Service Tax Not Payable on Individual Houses Built for Tsunami-Affected Persons: CESTAT [Read Order]
The tribunal held that individual houses constructed for Tsunami-affected homeless persons do not qualify as taxable residential complex construction service.
The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that service tax is not payable on construction of individual houses built for Tsunami-affected persons, as such houses do not fall under “Construction of Complex Service”.
Pal Promoters Pvt. Ltd., the appellant, had undertaken several civil construction works. These included construction of residential houses in Tsunami-affected areas for Tsunami District Implementation Unit, Pudukkotai and Peoples Development Association, construction for Tamil Nadu Police Housing Corporation, Harley Ram Nursing Home, and Madurai Municipal Corporation.
The department issued a show cause notice dated 16.10.2012 demanding service tax for the period from 01.04.2007 to 31.03.2012. The department alleged that the appellant had provided “Commercial or Industrial Construction Service” under Section 65(25)(b) and “Construction of Complex Service” under Section 65(91a) of the Finance Act, 1994. The adjudicating authority confirmed demand of Rs. 1,40,58,905 with interest and penalties under Sections 77 and 78.
The appellant’s counsel argued that the Tsunami housing works involved individual houses for poor homeless persons and were not intended for sale. The counsel relied on the tribunal’s earlier decision in K.B. & Co. v. Commissioner of GST & Central Excise, Tirunelveli, where similar construction for Tsunami District Implementation Unit, Pudukkotai was held to be not taxable.
The appellant’s counsel also argued that the construction for Tamil Nadu Police Housing Corporation was for police personnel and covered by exemption. For hospital construction, the appellant relied on CBEC Circular No. 80/10/2004 dated 14.09.2004 and argued that a building cannot be treated as commercial construction unless it is primarily used for commerce or profit.
The revenue counsel supported the findings in the adjudication order and argued that the appellant had provided taxable construction services during the relevant period.
The two-member bench comprising M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) accepted the appellant’s arguments. The tribunal observed that the work orders showed construction of individual residential houses. It relied on Jaypee Enterprises and K.B. & Co. to hold that individual houses are not residential complexes under Section 65(91a).
The tribunal further observed that composite construction involving goods and services could not be taxed under “Commercial or Industrial Construction Service” after 01.06.2007 in view of CCE v. Larsen and Toubro. It also found no evidence of wilful suppression. The tribunal set aside the demand, interest and penalties, and allowed the appeal with consequential relief.
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