CESTAT Remands Service Tax Dispute on Construction Services for Fresh Computation of Demand [Read Order]

The bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, has remanded a service tax dispute concerning alleged non-payment of tax on construction-related services for fresh consideration by the adjudicating authority.

The appeal was filed by Kantibhai Rajabhai Ukani, proprietor of a construction concern in Surat, against the order of the Commissioner (Appeals), Surat, which had upheld the adjudication order confirming a demand of ₹39,54,007 in service tax, interest, and penalties under Sections 77 and 78 of the Finance Act, 1994.

The case arose after the Department's investigation revealed that the appellant had provided services during 2009-10 to December 2013, as reflected in balance sheets, TDS statements (Form 26AS), and work orders, without taking service tax registration, filing returns, or paying tax.

In his recorded statement, the proprietor admitted to suppression of taxable value and non-filing of ST-3 returns. The Additional Commissioner, by order dated 30 October 2015, confirmed the demand and imposed penalties, which was subsequently upheld by the Commissioner (Appeals) on 8 May 2018.

Represented by Jigar Shah, the Appellant contended that several of the works executed were for statutory organizations such as the Gujarat State Police Housing Corporation Ltd. (GSPHCL), Surat Municipal Corporation, and the Tourism Corporation of Gujarat Ltd., which are exempt from service tax. It was argued that construction of residential quarters for GSPHCL could not be taxed under “construction of complex” services, as various CESTAT rulings had recognized such works as exempt.

The appellant also claimed revenue neutrality since, as a subcontractor, any tax paid would be available as Cenvat credit to the main contractor.

Represented by Rajesh Nathan, the Department relied on the appellant’s own admission - 25 June 2014 statement recorded under Section 14 of the Central Excise Act, 1944, to justify extended limitation and demand. It was argued that GSPHCL, though a government-owned entity, had engaged M/s. D H Patel as the main contractor, and the appellant, being a subcontractor, had provided services to M/s. D H Patel and not directly to a government body.

Citing CBIC vide F No. 332/16/2010-TRU dated 24.05.2010, it was asserted that subcontractors are independently liable to pay service tax, regardless of whether the main contractor has discharged liability. Accordingly, exemptions claimed were unavailable, and the appellant was liable for the demand.

The Bench comprising Judicial Member, Somesh Arora and Technical Member, Satendra Vikram Singh after examining submissions and records, observed that the appellant had indeed admitted to suppression of taxable value, non-registration, and non-payment of tax. The Bench noted that services provided directly to government departments and Surat Municipal Corporation had already been treated as non-taxable in the show cause notice.

However, services rendered as a subcontractor to D H Patel for works awarded by GSPHCL and the Tourism Corporation of Gujarat Ltd. were taxable, as clarified by CBIC and upheld by the Tribunal in Melange Developers Pvt. Ltd. (2020)

The Bench further held that the appellant’s argument of revenue neutrality and reliance on main contractor’s liability was untenable, as subcontractors are independently responsible for service tax compliance. On classification, the Tribunal referred to the appellant’s own admission of having provided residential complex services, making him liable under that category.

However, on the issue of computation and classification of certain services, the Tribunal found that errors may have occurred and deemed it appropriate to remit the matter to the adjudicating authority to correctly work out the service tax demand, along with applicable interest and penalty.

Accordingly, the matter was remanded for fresh adjudication.

Thus, the appeal was thus partly allowed.

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