No Service Tax on Army Housing Projects before 01. 07.2010: CESTAT Grants Partial Relief to Sub-Contractor under Finance Act [Read Order]
Invocation of Extended Period as well as Imposition of Penalty not Upheld by Bench
Service Tax
Service Tax
In a recent ruling, the Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that service tax is not leviable on the construction of residential quarters for Military Engineering Services (MES) prior to July 1, 2010, extending significant relief to the appellant.
The appellant, Shivanssh Infrastructure Development Pvt Ltd, a subcontractor engaged in the construction of married accommodation projects for MES, originally awarded to Maytas Infra Pvt Ltd and Ramky Infrastructure Ltd. The Revenue initiated service tax demands on the appellant under the heads of Construction of Residential Complex Services (CRCS) for the earlier period and Works Contract Services (WCS) for the subsequent period. The department contended that the construction activities were taxable and further sought to impose penalties under Section 78 of the Finance Act, 1994.
Vijay Kumar, representing the appellant, argued that the construction was for personal use by defence personnel, which falls outside the ambit of "residential complex" as defined under Section 65(91a) of the Act. He relied on a CBEC Circular, which clarified that service tax is not applicable on such residential constructions for defence personnel. In addition to this, previous decisions including Vishal Infrastructure Ltd v. CST, Bangalore and Pragati Edifice, which supported the appellant’s contention were also presented.
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The CESTAT bench, comprising of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member), held that no service tax is applicable for the said period. For the period thereafter, the Tribunal acknowledged that the appellant, being a sub-contractor, may be liable to pay tax but observed that there was no intent to evade tax, and therefore, the penalty under Section 78 was unwarranted.
Accordingly, the Tribunal partly allowed the appeal, deleting the demand and penalty for the earlier period and remanding the matter back for re-quantification of liability for the remaining period, if any, in accordance with law.
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