Commercial Construction for Government Bodies Not Exempt: CESTAT Upholds Rs. 3.11 Crore Service Tax Demand on Works Contract Services [Read Order]
The Tribunal held that construction services provided for commercial purposes, such as shops and markets, did not qualify for exemption under Notification No. 25/2012-ST, even if provided to a Governmental Authority.Z
The Allahabad Bench of the Customs, Excise andService Tax Appellate Tribunal (CESTAT) has upheld a major Service Tax demand of approximately Rs. 3.11 Crore and ruled that "Works Contract Services" provided to the Krishi Upaj Mandi Samiti (Mandi Parishad) and Kanpur Development Authority (KDA) were liable to tax as they were commercial in nature.
Ganpati Mega Builders India Pvt. Ltd. (appellant) is engaged in providing construction services. The dispute arose regarding services provided to the Mandi Parishad and KDA, for which the appellant claimed exemption under Notification No. 25/2012-ST (specifically entries 12, 13, and 25).
These entries generally exempt services provided to a "Governmental Authority" for construction meant predominantly for non-commercial use or specific public utilities.
The Revenue Department contended that the construction activities which included shops, auction platforms, parking, canteens, and godowns were for commercial purposes. The Department alleged that the exemptions were not applicable and confirmed a demand of Rs. 3,11,17,001 along with penalties.
The appellant argued that the Mandi Parishad is a statutory body established by the State Government and thus qualifies as a "Governmental Authority."
The appellant relied on various judicial precedents, including a decision by the Allahabad High Court in their own case for a different period, to argue that the infrastructure provided was for agricultural produce storage and thus exempt.
The Bench comprising Sanjiv Srivastava (Technical Member) and Angad Prasad (Judicial Member) observed that while the Mandi Parishad was indeed a "Governmental Authority," the specific exemption entries under Notification No. 25/2012-ST require that the construction be for use "other than for commerce, industry, or any other business or profession."
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The Tribunal noted that the contracts executed were for the construction of "Shops, Auction Platform, Parking, Canteen, Godown etc. which are not only commercial in nature but also not provided to any Government, local authority or governmental authority" for non-commercial use.
Relying on the Supreme Court’s decision in Commissioner of Customs vs. Dilip Kumar and Company, the Bench observed that the burden of proving applicability of an exemption lies on the taxpayer.
The Tribunal held that the appellant failed to establish that the specific construction activities fell within the purview of the exemption notification.
Consequently, the Tribunal upheld the demand of Rs. 3,11,17,001 related to the Works Contract Services provided to Mandi Parishad and KDA, along with the imposition of penalties and interest. The appeal of the appellant in this ground was dismissed.
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