Construction of Educational Institutions Not Taxable Under Works Contract Service Before 2012: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that service tax could not be levied on works contract services provided for the construction of educational institutions before July 1, 2012 and dismissed the Revenue's appeal.

R.R. Thulasi Builders (I) Pvt. Ltd., the respondent, was engaged in providing works contract services. During the period from October 1, 2008 to June 30, 2012, the respondent did not pay service tax on construction services rendered to educational institutions, claiming that such services were exempt. Following an investigation, the department issued a show cause notice demanding service tax, interest, and penalties.

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The adjudicating authority held that construction services provided to private educational institutions were taxable and confirmed a substantial demand. However, the authority dropped the demand relating to construction services provided to Periyar Maniammai University and Periyar Teacher Training Institute, treating them as Government Educational Institutions. Aggrieved by the relief granted to the respondent, the Revenue approached the CESTAT.

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The revenue counsel argued that Periyar Maniammai University was only a deemed university under Section 3 of the University Grants Commission Act and was not established by the Central or State Government. They further argued that Periyar Teacher Training Institute was a private educational institution. According to the Revenue, both institutions should be treated as private educational institutions and the construction services rendered to them should be subjected to service tax.

The respondent's counsel argued that an earlier appeal involving the same assessee and the same adjudication order had already been decided by the Tribunal in its favour. The tribunal had held that service tax demand on works contract services provided for the construction of educational institutions was unsustainable. The respondent’s counsel relied on CBEC Circular No. 80/10/2004-ST and various judicial precedents which recognized that construction of educational institutions was non-commercial in nature.

The two-member bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) observed that in the earlier appeal it had already held that construction services provided to educational institutions were not liable to service tax during the relevant period. It also observed that the department had not disputed that the buildings were used solely for educational purposes.

The tribunal explained that the Board's circular had clarified that construction services provided to institutions established solely for educational, charitable, religious, health, sanitation or philanthropic purposes and not for profit were non-commercial in nature. The tribunal further observed that even if the institutions were treated as private educational institutions, the earlier decision had already held that service tax demand on construction of private educational institutions was unsustainable.

The tribunal rejected the Revenue's appeal and upheld the order dropping the service tax demand relating to Periyar Maniammai University and Periyar Teacher Training Institute.

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