Construction Of Public Parking And Government School Not Commercial Activity: CESTAT Allows Service Tax Refund To RIDCOR Under Section 102 [Read Order]

TheCustoms, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the construction of public parking spaces and a government residential school does not amount to a commercial activity.

RIDCOR, a Government of Rajasthan undertaking, undertook works for the construction of multi-level/underground public parking and Eklavya Model Residential School for the government and local authorities. During the period from 01.04.2015 to 29.02.2016, service tax was paid after a temporary withdrawal of exemption.

After Parliament added Section 102, providing retrospective exemption for certain construction services where contracts were entered into prior to 01.03.2015, RIDCOR made a claim for refund of service tax paid.Further,the Department disallowed the claim on the grounds that public parking was a revenue generating activity and therefore a commercial activity and also on grounds of documentation and unjust enrichment.

The appellant relied on the fact that the projects were carried out in exercise of public functions under Article 243W of the Constitution, without any profit motive. The nominal parking charges were regulatory charges and did not turn the activity into a commercial one.

However,It was also submitted that Section 102 is a special provision requiring refund as soon as the conditions of eligibility are met and that the incidence of tax had not been passed on.The Department relied on the fact that the collection of parking charges indicated commercial exploitation.

The two-member bench comprising Dr. Rachna Gupta, Member (Judicial Member) and P.V. Subba Rao (Technical Member),overruled the Department’s stand, stating that the profit motive is the determining factor for commerciality and not incidental charges for use. Governmental facilities such as parking spaces and educational infrastructure which are not commercial in nature solely because of the collection of fees cannot be termed commercial.

Further it held that Section 102 is not dependent on the general refund provisions and refund cannot be refused on hyper-technical considerations.

Allowing the appeal, CESTAT set aside the impugned orders and directed grant of the service tax refund to RIDCOR with consequential relief reaffirming that the non-commercial character of public infrastructure projects executed for governmental bodies.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates