The Chandigarh Bench of Customs,Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that works contract services provided by the assessee could not be taxed under the category of Commercial or Industrial Construction Services.

Srishti Interiors,appellant-assessee, had provided construction services to various government and private entities, including Airport Authority of India (Amritsar and Jaipur), Municipal bodies, Punjab Police Housing Corporation, Punjabi University, and others. However, service tax was not paid on these services under the category of Commercial or Industrial Construction Services as defined in Section 65(105)(zzq) of the Finance Act, 1994.

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A show cause notice dated 20.04.2011 was issued proposing to recover ₹42,37,267 in service tax, along with interest and penalties, by invoking the extended period under Section 73. It also proposed to appropriate ₹36,85,924 already deposited by the appellant.

The adjudicating authority confirmed the demand, ordered recovery of interest, and imposed penalties under Sections 76, 77, and 78. On appeal, the Commissioner (Appeals) upheld the demand but dropped the penalty under Section 76. The assessee then challenged this order before the CESTAT.

The assessee counsel argued that the order was not justified as it did not consider the facts properly. He said the delay in paying service tax was due to the proprietor being hospitalised after a serious car accident. Since the tax and interest were paid before the show cause notice, he claimed no notice was needed under Section 73(3) and penalties should not have been imposed.

He also said the tax amount was shown in the books from 2007-08, so there was no intention to hide anything.

For the work done for Power Grid Corporation and L&T, he explained it was for building a residential transit camp near the Indo-Pak border under a government project, not for commercial use. He said the services were part of a works contract, which was not taxable before 01.07.2007. Even after that, he argued, works contracts were separate and not covered under commercial or industrial construction.

He relied on a tribunal decision in SAB Industries Ltd. and said the construction for Mayor World School was for an educational institution, which was also not taxable.

The department representative supported the findings in the order.

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The two member bench comprising S.S Garg (Judicial Member) and P.Anjani Kumar( Technical Member) noted that the assessee had delayed payment of service tax due to a serious accident but later paid the full amount along with interest before the show cause notice was issued. It found that the contracts with Power Grid Corporation and others were works contracts, but the Department had wrongly treated them as commercial or industrial construction services.

The appellate tribunal held that works contracts could not be taxed before 01.07.2007, as the concept was introduced only from that date. Even after 01.07.2007, works contract services were different from commercial or industrial construction and could not be taxed under those categories.

The tribunal also referred to a previous decision in a similar case where such a demand was set aside. Following that decision, the CESTAT allowed the appeal and set aside the impugned order, granting consequential relief.

Accordingly the appeal was allowed.

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