Construction of Govt. Residential Quarters to GSPHCL Not Taxable: CESTAT Drops Service Tax Demand on Works Contract but Upholds GTA Liability [Read Order]
The tribunal held that since the service recipient GSPHCL, an organ of the government, was eligible for the exemption, the appellant sub-contractor was also exempt from tax on these services.
The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside Service Tax demand for providing contract services to the Gujarat State Police Housing Corporation Limited (GSPHCL) and ruled that the construction of residential quarters for government employees constitutes services provided to the government and exempt from service tax.
Mirambica Construction Co. (Appellant) was engaged in construction work for various Gujarat Government departments, including GSPHCL and Gujarat Rajya Pathya Pustak Mandal. The Department issued a show cause notice in 2012, demanding Service Tax for the period from April 2007 to March 2012, alleging improper payment of tax.
The total Service Tax demanded was ₹43,181 on "construction of residential complex service" to GSPHCL (period: 01.04.2007 to 31.05.2007) and ₹1,62,95,451 on "works contract service".
Regarding the demand of Service Tax on GoodsTransport Agency (GTA) service under the reverse charge mechanism, the appellant claimed an exemption for transport charges below ₹1,500 per trip.
The adjudicating authority had previously denied the exemption under Notification No. 34/2004, noting that for the ₹1,500 exemption to apply, the appellant had to prove that multiple consignments were transported in a goods carriage for the same consignee, which they failed to do. The demand raised by the authority amounted to ₹9,33,199 under "GTA service".
The Commissioner upheld the entire demand, along with interest and penalty. The appellant filed an appeal to the CESTAT.
The bench comprising Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) referred to the definition of "Residential Complex" under Section 65 (91a) of the Finance Act, 1994, which excludes a complex intended for "personal use as residence by such person".
The tribunal ruled that the construction of residential quarters for police personnel/government employees was covered by the "personal use" exclusion by relying on its earlier decisions in CR Patel and Khurana Engineering Ltd.
The tribunal found the end-use of the complex by the government for its employees, even if rented, is for its "personal use".
The tribunal held that since the service recipient GSPHCL, an organ of the government, was eligible for the exemption, the appellant sub-contractor was also exempt from tax on these services.
Regarding GTA’s liability, the tribunal held that the appellant could not produce any documentary evidence contrary to the adjudicating Authority's findings. Therefore, the Tribunal upheld the Service Tax demand of ₹9,33,199 on the GTA service, along with interest.
Based on these findings, the tribunal set aside the Service Tax demand for the construction of residential quarters for both GSPHCL and Gujarat Rajya Pathya Pustak Mandal. The appeal was partly allowed.
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