Construction Services Provided to Educational Institutions and Hospitals Are Not Taxable: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that construction services provided to educational institutions and charitable hospitals are not liable to service tax.

Aakriti Construction was engaged in providing construction services. The department issued a show cause notice demanding tax on construction work carried out for Jaipur National University, Mahima Shiksha Samiti, and Bhagwan Mahavir Cancer Hospital.

The adjudicating authority confirmed the demand on the view that the assessee was a commercial service provider and service tax was payable. On appeal, the Commissioner of Central Excise (Appeals) upheld the order. The assessee then approached the CESTAT.

The appellant’s counsel argued that CBEC Circular No. 80/10/2004-ST specifically clarified that the construction of buildings for educational, charitable, religious, and health purposes is not taxable when such institutions are not set up for profit.

They submitted that the institutions in question were charitable in nature, and the construction carried out for them could not be considered commercial activity.

The revenue’s counsel argued that since the assessee was engaged in commercial construction services, the work done for educational and hospital buildings should also be taxed. They argued that there was no exemption available to the assessee under the service tax law.

The two-member bench comprising Binu Tamta (Judicial Member) and P. V. Subba Rao (Technical Member) observed that the institutions for which the construction was carried out were indeed charitable in nature and not profit-making. The tribunal explained that the circular issued by CBEC was binding on the department and clarified that construction services for educational and health purposes could not be subjected to service tax.

The tribunal pointed out that the lower authorities had ignored this binding clarification and wrongly taxed the services.

The tribunal set aside the demand and held that the construction services rendered by the assessee to educational institutions and charitable hospitals were not taxable. The appeal was allowed.

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