Corporate Entities and the Departments of Government or Government Companies or Undertakings.”