HIMUDA Service Tax Demand Partly Set Aside; CESTAT Chandigarh Remands Commercial Construction Demand

Himachal Pradesh Housing & Urban Development Authority Vs Commissioner of Central Excise (CESTAT Chandigarh)

CESTAT Chandigarh partly allowed three appeals filed by Himachal Pradesh Housing & Urban Development Authority (HIMUDA) against orders dated 29.01.2015 and 28.03.2017 concerning service-tax demands for 2007-08 to 2014-15. The Tribunal held that the SCN dated 22.04.2013 was unsustainable because it merely listed renting of immovable property, business auxiliary and consulting engineering services without specifying the taxable category applicable to each receipt. It also set aside the FY 2012-13 demand raised through a statement under Section 73(1A) of the Finance Act, 1994, since the grounds were not the same as those in the earlier SCN and construction services were newly introduced. For 2012-13 to 2014-15, the Tribunal held HIMUDA to be a Governmental Authority and found the relevant receipts connected with municipal functions covered by Entry No. 39 of Mega Exemption Notification No. 25/2012-ST. It also held that service tax could not be recovered on composite construction contracts in the absence of valuation machinery and that HIMUDA was not liable under reverse charge for legal services as it was not a “business entity”. The extended-period demand was held barred by limitation. However, since HIMUDA agreed to pay service tax on commercial construction for FY 2013-14 and 2014-15, the matter was remanded to the Adjudicating Authority for quantification. The penalty under Section 70 read with Rule 7C was upheld.

CESTAT Chandigarh Examines Multiple Service Tax Issues in HIMUDA Appeals

Three appeals were filed by HIMUDA against two impugned orders passed by the Commissioner of Central Excise & Service Tax. Appeal No. ST/52410/2015 challenged the order dated 29.01.2015, while Appeal Nos. ST/60528/2017 and ST/60556/2017 challenged the order dated 28.03.2017. Since the issues were identical, the Tribunal heard the appeals together, taking ST/52410/2015 as the lead case.

The proceedings covered demands relating to 2007-08 to 2014-15. The demand in ST/52410/2015 covered Rs.5,31,35,473 for 2007-08 to 2011-12 and Rs.5,52,42,804 for 2012-13. Appeal ST/60528/2017 concerned a demand of Rs.8,29,73,758 for 2013-14, while ST/60556/2017 concerned Rs.4,50,80,354 for 2014-15.

Background and Department’s Allegations

HIMUDA is a statutory authority established under the Himachal Pradesh Housing and Urban Development Authority Act, 2004, primarily to satisfy the housing needs of the general public and provide civic amenities. It gets houses constructed through various contractors under the Works Contract Scheme.

The department took the view that HIMUDA was providing leasing services without paying service tax. Based on information obtained from HIMUDA and its balance sheet, demands were raised under the categories of Renting of Immovable Property Services, Business Auxiliary Services and Consulting Engineer Services.

The department also alleged that HIMUDA had not registered under service tax and had not filed ST-3 returns within the stipulated time. Suppression of facts with intent to evade service tax was alleged for invoking the extended period of limitation.

HIMUDA’s Challenge to the Show Cause Notice

HIMUDA contended that the SCN dated 22.04.2013 merely listed three service categories without specifying the precise category under which each receipt was taxable or explaining how the receipts satisfied the relevant taxable-service definition.

In support of this submission, reliance was placed on Shri K. Mayakrishnan vs. CCE & ST, Pudduchery [Final Order No. 40964/2023 dated 31.10.2023 in Appeal No. ST/41858/2014 (Tri. Chennai)] and M/s TMP Manoharan & Co. vs. CCE & ST, Pudduchery [Final Order No. 40962/2023 dated 30.10.2023 in Appeal No. ST/41840/2014 (Tri. Chennai)].

HIMUDA also disputed taxability of various receipts including preferential location charges, maintenance charges, commission/service charges, administration charges, consultancy charges, conversion and compounding charges and service charges from contractors. It contended that, except for rent on HIMUDA buildings, the demands were not sustainable under the taxable categories invoked in the SCN.

FY 2012-13 Statement Under Section 73(1A)

HIMUDA challenged the demand for 2012-13 on the ground that it was raised through a statement under Section 73(1A) instead of a proper SCN. It submitted that Section 73(1A) permits such a statement only where the grounds are the same as those in the earlier SCN.

According to HIMUDA, the earlier SCN dated 22.04.2013 related to the pre-negative-list regime, whereas FY 2012-13, after 01.07.2012, fell under the negative-list regime. It further pointed out that construction services were introduced as new grounds in the subsequent statement.

Governmental Authority and Exemption Under Notification No. 25/2012-ST

For the period 2012-13 to 2014-15, HIMUDA relied on Entry No. 39 of Mega Exemption Notification No. 25/2012-ST dated 20.06.2012, which exempts services provided by a Governmental Authority in relation to functions entrusted to municipalities under Article 243W of the Constitution.

HIMUDA submitted that it was established under the Himachal Pradesh Housing and Urban Development Authority Act, 2004, functioned under the full control of the State Government and performed functions such as urban planning, land regulation, sanitation, drainage and water supply.

It also submitted that several receipts were statutory in nature, related to municipal functions, represented capital receipts or otherwise fell outside the definition of “service”.

Construction Services and Valuation Issue

HIMUDA submitted that construction services provided to various Himachal Pradesh Government departments were mostly non-commercial works undertaken by a Governmental Authority and were exempt under Sr. No. 12(a) of Notification No. 25/2012-ST. It also contended that, prior to 01.07.2012, such services were exempt under the provisions and circular relied upon in its submissions.

For composite construction contracts, HIMUDA relied upon Larsen & Toubro Ltd vs. State of Orissa [(2008) 12 VST 31 (Orissa)] and Suresh Kumar Bansal vs UOI (Delhi High Court). The submission was that construction of flats or houses involves land, goods and services and, in the absence of a statutory machinery mechanism for determining the service component, service tax could not be imposed on the composite contract.

HIMUDA also relied upon M/s GS Promoters & Developersn vs. CCE & ST, Chandigarh [Final Order No. 61106-61107/2019 dated 29.11.2019], Rajeev Chopra vs. CCE & ST, Shimla [Final Order No. 61137/2019 dated 18.12.2019] and The Housing Board Haryana vs. CCE & ST, Panchkula [Final Order No 60461-60466/2024 dated 06.08.2024].

Reverse Charge on Legal Services

HIMUDA disputed the demand for legal services under reverse charge under Notification No. 30/2012-ST dated 20.06.2012. It submitted that reverse charge was applicable only where the recipient was a “Business Entity” and that HIMUDA, despite being a statutory body, did not qualify as a business entity.

Reliance was placed on State of AP vs. H. Abdul Bakhi and Bros [1965 AIR 531], Barendra Prasad Ray vs. ITO [1981 AIR 1047], Shri Ramtanu Co-op Housing Society Ltd. vs. State of Maharashtra [MANU/SC/0063/1970] and The Housing Board Haryana.

Extended Period and Penalty

HIMUDA challenged invocation of the extended period for 2007-08 to 2011-12, submitting that the figures relied upon by the department were disclosed in its audited financial statements. It also contended that it was a Government authority with no vested interest in evading tax and that its belief regarding non-taxability was bona fide.

Reliance was placed on J. I. Gandhi Silk Mills vs. CCE, Surat – 2009 (237) ELT 103 (Tri. Ahmd.), Collector of Central Excise vs. Chemphar Drugs & Liniments – 1989 (40) ELT 276 (SC), Larsen & Toubro Ltd vs. CCE, Pune-II – 2007 (211) ELT 513 (SC), P. State Sugar & Cane Dev. Corpn. Ltd. vs. CCE, Allahabad – 2009 (242) ELT 260 (Tri. Del.) and Tamil Nadu Housing Board vs. Collector of Central Excise, Madras – 1994 (74) ELT 9 (SC).

HIMUDA Agreed to Pay Tax on Commercial Construction

HIMUDA agreed to pay service tax on commercial construction carried out for other departments during FY 2013-14 and FY 2014-15. The quantified service tax stated in its submission was Rs.2,17,968 for FY 2013-14 and Rs.98,363 for FY 2014-15, aggregating to Rs.3,16,331, along with applicable interest.

It also agreed to pay interest on delayed payment and late fees relating to the two appeals against the order dated 28.03.2017. It further agreed to the penalties of Rs.20,000, Rs.500 and Rs.17,200 imposed under Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1994.

CESTAT Chandigarh’s Findings

Vague SCN Cannot Sustain the Demand

The Tribunal found that the SCN dated 22.04.2013 merely listed renting of immovable property, business auxiliary and consulting engineering services without specifying the particular category applicable to each receipt or explaining how the receipts qualified under that category.

Following the principle in Shri K. Mayakrishnan, the Tribunal held that the SCN as well as the impugned order failed to establish under which alleged taxable category the services sought to be taxed fell. Accordingly, the demand could not be confirmed.

The Tribunal referred to the Supreme Court’s decision in Commissioner of Central Excise, Bangalore v. M/s. Brindavan Beverages [2007 (213) E.L.T. 487 (S.C.)], as reproduced in Shri K. Mayakrishnan, concerning the requirement that the show cause notice must provide a sufficient foundation for the department’s case.

FY 2012-13 Demand Set Aside

On the statement dated 23.05.2014 under Section 73(1A), the Tribunal found that the requirement of having the same grounds as the earlier SCN was not satisfied. The earlier SCN dated 22.04.2013 was issued under the pre-negative-list regime, while FY 2012-13 fell under the negative-list regime. Further, construction services were introduced as new grounds.

The Tribunal therefore set aside the demand for FY 2012-13 raised through the statement dated 23.05.2014.

HIMUDA Held to be a Governmental Authority

For the period 2012-13, 2013-14 and 2014-15, the Tribunal considered Entry No. 39 of Mega Exemption Notification No. 25/2012-ST. It held that HIMUDA qualified as a Governmental Authority because it was established under the Himachal Pradesh Housing and Urban Development Authority Act, 2004, functioned under the full control of the State Government and performed functions such as urban planning, land regulation, sanitation, drainage and water supply, which were identified as municipal functions under the 12th Schedule to the Constitution.

The Tribunal accordingly held that the receipts made by HIMUDA were not taxable because they related to services performed by a Governmental Authority.

Non-Commercial Construction and Composite Contracts

The Tribunal further found that certain construction services provided to departments of the Himachal Pradesh Government were mostly non-commercial works and were exempt under Sr. No. 12(a) of Notification No. 25/2012-ST. It observed that the Adjudicating Authority had not excluded the value of non-commercial construction while computing the tax liability.

On composite construction contracts, the Tribunal relied upon the reasoning in Larsen & Toubro Ltd vs. State of Orissa and Suresh Kumar Bansal. It noted the finding that, where construction of flats or houses involves land, goods and services, service tax is liable only on the service component and cannot be recovered without an appropriate mechanism for valuation.

The Tribunal also noted that the decision in Suresh Kumar Bansal had been followed by the Tribunal in M/s GS Promoters & Developersn and Rajeev Chopra and subsequently in The Housing Board Haryana. It held that service tax was not leviable on “Construction of Complex Services”.

No Reverse Charge Liability on Legal Services

On the demand for legal services under reverse charge, the Tribunal held that RCM was not applicable because HIMUDA was a Governmental Authority and did not fall within the definition of “business entity”. It followed The Housing Board Haryana on this issue.

Extended Period of Limitation Not Available

On limitation, the Tribunal followed the detailed consideration in The Housing Board Haryana. It noted that HIMUDA, as a governmental authority, maintained proper accounts and that the figures had been taken from balance sheets. The Tribunal held that the department had failed to establish the ingredients necessary for invoking the extended period.

The Tribunal therefore held that the entire demand was barred by limitation.

Commercial Construction Demand Remanded for Quantification

The Tribunal noted that HIMUDA had voluntarily agreed to pay the demands relating to commercial buildings for FY 2013-14 and FY 2014-15. Although HIMUDA had quantified the demand based on the value of commercial construction, the Tribunal considered that quantification required determination by the Adjudicating Authority.

Accordingly, the matter was remanded to the Adjudicating Authority to calculate the service-tax liability on commercial construction carried out by HIMUDA, after which HIMUDA would pay the same along with interest as per the rules.

Penalty Under Section 70 Upheld

The Tribunal held that the penalty under Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, imposed through the order dated 28.03.2017, was rightly imposed and upheld the same.

Conclusion

CESTAT Chandigarh partially allowed the three appeals and remanded the matter to the Adjudicating Authority for quantification of the demands relating to commercial activity. The Tribunal set aside the demand founded on the vague SCN, the FY 2012-13 demand raised through the Section 73(1A) statement, the demands relating to receipts covered by the Governmental Authority exemption, the construction-of-complex demand in the circumstances considered, the reverse-charge demand on legal services and the extended-period demand. The penalty under Section 70 read with Rule 7C was upheld.

Cases Discussed

• Shri K. Mayakrishnan vs. CCE & ST, Pudduchery [Final Order No. 40964/2023 dated 31.10.2023 in Appeal No. ST/41858/2014 (Tri. Chennai)]
• M/s TMP Manoharan & Co. vs. CCE & ST, Pudduchery [Final Order No. 40962/2023 dated 30.10.2023 in Appeal No. ST/41840/2014 (Tri. Chennai)]
• Commissioner of Central Excise, Bangalore v. M/s. Brindavan Beverages [2007 (213) E.L.T. 487 (S.C.)]
• J. I. Gandhi Silk Mills vs. CCE, Surat – 2009 (237) ELT 103 (Tri. Ahmd.)
• Collector of Central Excise vs. Chemphar Drugs & Liniments – 1989 (40) ELT 276 (SC)
• Larsen & Toubro Ltd vs. CCE, Pune-II – 2007 (211) ELT 513 (SC)
• P. State Sugar & Cane Dev. Corpn. Ltd. vs. CCE, Allahabad – 2009 (242) ELT 260 (Tri. Del.)
• Tamil Nadu Housing Board vs. Collector of Central Excise, Madras – 1994 (74) ELT 9 (SC)
• Larsen & Toubro Ltd vs. State of Orissa [(2008) 12 VST 31 (Orissa)]
• Suresh Kumar Bansal vs. UOI [2016 (43) STR 3 (Del.)]
• M/s GS Promoters & Developersn vs. CCE & ST, Chandigarh [Final Order No. 61106-61107/2019 dated 29.11.2019]
• Rajeev Chopra vs. CCE & ST, Shimla [Final Order No. 61137/2019 dated 18.12.2019]
• The Housing Board Haryana vs. CCE & ST, Panchkula [Final Order No 60461-60466/2024 dated 06.08.2024]
• State of AP vs. H. Abdul Bakhi and Bros [1965 AIR 531]
• Barendra Prasad Ray vs. ITO [1981 AIR 1047]
• Shri Ramtanu Co-op Housing Society Ltd. vs. State of Maharashtra [MANU/SC/0063/1970]
• Commissioner vs. Electricity Pole Manufacturing – 2000 (116) ELT A66 (SC)
• U.P. State Sugar & Can Dev. Corpn. Ltd. vs. CCE
• M.P. Water & Power Management Institute vs. CCE – 2009 (15) STR 164 (Tri. Delhi)

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

These three appeals have been filed by the Appellant directed against two impugned orders, i.e. first appeal ST/52410/2015 is directed against the OIO dated 29.01.2015 and second appeal ST/60528/2017 & third appeal ST/60556/2017 are directed against the OIO dated 28.03.2017, passed by the Commissioner of Central Excise & Service Tax. Since the issue involved in all three appeals is identical, therefore, all three appeals are taken up together for the purpose of discussion and decision. We may take Appeal No. ST/52410/2015 as a lead case and extended period of limitation has also been invoked in this case. Appeal-wise details of SCNs, Impugned Orders, Period and Demand are given herein below in tabular form:

S. N.	Appeal No.	SCN	Impugned Order	Period	Demand (in Rs.)
1.	ST/52410/2015	V(ST)15/Adj/ 61/2013/ 2485 dated 22.04.2013 V(ST)15/Adj/ 58/2014/ 868-870 dated 23.05.2014	OIO No. CHD- CEX-001-COM- 05-06-15 dated 29.01.2015	2007-08 to 2011-12 2012-13	5,31,35,473 5,52,42,804
2.	ST/60528/2017	V(ST)15/CE/ Adj/59/2015/ 264-266 dated 21.10.2015	OIO No. CHD- CEX-001-COM-07-08-2017 dated 28.03.2017	2013-14	8,29,73,758
3.	ST/60556/2017	V(ST)15/CE/ Adj/34/2016/ 73 dated 09.05.2016	OIO No. CHD- CEX-001-COM-07-08-2017 dated 28.03.2017	2014-15	4,50,80,354

2. Briefly stated facts of the present case are that the Appellant M/s Himachal Pradesh Housing & Urban Development Authority Shimla (in short ‘HIMUDA’) is a statutory authority established under the Himachal Pradesh Housing and Urban Development Authority Act, 2004, primarily to satisfy needs of housing accommodation for general public and to provide civic amenities. The Appellant gets the houses constructed through various Contractors under Works Contract Scheme.

2.1 The department entertained the view that the Appellant is providing leasing services but not paying service tax on the amounts received. Thereafter, the department sought information from the Appellant and on the basis of balance-sheet of the Appellant, the department raised the demand under the following category of services:

i. Renting of Immovable Property Services

ii. Business Auxiliary Services

iii. Consulting Engineer Services

2.2 Further, as per the department, the Appellant has not got itself registered under the Service Tax despite the fact that the Appellant was liable to pay service tax on renting of immovable property services; the Appellant has also not filed ST-3 returns within the stipulated time. The department further alleged the suppression of facts with intent to evade service tax and hence invoked the extended period of limitation to issue the SCN dated 22.04.2013. The SCN dated 22.04.2013 was issued to the Appellant for the period 2007-08 to 2011-12 proposing service tax demand in respect of renting of immovable property and certain other receipts under renting of immovable property services, business auxiliary services and consulting engineer services. Subsequently, as a follow-up, Statement dated 23.05.2014 for the period 2012-13 on the similar and certain additional ground was issued to the Appellant under Section 73(1A) of the Finance Act, 1994. Further, two SCNs dated 21.10.2015 and 09.05.2016 were issued to the Appellant proposing demand for the period 2013-14 and 2014-15 respectively.

2.3 After following the due process, the SCN dated 22.04.2013 and the Statement dated 23.05.2014 were adjudicated vide OIO dated 29.01.2015 and the SCNs dated 21.10.2015 and 09.05.2016 were adjudicated vide OIO dated 28.03.2017. Aggrieved by both the impugned OIOs, the Appellant has preferred the present appeals before us.

3. Heard both the sides and perused the material on records.

4. The learned Counsel for the appellant submits that the impugned orders are not sustainable in law and are liable to be set aside as the same have been passed without properly appreciating the facts and the law.

4.1 The learned Counsel further submits that the first SCN dated 22.04.2013 was issued to the Appellant alleging that certain services or revenue of the Appellant are leviable to service tax under the taxable category of renting of immovable property. He further submits that until 30.06.2012 i.e. before the introduction of the negative-list based regime, the service tax was payable by the service provider in respect of the specific services as defined under Section 65 of the Finance Act, 1994, whereas, in the present case, the SCN proposed to levy service tax in respect of various transactions undertaken by the Appellant under three heads/services namely renting of immovable property services, business auxiliary services and consulting engineer services. He further submits that the said SCN merely lists the services and alleges that these services fall under the category of renting of immovable property, business auxiliary services and consulting engineering services without specifying under which specific category each of the receipts falls and how it qualifies to fall under the specific category of service. He also submits that the demand proposed in the said SCN is not sustainable on this vary ground as held in the following decisions:

• Shri K. Mayakrishnan vs. CCE & ST, Pudduchery [Final Order No. 40964/2023 dated 31.10.2023 in Appeal No. ST/41858/2014 (Tri. Chennai)]
• M/s TMP Manoharan & Co. vs. CCE & ST, Pudduchery [Final Order No. 40962/2023 dated 30.10.2023 in Appeal No. ST/41840/2014 (Tri. Chennai)]

4.2 The learned Counsel further submits that service head in respect of which the demand has been confirmed, does not fall under any of the alleged categories. He discusses the heads of each service in his written submission, which is reproduced as under:

i. Preferential location – No reason or findings have been given under which category of service as invoked in the SCN the tax is payable/ leviable.

ii. Rent on HIMUDA Building – The levy was/is not contested except on ground of extended period as the tax was already deposited by the Appellant on 31.12.2013.

iii. Maintenance Charges – The SCN as well as the OIO fails to establish under which taxable category such activity falls and therefore the demand in this regard is not sustainable.

iv. Commission/Service Charges – These charges are received from the department of Public Relations as a subsidy/commission in relation to the advertisements, tender documents etc provided in the newspapers. The Adjudicating Authority, without establishing as how such receipts are taxable and under which taxable category, has confirmed the demand in arbitrary manner.

v. Administration Charges – The SCN as well as OIO does specify under which alleged service category it qualifies.

vi. Consultancy Charges – The demand was confirmed without assigning the taxable category under which it qualifies; hence, not sustainable.

vii. Conversion and Compounding Charges – The charges typically pertained to penalty imposed on the allottees who fail to construct their houses as per the approved plans The Adjudicating Authority has totally failed to establish under which of the alleged taxable category said receipts are taxable.

viii. Service Charges from the Contractor – The demand has been confirmed by the Adjudicating Authority without assigning the taxable category under which such amount should be taxable.

4.3 The learned Counsel further submits that in any case except the renting of immovable property, demands under all other heads are not liable to service tax under any of the taxable categories referred to in the SCN and the impugned OIO.

4.4 The learned Counsel further submits that the demand for the period 2012-13 was proposed by issuing a Statement under Section 73(1A) of the Finance Act, 1994 instead of a proper SCN, which is legally untenable because

– Section 73(1A) permits issuance of a statement only when it pertains to the same grounds as an earlier SCN.

– The earlier SCN dated 22.04 2013 was under the pre-negative list regime, whereas FY 2012-13 (post 01.07.2012) falls under the negative list-based regime indicating a material change in the legal basis.

– Moreover, new grounds such as construction services were introduced in the statement that were not part of the earlier SCN.

– This renders the statement dated 23.05.2014 beyond the scope of Section 73(1A) and therefore, the demand raised for 2012-13 is unsustainable and void.

– The department appears to have acknowledged this error, as it issued fresh SCNs under Section 73(1) for FY 2013-14 and 2014-15 instead of issuing further statements.

4.5 The learned Counsel further submits that the demand raised in the SCN dated 22.04.2013 for the period 2007-08 to 2011-12 is barred by limitation; the extended period of five years under proviso to Section 11A can only be invoked in cases involving fraud, collusion, wilful misstatement or suppression of facts with an intent to evade tax. He further submits that in the present case, the alleged non­payment of service tax was based on disclosures made in HIMUDA’s audited financial statements, indicating full transparency and absence of suppression. He further submits that HIMUDA is a government authority, fully regulated and controlled by the State Government and it has no vested interest in evading tax; its belief that its activities were non-taxable was bona fide. In support of his submission, he relies on the following decisions:

• J. I. Gandhi Silk Mills vs. CCE, Surat – 2009 (237) ELT 103 (Tri. Ahmd.)
• Collector of Central Excise vs. Chemphar Drugs & Liniments – 1989 (40) ELT 276 (SC)
• Larsen & Toubro Ltd vs. CCE, Pune-II – 2007 (211) ELT 513 (SC)
• P. State Sugar & Cane Dev. Corpn. Ltd. vs. CCE, Allahabad – 2009 (242) ELT 260 (Tri. Del.)
• Tamil Nadu Housing Board vs. Collector of Central Excise, Madras – 1994 (74) ELT 9 (SC)

4.6 The learned Counsel further makes the submissions on merits for the period 2012-13 (July 2012 to March 2013), 2013-14 and 2014-15. He submits that vide Entry No. 39 of Mega Exemption Notification No. 25/2012-ST dated 20.06.2012 exempts services provided by a Governmental Authority in relation to functions entrusted to municipalities under Article 243W of the Constitution. He also submits that HIMUDA qualifies as a Governmental Authority for the following reasons –

a. Established under the HIMUDA Act, 2004, a statute of the Himachal Pradesh Legislature.

b. Functions under full control of the State Government.

c. Performs duties such as urban planning, land regulation, sanitation, drainage, and water supply all of which are municipal functions under the 12^th Schedule to the Constitution.

4.7 As regards the specific receipts made to the Appellant, the learned Counsel gives the following justification stating that those receipts are not taxable:

S. No.	Receipt Type	Tax Position
1.	Maintenance Charges	Statutory charges for upkeep of colonies, fall under municipal functions like sanitation and fire safety (S. No. 1,5,6,7 & 12 of 12th schedule) – exempt
2.	Watch and WardCharges	Penal charges to discourage delay inpossession, related to land-use regulation and amenities (S.No. 2,5,6,12 & 17 of 12th schedule) – exempt
3.	Transfer/Processing Fees	Statutory requirement under HIMUDA Act, mere permission for ownership change – not a taxable service
4.	Administrative Charges	Already taxed as part of deposit works and housing receipts – separate taxation would amount to double levy
5.	Conversion Charges	Capital receipts for converting leasehold to freehold – outside scope of “service” or alternatively exempt under Entry 39 (S. No. 2 of 12th schedule)
6.	Ground Rent	Related to residential land, covered under negative list (Section 66D) – not taxable
7.	Water Charges	Statutory charges for utility services under HIMUDA Act (S. No. 5,6 & 7 of 12th schedule) – exempt as municipal function
8.	Lease Deed Charges (HPTA)	Mere reimbursement of expenses (stamp duty, printing) – no service involved
9.	Map/Technical Approval Fees	Regulatory charges for approving building plans-fall under urban planning (S. No. 2 of 12th schedule) – exempt
10.	Choice Money	Capital cost component for preferential location – forms part of housing scheme price – not taxable (Suresh Kumar Bansal vs. UOI)
11.	Rent from HIMUDA Buildings	Service tax already paid – demand is duplicative and unsustainable

The learned Counsel further submits that the above receipts are not taxable either because they are –

A. Statutory in nature (not consideration for service),

B. Directly related to municipal functions (hence exempt under Entry 39), or

C. Capital receipts or otherwise outside the scope of the definition of “service”.

Accordingly, the demand raised under the impugned SCNs are unwarranted and liable to set aside.

4.8 As regards the demand mentioned in Table B of the SCN dated 21.10.2015 and Table A of the SCN dated 09.05.2016, the learned Counsel submits that the receipts pertain to construction services provided by HIMUDA to various Departments of the Himachal Pradesh Government viz., Education, Health, Transport, etc. and they are mostly non-commercial works undertaken by a Governmental Authority for Government Departments, and are exempt under Sr. No. 12(a) of Notification No. 25/2012-ST. He further submits that prior to 01.07.2012, such services were also exempt under Section 65(105)(zzq), Section 65(105)(zzzh) and CBEC Circular No. 80/10/2001-ST. He further submits that the Adjudicating Authority did not fully exclude the value of non-commercial construction while computing the tax liability. He also submits that HIMUDA has submitted a certified breakup of commercial versus non-commercial works marked as Annexure ‘A’ during the hearing and agreed to pay service tax on commercial construction works for FY 2013-14 and 2014-15.

4.9 The learned Counsel further submits that the receipts made by the Appellant arise from instalment based recoveries in respect of housing schemes and include various components, such as –

• Sale of plots and houses (including completed residential units)
• Sale of EWS (economically weaker section) houses
• Commercial plot premiums
• Interest on instalments
• Internal accounting entries and transfers

4.10 The learned Counsel further provides a detailed item-wise chart in Annexure ‘A-10’ in the Memo of Appeal Nos. ST/60528/2017 & ST/60556/2017 mentioning receipts liable to service tax and receipts exempt or not covered under service tax.

4.11 The learned Counsel further submits that non-commercial deposit works are fully exempt from service tax under Notification 25/2012-ST; HIMUDA voluntarily offers to pay service tax on commercial works for the FY 2013-14 and FY 2014-15 only; majority of receipts from housing schemes are either exempt, capital in nature or outside the scope of service tax. Accordingly, the demand raised on both these counts is largely unjustified and liable to be reduced significantly.

4.12 The learned Counsel further submits that construction of flats/houses involves land, goods and services and the service tax is only on the service component, not on land or goods. He refers to the provision of Section 67 which provides for valuation of taxable services but does not provide any mechanism for determining the service portion in composite contracts involving sale of land. Further, Service Tax (Determination of Value) Rules, 2006, including Rule 2A, also fail to provide machinery for such cases. He further submits that Notification Nos. 1/2006-ST and 26/2012-ST allowed 75% abatement, but these are not substitutes for statutory valuation mechanisms. In this regard, he relies on the judgment of Hon’ble Orissa High Court in the case of Larsen & Toubro Ltd vs. State of Orissa [(2008) 12 VST 31 (Orissa)] wherein the Hon’ble High Court has held that charging and machinery provisions must be in the statute itself. The said judgment was followed by the Hon’ble Delhi High Court in the case of Suresh Kumar Bansal vs. UOI [2016 (43) STR 3 (Del.)] wherein the Hon’ble Delhi High Court has held that –

• No tax can be levied on composite construction contracts in the absence of valuation machinery.
• 75% abatement via notification cannot replace legislative provisions
• The impugned explanation seeking to include composite contracts in taxable service was struck down

The learned Counsel submits that the above cited decision of Hon’ble Delhi High Court has been followed by this Tribunal in the following cases:

1. M/s GS Promoters & Developersn vs. CCE & ST, Chandigarh [Final Order No. 61106-61107/2019 dated 29.11.2019]

2. Rajeev Chopra vs. CCE & ST, Shimla [Final Order No 61137/2019 dated 18.12.2019]

3. The Housing Board Haryana vs. CCE & ST, Panchkula [Final Order No 60461-60466/2024 dated 06.08.2024]

4.13 The learned Counsel also submits that in the absence of a proper valuation mechanism under the Finance Act or its Rules, no service tax can be levied on composite contracts involving sale of residential units or construction of complexes; accordingly, the demand under “Construction of Complex services” is unsustainable and liable to be set aside.

4.14 The learned Counsel further submits that the department has alleged that HIMUDA received legal services during FY 2013-14 which are liable to service tax under reverse charge mechanism (in short ‘RCM’) as per Notification No. 30/2012-ST dated 20.06.2012. He also submits that RCM is applicable only if Recipient is a “Business Entity”, whereas, HIMUDA though a statutory body, does not qualify as a business entity, therefore HIMUDA is not liable to pay service tax under RCM. For this, he relies on the following decisions:

• State of AP vs. H. Abdul Bakhi and Bros [1965 AIR 531] – Business requires profit motive and continuity.
• Barendra Prasad Ray vs. ITO [1981 AIR 1047] – Business means systematic, profit-driven activity.
• Shri Ramtanu Co-op Housing Society Ltd. vs. State of Maharashtra [MANU/SC/0063/1970] – Distinction between business corporations and statutory/governmental bodies.
• The Housing Board Haryana (supra) – Statutory authorities are not business entities.

4.15 The learned Counsel further submits that HIMUDA is a Governmental Authority and does not fall in the definition of “business entity” under the Act and is not liable to pay service tax under RCM for legal services, therefore, the demand is unsustainable and must be dropped.

4.16 As regards the imposition of penalty, the learned Counsel submits that the Adjudicating Authority has imposed the penalty for the period 2007-08 to 2011-12, 2013-14 and 2014-15 under Section 78 of the Finance Act, 1994 by invoking the extended period alleging fraud, suppression or wilful contravention, whereas, in the present case, HIMUDA is not liable for service tax in the first place for the various reasons as mentioned above. Moreover, HIMUDA was under a bona fide belief that its services were non-taxable, based on legal exemptions and statutory definitions; bona fide conduct negates mala fide intent necessary to invoke penalty under Section 78; further, once a SCN is issued for an earlier period, the suppression cannot be alleged for a subsequent period on the same grounds as settled in law.

4.17 The learned Counsel however agrees to pay the following demands:

(A) Service tax in respect of Deposit Work for other departments (construction of commercial buildings) during FY 2013-14 and FY 2014-15 (detailed bifurcation commercial versus non-commercial submitted during the Hearing marked as Annexure ‘A’) as detailed below along with applicable interest-

FY	Value          of Commercial Construction	Abatement (70%)	Gross Taxable Value	Rate	Service Tax
2013-14	5878324	4114827	1763497	12.36	217968
2014-15	2652714	1856900	795814	12.36	98363
	8531038	5971727	2559311		316331/-

B. Interest on delayed payment of service tax and late fee on account of late filing of service tax returns w.r.t. two appeal bearing nos. ST/60528/2017 & ST/60556/2017, which have been filed against OIO dated 28.03.2017 for the period 2013-14 and 2014-15.

C. Penalty of Rs.20,000/- (Rupees Twenty Thousands only), Rs.500/- (Rupees Five Hundred Only) and Rs.17,200/- (Rupees Seventeen Thousands Two Hundred Only) respectively, imposed under Section 70 of the Act read with Rule 7C of the Service Tax Rules, 1994 vide OIO dated 28.03.2017.

5. On the other hand, the learned Authorized Representative for the department has also filed written submissions, which have been taken on record.

5.1 The learned Authorized Representative for the department submits that the Appellant is liable to pay service tax under various categories of services namely renting of immovable property, business auxiliary services and consulting engineer services. He further submits that the Appellant did not get itself registered with the Service Tax nor paid the service tax and also not filed the ST-3 returns. He further submits that the Appellant has taken the Registration only on 14.11.2012. He further justifies the imposition of penalties under Section 69 of the Act read with Rule 4 of the Service Tax Rules and under Section 70 of the Act read with Rule 7C of the Service Tax Rules. He further submits that the Appellant have accepted that they are liable to pay service tax on commercial activities and they have agreed to deposit the same on commercial construction.

5.2 As regards the Statement dated 23.05.2014 issued under Section 73(1A) of the Act, the learned Authorized Representative submits that through the Statement under Section 73(1A) two more services, i.e. industrial or commercial construction services and construction of residential complex services, were added, but the demand may be confirmed only in respect of services which were already part of original SCN.

6. We have considered the rival submissions and also have gone through the documents/judgments/orders referred to during the course of arguments. We note that in the present appeals, following issues are involved for our determination:

1. Whether demand is sustainable when it is not specified under which specific category subject service falls?

2. Whether Revenue can issue Statement U/S 73 (1A) when grounds relied upon for the subsequent period are not the same as are mentioned in the earlier show Cause Notices?

3. Whether HIMUDA, constituted under the Himachal Pradesh Housing Urban Development Authority Act, 2004, is a Governmental Authority?

4. Whether Service tax is leviable on various types of statutory charges received by HIMUDA, as a Governmental Authority?

5. Whether Service tax is leviable on Initial deposit/earnest money for HIMUDA housing projects?

6. Whether Service tax is leviable on Receipt from Housing Scheme Allottees?

7. Whether HIMUDA, a Governmental Authority, is liable to pay Service Tax on Legal Services under Reverse Charge Mechanisms per provisions of Notification No. 30/12-ST dated 20 06.2012?

8. Whether extended period could be invoked in the facts of the case and given that the Appellant is a Government Authority and whether penalty could be imposed under Section 78 of the Finance Act, 1994 wherein suppression or fraud with intent to evade tax are the primary conditions?

7. As regards the issue no. (1), we find that the SCN dated 22.04.2013 merely lists the services and alleges that the impugned services fall under the category of renting of immovable property, business auxiliary services and consulting engineering services without specifying under which specific category each of the receipts falls and how it qualifies to fall under the specific category of service. This very issue was considered by the Chennai bench of the Tribunal in the case of Shri K. Mayakrishnan (supra) wherein the Tribunal has held as under:

“10. A perusal of the Show Cause Notice makes it clear, and admittedly, that there is no specific service alleged against the appellant, as having been rendered by it, rather, a consolidated tax liability has been worked out, which makes it indefensible. 11.1 In this regard, it is relevant to note the decision of the Hon’ble Apex Court in the case of Commissioner of Central Excise, Bangalore v. M/s. Brindavan Beverages [2007 (213) E.L.T. 487 (S.C.)] wherein it has been categorically held as under:

“10. There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents unless it is shown that they were parties to the arrangements, if any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted.”

The demand in the impugned order, therefore, cannot sustain in the light of the law laid down by the Hon’ble Supreme Court.”

Further, we find that the SCN as well as the impugned OIO fails to establish under which of the alleged taxable categories, the impugned services sought to be taxed, fall and therefore, in view of the law laid down in the case of Shri K. Mayakrishnan (supra), we are of the opinion that this demand cannot be confirmed.

8. Further, as regards the issue no. (2), relating to Statement dated 23.05.2014 issue under Section 73(1A) of the Act for the period 2012-13, we find that the demand was proposed by merely issuing a statement under Section 73(1A) of the Act instead of issuing a proper SCN and the same is not sustainable in law because as per the requirement of Section 73(1A) it is required that the grounds for issuing the said statement must be the same as the grounds of earlier SCN. In the present case, the earlier SCN dated 22.04.2013 was issued under pre-negative list regime, whereas, FY 2012-13 falls under the negative list based regime and moreover, new grounds such as construction services were introduced in the statement which were not the part of the earlier SCN; therefore, the demand for FY 2012-13 raised under the statement dated 23.05.2014 is set aside.

9. Further, as regards issue no. (3) to (6), we find that for the period 2012-13, 2013-14 and 2014-15, the Entry No. 39 of Mega Exemption Notification No. 25/2012-ST which exempts the services provided by a Governmental Authority in relation to functions entrusted to municipalities under Article 243W of the Constitution. Further, we also find that the Appellant HIMUDA qualifies as a Governmental Authority as it has been established under the Himachal Pradesh Housing and Urban Development Authority Act, 2004, and functions under the full control of the State Government and performs duties such as urban planning, land regulation, sanitation, drainage, and water supply all of which are municipal functions under the 12^th Schedule to the Constitution. Therefore, we hold that the receipts made by the Appellant are not taxable because they are in relation to the services performed by the Governmental Authority. We further find that there are certain receipts which pertain to construction services provided by the Appellant to various Departments of the Himachal Pradesh Government and they are mostly non-commercial works and are exempt under Sr. No. 12(a) of the Notification No. 25/2012-ST, but the learned Adjudicating Authority did not exclude the value of non-commercial construction while computing the tax liability. Further, we find that service tax could not be recovered in the absence of any mechanism for valuation of services because the construction of flats/houses involves land, goods, and services and service tax is liable only on the service component, and not on land or goods. This issue was considered by the Hon’ble Orissa High Court in the case of Larsen & Toubro Ltd vs. State of Orissa (supra) and subsequently by the Hon’ble Delhi High Court in the case of Suresh Kumar Bansal (supra). It was held by the Hon’ble Delhi High Court that no tax can be levied on composite construction contracts in the absence of valuation machinery; 75% abatement via notification cannot replace  legislative provisions. The said decision of Hon’ble Delhi High Court was followed by this Tribunal in the case of The Housing Board Haryana (supra), wherein the Tribunal has observed as under:

“7.4 Further, we find that this issue has been settled by the Hon’ble Delhi High Court in the case of Suresh Kumar Bansal vs. UOI (supra), wherein the Hon’ble High Court has held in para 53 to para 55 as under:

“53. As noticed earlier, in the present case, neither the Act nor the Rules framed therein provide for a machinery provision for excluding all components other than service components for ascertaining the measure of service tax. The abatement to the extent of 75% by a notification or a circular cannot substitute the lack of statutory machinery provisions to ascertain the value of services involved in a composite contract.

54. Insofar as the challenge to the levy of service tax on taxable services as defined under Section 65(105)(zzzzu) is concerned, we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder. We are unable to accept that such charges relate solely to the location of land. Thus, preferential location charges are charged by the builder based on the preferences of its customers. They are in one sense a measure of additional value that a customer derives from acquiring a particular unit. Such charges may be attributable to the preferences of a customer in relation to the directions in which a flat is constructed; the floor on which it is located; the views from the unit; accessibility to other facilities provide in the complex, etc. As stated earlier, service tax is a tax on value addition and charges for preferential location in one sense embody the value of the satisfaction derived by a customer from certain additional attributes of the property developed. Such charges cannot be traced directly to the value of any goods or value of land but are as a result of the development of the complex as a whole and the position of a particular unit in the context of the complex.

55. In view of the above, we negate the challenge to insertion of sub-clause (zzzzu) in Clause (105) of Section 65 of the Act. However, we accept the petitioners contention that no service tax under Section 66 of the Act read with Section 65(105)(zzzh) of the Act could be charged in respect of composite contracts such as the ones entered into by the petitioners with the builder. The impugned explanation to the extent that it seeks to include composite contracts for purchase of units in a complex within the scope of taxable service is set aside.”

7.5 We further find that the Revenue has filed an appeal against the above said decision of the Delhi High Court before the Hon’ble Apex Court, but no stay has been granted in favour the department, therefore, the ratio of the Delhi High Court’s judgment is binding on the Tribunal unless the same is set aside or stayed.

7.6 Further, we find that the above said decision of the Hon’ble Delhi High Court has been followed by this Tribunal in the case of M/s G S Promoters & Developers Vs CCE & ST, Chandigarh (supra) and in the case of Rajeev Chopra Vs. CE & ST, Shimla (supra).

7.7 In view of our discussion on this issue, we are of the view that service tax is not leviable on ‘Construction of Complex Services’.”

10. As regards issue no. (7), relating to the demand under RCM for legal services, we find that RCM is not applicable in the present case because the Appellant HIMUDA is a Governmental Authority and does not fall under the definition of ‘business entity’ and therefore is not liable to pay service tax for legal services under RCM as held by this Tribunal in the case of The Housing Board Haryana (supra).

11. As regards issue no. (8), relating to the invocation of extended period, we find that this Tribunal in the case of The Housing Board Haryana (supra), has considered this issue in details and held as under:

“10.1 As regards extended period of limitation, we find that the appellant, which is a governmental authority constituted under the Housing Board Act, 1971, has provided all the information as required by the department. Moreover, being a statutory authority, the appellant is required to maintain proper accounts, which are duly audited by the office of the Accountant General and the audited accounts accompanied by audit report have been forwarded to the State Government as required by the Act. Further, all the figures have been taken from balance sheets. Therefore, in view of this, there is no suppression or fraud with intent to evade the payment of tax.

10.2 This issue has been considered by the Hon’ble Supreme Court in various cases and it has been consistently held that no suppression or fraud with intent to evade the service tax could be attributed to a government authority as there is no vested interest of the government authority to evade tax.

10.3 In the case of Commissioner vs. Electricity Pole Manufacturing – 2000 ((116) ELT A66 (SC) the Hon’ble Apex Court has upheld the observations of the Tribunal whereby the Tribunal observed as under:

“On the question of limitation also, we find that there is no suppression with an intention to evade payment of duty. In view of the fact that the unit is funded by the State Government, the intention to get undue benefit of availing duty exemption cannot normally be attributed to the appellants. We, therefore, hold that the demand is hit by limitation and the demand can be enforced only for a period of six months from the date of issue of show cause notice.”

10.4 Further, in the case of U.P. State Sugar & Can Dev. Corpn. Ltd. vs. CCE (supra), the Tribunal has observed as under:

“Since the Appellants are public-sector undertaking of the Govt. of U.P., the allegation of mis-statement, or suppression of fact with intent to evade the payment of duty does not make any sense. It is unconceivable that the Sugar Mills owned by a State Govt. owned Corpn. would try to evade the payment of duty by resorting the wilful suppression of facts – more so when the duty paid was to be reimbursed to them by the Govt. In view of these circumstances, we are of the view that the Appellant’s sungar mills cannot be accused of suppression of facts and therefore, neither the provisions of Section 11AB nor the provisions of Section 11AC would be attracted.”

10.5 Further, in the case of M.P. Water & Power Management Institute vs. CCE – 2009 (15) STR 164 (Tri. Delhi), the Tribunal has observed in para 5 and para 6 as under:

“5. After hearing both sides and on perusal of the records, we find force in the submissions of the learned Advocate on limitation. It is seen that the appellant is a registered society having no profit motive. They were undertaking the job to help the Government bodies. The Commissioner (Appeals) set aside the penalties imposed under Section 80 of the Act considering the facts and circumstances of the case. The demand of tax vide show cause notice dated 22-11-2005 for extended period cannot be sustainable.

6. In view of the above discussion, we set aside the demand of tax on scientific or technical consultancy and technical testing and analysis as barred by limitation. The appeal is allowed.”

10.6 We find that in the present case, the department has failed to establish any of the ingredients which are required to prove in order to invoke extended period of limitation; therefore, we hold that the entire demand is barred by limitation.”

12. Further, we also find that the Appellant has voluntarily agreed to pay the demands on construction of commercial buildings during the FY 2013-14 and 2014-15. Though the Appellant has quantified the demand on the value of commercial construction for the year 2013-14 and 2014-15 (as mentioned in para 4.17 above), but we are of the view that for this purpose of quantification, the matter needs to be remanded back to the Adjudicating Authority who will calculate the service tax liability on commercial construction carried out by the Appellant and thereafter, the Appellant will pay the same along with interest as per the rules.

13. Further, we are also of the view that the penalty under Section 70 of the Act read with Rule 7C of the Service Tax Rules, vide OIO dated 28.03.2017, is rightly imposed on the Appellant and therefore, we uphold the same.

14. In view of our discussion above and by following the ratios of the various decisions (cited above), we partially allow the appeals by remanding the matter back to the Adjudicating Authority to quantify the demands for commercial activity as discussed above.

15. In result, appeals are disposed of on above terms.

(Order pronounced in the open court on 28.10.2025)