Construction Of School & College Buildings Between 2008-2012 Not Taxable As Commercial Or Industrial Construction Service: CESTAT Chennai

P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) examined whether the construction of buildings for educational institutions, such as schools and colleges, during 2008–2012, is taxable under Commercial or Industrial Construction Service and whether educational institutions charging fees can be considered “commercial” for purposes of Section 65(25b).

In the case at hand, the assessee/appellant is registered under the category of “Commercial or Industrial Construction Service and engaged, inter alia, in the construction of buildings and civil structures for various clients, including educational institutions such as schools and colleges. They filed ST-3 returns for the relevant period.

During scrutiny of ST-3 returns, it was noticed that while the assessee had discharged service tax on certain construction contracts, they had not paid service tax on amounts received towards the construction of buildings for educational institutions, treating such activities as non-taxable.

Consequently, the Show Cause Notice was issued to the assessee, and the adjudicating authority confirmed the demand made in the show cause notice.

The counsel for the assessee submitted that the assessee had provided construction services to educational institutions. The demand for service tax of Rs. 1,20,20,608/- was confirmed for the period from 01.04.2008 to 31.03.2012 on the grounds that construction services received by educational institutions are for commerce since fees are collected by these educational institutions.

As per the assessee, Para 13.2 of CBEC Circular No.80/10/2004-ST dated 17.09.2004 clarified that buildings meant for education, religious and charitable institutions cannot be considered as for commerce or industry and said circular specifically clarified that construction services provided for educational/religious/charitable institutions being non-commercial in nature are not taxable, there could be no reason to hold that these constructions are commercial in nature.

The department argued that educational institutions charging fees are commercial enterprises, as clarified by the Explanation inserted retrospectively in Commercial Training or Coaching Service (Finance Act, 2010). The same logic applies to construction services rendered for such fee-charging institutions.

The Tribunal noted that the Explanation relied upon by the Commissioner was legislated only for Section 65(105)(zzc) (Commercial Training or Coaching Service) and has no cross-application to Section 65(25b).

The finding of the Adjudicating Authority that construction for educational institutions is “commercial” lacks statutory support, is contrary to binding jurisprudence, and proceeds on an incorrect importation of an Explanation meant for a different service category. The construction activity in the present case is squarely outside the scope of “Commercial or Industrial Construction Service,” and the levy fails at the threshold, opined the bench.

The Tribunal held that the proposed levy under the Commercial or Industrial Construction Service fails at the very threshold and cannot be sustained.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s. Deccan Construction Company v. Commissioner of GST and Central Excise

Case Number: Service Tax Appeal No. 40931 of 2015

Counsel for Appellant/ Assessee: M. Kannan

Counsel for Respondent/ Department: O.M. Reena

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