Educational Institution Construction Not Commercial Before July 2012: CESTAT Chennai

JM Constructions Vs Commissioner of GST and Central Excise (CESTAT Chennai)

Summary: The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) partly allowed the appeal filed by JM Constructions, Coimbatore, against a service tax demand of ₹48,33,654, along with interest and penalties, arising from construction activities undertaken for Karunya educational institutions. The appellant challenged Order-in-Original No. 02/2016-Commr. dated 27 January 2016, contending that the buildings were constructed for educational and charitable purposes and were not primarily intended for commerce or industry. The Tribunal examined the definition of Works Contract Service under Section 65(105)(zzzza) of the Finance Act, 1994, and CBEC Circular No. 80/10/2004-ST dated 17 September 2004. It held that the burden of establishing taxability rested on the Revenue and that merely collecting educational fees or generating a surplus did not establish that an institution was primarily commercial. Since the Department had failed to demonstrate that the buildings were constructed principally for commercial or industrial purposes, the Tribunal set aside the service tax demand for the period up to 30 June 2012.

For the period commencing 1 July 2012, however, the Tribunal reached a different conclusion because the definition of works contract had been substantially amended through Section 65B(54) of the Finance Act, 1994. Under the revised statutory framework, construction activities were not excluded from service tax merely because the buildings were intended for educational institutions. Consequently, the Tribunal upheld the taxability of the construction services rendered after 1 July 2012. It distinguished the earlier judicial precedents relied upon by the appellant, including SRM Engineering Construction Ltd., Banna Ram Choudhary and Jatan Construction Pvt. Ltd., observing that those decisions supported non-taxability under the earlier statutory definition but did not eliminate liability under the amended provisions. The Tribunal therefore sustained the post-July 2012 demand in principle, subject to the correct determination of taxable value.

On valuation, the Tribunal found deficiencies in the adjudicating authority’s computation, particularly concerning the deduction of material costs for the financial years 2009–10 and 2013–14. Relying on the Supreme Court’s decision in Commissioner of Service Tax v. Bhayana Builders Pvt. Ltd., it held that materials supplied free of cost by the service recipient should not be included in the taxable value merely because they were used in executing the works contract. The Tribunal observed that the adjudicating authority had not properly considered the available material-cost information and should have adopted a reasonable best-judgment assessment where complete records were unavailable. It accordingly remanded the matter for fresh computation of service tax liability for the period from 1 July 2012 to 31 March 2014. The Tribunal also accepted the appellant’s claim for cum-tax benefit under Section 67(2), holding that where service tax had not been separately collected from customers, the consideration received should be treated as inclusive of applicable service tax for recomputation purposes.

Regarding limitation and penalties, the Tribunal rejected the appellant’s contention that the extended period of limitation could not be invoked. It noted that JM Constructions had undertaken taxable construction activities over several years without obtaining service tax registration, filing statutory ST-3 returns or discharging the applicable tax liability until departmental investigation commenced in March 2014. Considering these circumstances, the Tribunal upheld invocation of the extended limitation period under the proviso to Section 73(1) of the Finance Act, 1994, together with penalties under Sections 77 and 78. Thus, while granting relief from the service tax demand relating to construction for educational institutions before July 2012 and allowing cum-tax and valuation benefits, the Tribunal maintained the post-July 2012 tax liability, applicable interest and penalties. The adjudicating authority was directed to undertake fresh quantification after providing an opportunity of hearing and complete the exercise within ninety days of receiving the Tribunal’s order. The appeal was disposed of accordingly by order pronounced on 29 October 2025.

Cases Discussed

• Union of India v. Garware Nylons Ltd., (1996) 10 SCC 413
• H.P.L. Chemicals v. CCE, 2006 (197) ELT 324 (SC)
• Puma Ayurvedic Herbal (P) Ltd. v. CCE, 2006 (196) ELT 3 (SC)
• Malat v. Riddell, 383 U.S. 569 (1966)
• Social Service Guild of Assissi Sisters v. K.S.E.B., (1988) 1 Ker LT 727
• SRM Engineering Construction Ltd. v. Commissioner of Service Tax, 2018 (11) GSTL 174 (CESTAT Chennai)
• Banna Ram Choudhary v. CCE, 2017 (3) GSTL 338 (CESTAT Delhi)
• Commissioner GST Jaipur v. Jatan Construction Pvt. Ltd., 2019 (24) GSTL 552 (Raj.) [citation as printed requires checking]
• Commissioner of Service Tax v. Bhayana Builders Pvt. Ltd., 2018 (10) GSTL 118 (SC)
• Jayhind Projects Ltd. v. Commissioner of Service Tax, 2024 (388) ELT 39 (SC)
• Commissioner of Service Tax v. C.P. Systems Pvt. Ltd., 2023 (71) GSTL 70
• TCL-MMPL Consortium v. CCE, 2021 (51) GSTL 397
• Shakthi Motors, 2008 (12) STR 710
• P. Sugumar v. CCE, 2009 TMI 75670
• Mackintosh Burn Ltd. v. CST, 2010 TMI 201894
• BSNL v. CCE, 2011 TMI 208708
• Cosmic Dye Chemical v. CCE, 1995 (75) ELT 721 (SC)
• Neminath Fabrics Pvt. Ltd. v. CCE, 2010 (256) ELT 369 (Guj.)
• Union of India v. Dharamendra Textile Processors, 2008 (231) ELT 3 (SC)

FULL TEXT OF THE CESTAT CHENNAI ORDER

This Service Tax Appeal No. S/41024/2016 has been filed by M/s. J.M. Constructions, Coimbatore, the appellant herein, assailing the impugned Order-in-Original No. 02/2016-Commr. dated 27.01.2016 passed by the Commissioner of Central Excise whereby a demand of service tax of Rs.48,33,654/- under proviso to Section 73(1) of the Finance Act, 1994 was confirmed along with appropriate interest and an equivalent penalty under Section 78 of the Act was imposed together with a penalty of Rs.10,000/- under Section 77(2) of the Act .The impugned order also dropped the remaining portion of the Tax demand out of the original demand of Rs 87,23,331/-.

2.1 Brief facts from the Appeal records are that the Appellant, is a proprietary concern engaged in the construction of CIVIL structures for Karunya Institute of Technology and Science, Coimbatore an Educational Institution, and had not obtained service tax registration nor discharged their service tax liability nor filed ST-3 Returns. They had obtained Service Tax registration only after the Department conducted Investigation in March 2014 on the intelligence that the Appellant was engaged in providing taxable construction services without obtaining the requisite registration or discharging the applicable service tax liabilities. Thereafter the appellant was issued with a SCN No 43/2014 dated 17.

10.2014 whereby service Tax of Rs 87,23,331/- was proposed to be demanded along with appropriate interest and to impose penalty under Section 76, 77, 78 of Finance Act, 1994 invoking extended period under Proviso to Section 73(1) of FA 1994 for the period from 01.04.20109 to 31.03.2014.

2.2 After due process of the law, the Adjudicating Authority vide the impugned Order-in-Original No. 02/2016- Commr. dated 27.01.2016 (hereinafter referred to as ‘impugned order’), confirmed the demand, interest, and penalties as detailed in Para 1 above.

2.3 Being aggrieved by the impugned order, the Appellant has preferred the present appeal challenging the legality, propriety, and correctness of the Impugned order.

2.4 Based on the statements and documents, it was concluded by the Department that the services rendered were classifiable as “Works Contract Services” and in as much as the appellant has neither paid service tax nor filed periodic ST-3 returns for the period from 01-04-2009 to 31- 03-2014.

3. The Ld. Chartered Accountant Mr. M. Saravanan, appeared for the Appellant and Mr. N. Satyanarayan, Authorized Departmental Representative appeared for the Respondent and both have made their submissions.

4. The Ld. Chartered Accountant Mr. M. Saravanan, on behalf of the Appellant contended that

4.1 They genuinely believed that their activities were not liable for service tax and therefore did not charge or collect it from clients. As such, there was no need to mention service tax in their agreements. The turnover details relied upon by the Department were based entirely on the Appellant’s own records, which clearly indicated that the receipts were exclusive of any tax.

4.2 During the period of dispute, they have constructed buildings for Karunya Educational Institutions. The appellant has purchased all building materials except Iron and steel and cement, which are supplied by Karunya Institute of Technology and Science.

4.3 The Learned Adjudicating Authority vide impugned order demanded service tax of Rs.48,33,654/- along with appropriate interest and penalties while classifying the service as works contract service taxable as per Section 65(105)(zzzza) of the Finance Act 1994.

4.4 In this case the building constructed by the appellant is not for the purpose of Commerce or Industry but for educational purpose and relied upon several decisions in their favour.

4.5 The Board vide Circular No. 80/10/2004 ST dated 17.09.2024 has clarified that the leviability of service tax would depend primarily upon whether the building or Civil Structure is “used or to be used” for Commerce or Industry. If such constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable health, sanitation or philanthropic purposes and not for the purposes of profit are not taxable, being non-commercial in nature. In the present case also, the admitted fact is that buildings were constructed for Educational Institutions viz., Karunya Educational Institution, used for non-commercial purpose. Hence the same will not be liable to service tax.

4.6 The Ld. Adjudicating Authority deducted the material value and demanded service tax on the net value for the years 2010-2011 to 2012-2013 under Rule 2A of Service (Determination of Value) Rules, 2006. However, he has taken entire amount received by the appellant as taxable value in 2009-2010 and 2013-2014 for the reason that appellant failed to submit Profit and Loss Account for these two years. The dispute here is with regard to valuation in the years 2009-2010 and in 2013-2014.

4.7 They are not liable to pay service tax on the construction services rendered to Karunya up to 30.06.2012 and from 01.07.2012 onwards the actual tax liability is only Rs.17,98,870/-, out of which appellant already paid Rs.17,09,791/-. The balance demand of Rs.89,079 is also not payable on account of limitation.

4.8 Without prejudice appellant prayed that the in case of demand if any on him, cum service tax benefit may kindly be extended to him.

4.9 In the absence of any suppression of facts with an intent to evade payment of service tax, equal penalty imposed under Section 78 of the Act and penalty imposed under Section 77 of the Act may kindly be set aside and allow the appeal.

5. Per contra, the Ld. AR Mr. N. Satyanarayana reiterated the contentions made in the impugned order and that the Service rendered by the Appellant is for construction of educational institutions for the purpose of Commerce and industry and covered under works Contract service which is a taxable service, that they are not eligible for cum-tax benefit and extended period is rightly invokable in this case. He submitted that there is no merit in the Appeal and may please be rejected on the grounds of merit as well as limitation.

6. We have heard the submissions of both the sides and carefully perused the appeal records and also the citations submitted as relied upon.

7. We find that the issues to be decided are, as to: –

i. Whether the service under works contract is exempt for construction of educational institutions and whether the demand made on works contract services of construction rendered to education institutions can be treated as construction of a new building or civil structure or a part thereof, primarily for the purposes of commerce or industry during the relevant period and the demand so made is tenable?

ii. Whether the gross value for computation of tax is rightly done?

iii. Whether cum tax benefit can be extended in this case? and, iv. Whether the demand is barred by limitation and imposition of penalties is justified?

8.1 We note that for the period upto 01-07-2012, Section 65(105)(zzzza) stipulated that “taxable service” means any service provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams

Explanation. —For the purposes of this sub-clause, “works contract” means a contract wherein, —

(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out, —

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre- fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;

8.2 We also notice that in Section 65B, inserted by the Finance Act 2012, with effect from 01.07.2012, under sub-section (54), works contract has been defined as under: –

“65B(54) “works contract” means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;” 9. As regards the first issue/question framed, we find that the following aspects are not in dispute.

9.1 The Appellants are registered under VAT from 2008 onwards and service tax registration was obtained only in 2014 after the investigation by the Department and that the appellants have undertaken construction services for Karunya Institute of Science and Technology Coimbatore which is an educational Institution and a charitable institution registered under 12 AA of the income Tax Act and the Appellant’s major customers are Karunya Institute of Technology and Sciences, Karunya Welfare Society.

9.2 The Appellant is using construction material on his own account for which VAT Returns are filed and the recipient of the Service is also providing free of charge materials like Cement and Steel. As raw material are involved in the contract, there is transfer of property in the goods involved in this case and therefore the service cannot be treated as CICS Service even though other conditions are similar to WCS.

9.3 We find that the Appellant has disputed the levy of Tax upto 30.06.2012 and there is no dispute about the taxability thereafter but only for the method of valuation of the services rendered.

9.4 We find that Classification of services is a matter relating to chargeability and the burden of proof is squarely upon the Revenue. If the Department intends to classify a service under a particular category, the Department must adduce proper evidence and discharge the burden of proof. The judgments of the Hon’ble Supreme Court in Union of India v. Garware Nylons Ltd. [1996 10 SCC 413]; H.P.L Chemicals vs. Commissioner of Central Excise, [2006 (197) E.L.T. 324 (S.C.)]; Puma Ayruvedic Herbal (P) Ltd. v. Commissioner of C. Ex., Nagpur [2006 (196) E.L.T. 3 (S.C.)], although rendered in the case of classification under the Central Excise Act are also relevant for classification of a service under the FA 1994.

9.5 The present issue relates to the activity undertaken by the appellant under Works Contract Service (WCS) as alleged by Revenue. The service was introduced and leviable to Service Tax with effect from 01.06.2007.

9.6 It is not disputed by the parties that what was involved was civil construction works for ‘Educational Institutions’. The appellant’s contention is that the activity cannot be said to be primarily for the purpose of commerce or industry as stated at (b) in the definition above and hence will not come under the levy during the relevant time.

9.7 We find that the dispute pertains to the phrase ‘primarily for the purposes of commerce or industry’. The Hon’ble U.S. Supreme Court in its judgment in Malat v. Riddell [383 U.S. 569 (1966)] held that, “primarily” means “of first importance” or “principally”. We shall examine the matter accordingly.

9.8 At the outset. as a general principle of interpretation, where the words of a statutory provision are plain, and unambiguous, the intention of the Legislature is to be gathered from the language of the provision itself. The term ‘commerce or industry’ are commonly understood terms and do not require the aid of another definition from the statute to gather its intention. Commercial activities, relate to activities having profit as the primary aim. The Hon’ble High Court of Kerala in its judgment in Social Service Guild of Assissi Sisters v. K.S.E.B. [(1988)1 Ker LT 727 (733)] held as under: – “

14. “Commercial” in ordinary parlance, means “engaged in commerce” and “commercialize” in Webster’s Third New International Dictionary means:— “to engage in conduct, practice, or make use of for profit-seeking purposes as distinguished from participation, practice, or use for spiritual or recreational purposes or for other non- pecuniary satisfactions”. (emphasis added)

9.9 We find that Educational institutions whether in the private sector or run by Government, other than purely charitable institutions, collect fees from its students. The fact that this collection of fees creates a surplus does not lead to the conclusion that the institution ceases to exist for educational purposes and becomes an institution primarily for the purposes of commerce or industry. An education institution for its modernisation, growth and sustenance needs to generate a surplus which it ploughs back to strengthen and sustain its educational activities. The test to be applied is of ‘predominant object’ of the activity of the institution and it is to be seen whether the institution exists for imparting education or merely to earn profits. One method is to look at the institutions balance sheet and to ascertain whether a bulk of the income/ profit/ surplus has been utilised for non-educational purpose. Second, whether the object of the institution is to make profit as opposed to educating persons i.e. education is not the prime objective of the organisation. Third, whether the profit/ surplus is reinvested for the purpose of achieving the objectives of education and is not distributed to any member of the organisation, other than for specific services provided in his/ her individual capacity. Fourth, whether the institution is declared to be a commercial institution by the Government etc. The list is not exhaustive. If one or more of these ingredients are present, the institution can prima facie be said to be created for the purposes of ‘commerce or industry’. We do not find any such test having been applied by the respondent to verify the nature and objective of the educational institutions involved. The department has hence not discharged the initial burden in establishing chargeability of the service falling under WCS. Merely because the institutions are collecting a fee will not make the institution primarily for the purposes of commerce or industry. On this fact alone, we hold that the demand must hence fail.

9.10 It was also held in the impugned order that the appellant has not produced any evidence to show that the educational institutions constructed by it are run without profit motive and rejected the appellant’s contention to this effect. For the period from 01-07-2012 it was held that there is no requirement under the service portion in the execution of a works contract is a declared service under Section 66E and that under the new definition of service there is no requirement that the construction should be for commercial or industrial and all types of constructions are taxable at the rates specified in Section 66B of the Act and therefore constructions carried out for schools and colleges from 01- 07-2012 are liable to be charged to service tax.

9.11 We find that the Adjudicating Authority has misdirected himself in rendering the finding that it is for the appellant to show that educational institutions constructed by it are run without profit motive. Admittedly, the Department is seeking to tax the services of the appellant as “works contract service” under clause ii(b) of the explanation to Section 65(105)(zzzza), as being “construction of a new building primarily for the purposes of commerce or industry”.

9.12 The issue of charitable institutions covered under Commercial activity was discussed in para 9 and 10 of the Impugned Order and held that they are liable to Tax under Works Contract Services.

9.13 The Appellant in his submissions stated that, the Board vide Circular No.80/10/2004 ST dated 17.09 2024 has clarified that the leviability of service tax would depend primarily upon whether the building or Civil Structure is ” used or to be used” for Commerce or Industry. If such constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable health, sanitation or philanthropic purposes and not for the purposes of profit are not taxable, being non- commercial in nature. In the present case also, the admitted fact is that buildings were constructed for Educational Institutions viz. Karunya Educational Institution, used for non-commercial purpose. Hence the same will not attract any service tax.

9.14 We find from the submissions that, unlike an exemption notification with conditions stipulated therein to claim the exemption, the benefit of which when claimed puts the burden of proof on the claimant to satisfy firstly that it comes within the ambit of the exemption notification and then to satisfy that it had fulfilled the conditions stipulated therein to secure the benefits, there are no such requirements when the appellant contests taxability, on a belief stemming from the contents of Board Circular. On issues of taxability, to bring the prospective assessee within the ambit of the levy, the burden of proof is always on the revenue and that cannot be shifted onto the Appellant/assessee.Thus, if the Revenue seeks to tax the assessee under “Works Contract Service” and particularly under clause (ii)(b) of the explanation, then the burden of proof is on the Revenue to show at first that the construction which the assessee has undertaken is of a building or civil structure or part thereof, primarily for the purposes of commerce or industry.

9.15 We find that when the Appellant is under a belief that it does not come within the ambit of a definition of taxable service indicated in the statute, it only needs to be shown wherefrom such a belief emanates and in this case demonstrably, the appellant has indicated that such a belief was premised on the Board’s Circular No. 80/10/2004-S.T., dated 17-9-2004 issued soon after The Finance (No. 2) Bill, 2004 had been enacted on 10.09.2004.

9.16 Therefore, when the instructions issued by CBEC, stipulate “Such constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purposes of profit are not taxable, being non-commercial in nature.”, it is sufficient for the appellant to harbour a belief that the buildings, the works contract of construction of which have been entrusted to it and such entrustment being made by a charitable trust established for the purposes enumerated supra, are not taxable as such constructions are found by CBEC to be non- commercial in nature. Further we find that the recipient is governed by a Charitable Trust registered under Section 12 AA of Income Tax Act. We are therefore of the view that in the instant case while the appellant has discharged its burden of proof as regards its contention of non-taxability, the Revenue has not been able to adduce an iota of evidence that the buildings the construction of which the appellant has undertaken for these educational institutions are primarily for the purposes of commerce or industry, which burden was on it so to discharge.

9.17 The Appellant has relied upon the following decisions to fortify/buttress their case: –

9.17.1 In the case of SRM Engineering Construction Ltd. Vs. Commr of ST Chennai II 2018 [11] GSTL 174(Tri Chennai), Tribunal, Chennai has held that mere occurrence of incidental activities of Renting of space for scientific or technical service or Manpower Supply cannot be said that the building is not primarily used for educational service and service tax demand under the category Works Contract was set aside.

9.17.2 The Tribunal in the case of Banna Ram Choudhary Vs. CCE Jaipur [2017 [3] GSTL 338 (Tri.Del)] held that construction of building for use by educational institution will not attract service tax as the buildings is not primarily used for commerce or industry.

9.17.3 In the case of Commr GST Jaipur Vs. Jatan Construction Private Ltd. [2019 [241 GSTL 552 (Raj.)] service tax was demanded on construction of girls’ hostel for Sardhar Vallabhai Educational Institute of Technology under the category of Works Contract. The Hon’ble High Court concurred with the opinion of the Tribunal that construction of student’s hostel and public hospital are non-commercial buildings, hence excluded from the tax liability under Works Contract service and set aside the demand. This decision is squarely applicable to the present case.

9.17.4 Hence as per the above said decisions, demand of service tax on the buildings constructed by the appellant for Karunya Educational Institution is clearly unsustainable.

9.18 We have perused the above decisions and they are all squarely applicable to the case on hand. Appreciating the ratio of the above decisions, we have no hesitation in holding that the demand of service tax on the Appellant under works contract service, is clearly unsustainable for the period upto 30.06.2012.

9.19 Thus, we find that the confirmation of demand on the works contract of construction services rendered by the appellant with respect to educational institutions for the period upto 01.07.2012 cannot sustain and is liable to be set aside.

9.20 Therefore, in view of our discussions supra, we hold that the demand of service tax on the works contract services rendered by the appellant to educational institutions upto 01.07.2012, which is part of the demand on works contract services rendered by the appellant that the construction of educational institutions, being construction not primarily for the purposes of commerce or industry, are therefore not exigible to service tax, will no doubt, support their case only upto 01.07.2012.

9.21.1 However, we are of the view that such reliance placed on these decisions as well as the reliance placed on the Circular will not carry their case beyond 01-07- 2012 in view of the changes brought about in the Finance Act, 1994 by virtue of the new definition of “works contract” in Section 65B (54) as reproduced supra.

9.21.2 We also note that the exemption given in the Mega Exemption Notification No. 25/2012-ST dated 20.06.a2012, was also confined only to, inter-alia, construction of a structure meant predominantly for use as an educational establishment only for services provided to the Government, a local authority or a governmental authority, at Sl.No.12 of the notification ibid; which too remained only upto 01.04.2015.

9.21.3 We are therefore of the considered view that for the period after 01.07.2012, in as much as the definition of “works contract” itself has been recast and does not hinge on whether the construction is primarily for commerce or industry, the appellant is exigible to tax under the said category of “works contract service” and demand made on the appellant for the period post 01-07-2012 for the services of “works contract” provided with respect to educational institutions on this count will sustain, subject to our findings on applicability of extended period stated infra.

9.22 Therefore, the first issue upto 01.07.2012 is answered in favour of Appellant and after 01.07.2012 in favour of the Respondent/Department.

10.1 Coming to the issue of valuation of works contract service for the computation of Tax, we note that the Respondent has not deducted the value of materials provided by the Appellant from the gross value for computation of Tax for the years 2009-2010 and 2013-

14. The impugned order in Para 19 discussed this aspect,

10.2 The Appellant disputed the calculations for years 2009-10 and 2013-14 on the grounds that the value of material has not been deducted and tax has been levied on goods in which transfer of property in goods is involved.

10.3.1 According to the Appellant, the issue whether the cost of the materials supplied by the Service Recipient is to be included in the cost to arrive at the gross amount charged is decided by the Hon’ble Apex Court in the case of Commissioner of Service Tax Bhayana Builders Private Limited [2018 (101) GSTL 118 (SC)]. The Hon’ble Apex Court has held that goods/materials supplied at free of cost by the service recipient which in turn is used for providing taxable service for construction of building need not be included in the gross amount as no price is charged by the service provider.

10.3.2 This decision was followed by the Hon’ble Apex Court in the case of Jayhind Projects Ltd vs Comm of S.T, Ahmedabad [2024 (388) ELT 39 (S.C)]. Also, by the Tribunal in the case of Commr of S.T, Delhi Vs C.P.Systmes Pvt. Ltd. [2023 (71) GSTL 70 (Tri. Del.)] and in TCL-MMPL Consortium Vs. Comm of CEx Commissionerate, Jodhpur [2021 (51) GSTL 397 (Tri. Del.)].

10.3.3 This issue is no longer res integra as it is settled by plethora of decisions including the above decisions. Therefore, cost of the materials supplied by Karunya need not be added for determining the tax liability under Works Contract Services provided.

10.3.4 The Appellant calculated his liability for the disputed years 2009-10 and 2003-14 as follows: – Therefore, tax liability if any for the year 2009-10 it can be only, as detailed below. Amount Received (Rs.) Tax payable@ 4% 47,10,744 1,88,430/-

10.3.5 On the same analogy the tax payable for the year 2013-14 was also calculated to be as follows: – Gross amount received Rs 2,13,99,050 40% of the gross amount Rs 85,59,620 Service Tax @12.36% 10,57,960 And prayed that the difference in Tax demand of Rs.15,86,954 [Rs.26,44,923 – Rs.10,57,969] may kindly be set aside.

10.4 We find that Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 contain only 3 rules and Rule 3 of the said Rules primarily deal with such composition scheme. Rule 3 of the said rules starts with non-obstante clause i.e., :”Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to four per cent. of the gross amount charged for the works contract.” Thus Rule 3 of the said Rules overrides the provisions of section 67 and rule 2A of Service Tax (Determination of Value) Rules, 2006. Under the composition scheme the service provider in a works contract service has the option to pay service tax on the gross amount charged for the works contract @ 4% instead of paying at the normal rate on the actual service element. In composition scheme the gross amount charged for works contract includes: (i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and (ii) the value of all the services that are required to be provided for the execution of the works contract; But excluding- (i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and (ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire:

10.5 We find that the Adjudicating Authority has misdirected himself in rendering that for the period 2009-10 and 2013-14, the details were not provided and therefore, it was treated as NIL and the tax computed accordingly. However, we find that data for the intervening period i.e. 2010-2013 was made available by the Appellant, and we observe from the available data, that the value of the materials used by the Appellant is very high ranging from 67-77% as against the minimum of 67% claimed by the Appellant which was not acceded to. In the absence of details, the LAA should have resorted to best judgement assessment as provided in Section 72 of FA 1994. The best judgment assessment in service tax, reintroduced by the Finance Act, 2008, allows a Central Excise Officer to determine the tax liability when a person fails to file returns or assess tax as required. This assessment is based on available evidence and follows principles of natural justice, providing the taxpayer an opportunity to be heard. The officer must use reasonable judgment, not arbitrary attitude, and is required to issue a written order. The burden of proof lies with the taxpayer to provide necessary information.While involving some estimation, the assessment must be grounded in evidence beyond mere suspicion. Instead, the LAA has taken the value as NIL, and this has been contested by the Appellant.

10.6 The Appellant has given their workings based on decision in the case of Bayana Builders 2018(10) GSTL 118 (SC) and as per the Appellant’s own calculations, this will result in excess payment. We are unable to verify this aspect as sufficient material is not placed before us. We have already held in the foregoing paras that Service Tax is not payable for the period upto 1.7.2012 , and the liability will arise thereafter. Therefore, we have to remand this issue back to the LAA for the limited purpose of calculating the actual tax payable for the period 1.7.2012, to 31.3.2014 and we remit it back to the original Authority to complete this exercise after following the principles of natural justice and the entire exercise should be completed within 3 months of issue of this order. The Appellant is directed to furnish the details of the material used by them for the period disputed by them or in the event of the failure to do so, the LAA is directed to resort to best judgement and pass suitable orders for the period 1.7.2012 to 31.3.2014 following the principles of natural justice. 11. The next issue is whether Cum Tax benefit can be extended in this case.

11.1 We find that the respondent has discussed this issue in detail while rejecting the Appellant’s request as below in Paras 20 and 21 of the impugned order. “20. Yet another claim made by JMC is for considering the receipts as cum-tax value. I find that this issue is dealt already by the Tribunal in the case of Shakthi Motors reported in 2008 (12) STR 710. In Para 3 of the said decision, the Tribunal observed as follows: ”

3. In this regard, I find that I have considered the arguments advanced by the appellant. i am unable to agree with the advocate that the amount realized has to be treated as cum-service tax value in view of the provision of Section 67(2) of Finance Act, 1994, which reproduced below for ready reference. “Section 67(2). Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition o/ tax payable, Is equal to the gross amount charged In terms of the above provision if the invoice does not specifically say that the gross amount charged includes service tax, it cannot be treated as cum-service tax price. Therefore, in the absence of any evidence to show that invoices had indeed been prepared in this mariner, cum- tax value benefit cannot be extended.’ 22This condition is not shown to have been fulfilled in the present case and therefore I disallow the claim of JMC for cum-tax benefit.”

11.2 The Appellant on the other hand contends that they genuinely believed their activities were not liable for service tax and therefore did not charge or collect it from clients. As such, there was no need to mention service tax in their agreements. The turnover details relied upon by the Department were based entirely on the Appellant’s own records, which clearly indicated that the receipts were exclusive of any tax. Hence, the finding by the adjudicating authority regarding the absence of “cum-duty” documentation contradicts the evidence on record.

11.3 We find that “Cum-tax benefit” refers to a method of determining the actual service tax liability when a service provider has not separately specified the tax component in the price charged to a customer. Since service tax was an indirect tax, it was legally the consumer’s responsibility, and the total amount collected from the customer was presumed to be inclusive of the service tax. Section 67(2) provides that where the gross amount charged by the service provider for the taxable services provided or to be provided is inclusive of service tax payable, the value of taxable service in such case shall be the amount as with the addition of service tax payable, is equal to the gross amount charged, i.e., value shall be considered as inclusive of service tax. We find that there is no evidence on record to prove that the Appellant has billed and collected Service Tax from their customers. The case Law cited in the impugned order is not applicable in the present case as we note that when the Appellant was contesting the Taxabilty and by any stretch of imagination, they cannot be made to mention in the Invoice that it is inclusive of Tax payable. Therefore, we observe that the case cited by the respondent is not Applicable in this case.

11.4 We find that in the following cases it has been held that: – In P. Sugumar v. CCE, Pondicherry [2009 -TMI – 75670 – (CESTAT, CHENNAI)], where assessee had not received any separate amount towards service tax, it was held that gross amount received by him should be taken as cum- tax value and tax amount was to be recalculated. In Mackintosh Burn Ltd v. CST, Kolkata [2010 -TMI – 2018 94 – (CESTAT, KOLKATA)], it was held that where separate bills were raised on customers, mere nonpayment by customer does not mean that service charges collected to be treated as cum-tax value and as such, cum-tax benefit was not permissible. In BSNL v. CCE, Jaipur –I [2011 -TMI – 208708 – CESTAT, NEW DELHI)], where Service Tax could not be collected from customer though Service Tax was payable, it was held that demand was to be made out on the basis of cum tax value, i.e., amount received by service provider less tax payable. As such, demand is required to be computed extending the cum tax value.

11.5 We have perused the above decisions and we have no hesitation in holding that the ratio of the above decisions is applicable to the present case. Thus, this question is answered in favour of the Appellant. We remit this issue also to the LAA for allowing the Cum-Tax benefit and re-compute the tax by treating the value as inclusive of Tax. 12. Lastly, on the aspect of invoking of extended period of limitation,

12.1 We find that Section 73(1) of the Finance Act, 1994, provides a normal limitation of one year (eighteen months for later part of the demand after 2012) for recovery of unpaid service tax. The proviso extends this to five years where non-payment is “by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade.”

12.2 In Cosmic Dye Chemical v. CCE [1995 (75) ELT 721 (SC)], the Supreme Court explained that “suppression” means a deliberate concealment of facts; mere omission or negligence is not enough. Where an assessee fails to obtain registration and conceals its taxable activity, the conduct constitutes suppression.

12.3 In the present case the Appellant has

• carried on taxable construction activity continuously for several years;
•  had not obtained service-tax registration;
•  had not filed any returns; and,
•  had not paid service tax until investigation initiated.

12.4 The statutory obligation to register under Rule 4(1) of the Service Tax Rules is basic and mandatory. The failure for multiple years indicates deliberate indifference or conscious disregard, and could not be termed as mere inadvertence.

12.5 The plea of ignorance cannot be accepted in view of the settled law that ignorantia juris non excusat. In Neminath Fabrics Pvt. Ltd. v. CCE [2010 (256) ELT 369 (Guj.)], the Gujarat High Court held that such conduct “clearly evidences wilful suppression and intent to evade.”

12.6 We find that in contrast, cases such as Chemphar Drugs and Rajasthan Spinning apply only where the assessee was registered and facts were disclosed, which is not the case here.

12.7 There are a plethora of decisions favouring the Respondent in similar situations and we do not wish to reproduce here in this order to avoid burdening it for the sake of prolixity.

13.1 Penalty under Section 78 Once suppression with intent to evade is established, penalty under Section 78 becomes mandatory as held in UOI v. Dharamendra Textile Processors [2008 (231) ELT 3 (SC)].

13.2 We find that (i) The appellant remained unregistered, failed to file returns, and concealed taxable receipts. These acts constitute wilful suppression of facts with an intent to evade service tax. (ii) Accordingly, the extended period of limitation under the proviso to Section 73(1) has been rightly invoked. (iii) Since suppression and intent are proved, penalty under Section 78 is legally sustainable. The penalty imposed under Section 77 is also upheld.

14. In light of our discussions Supra, we modify the impugned Order in Original to the extent of setting aside the service tax demand for the period upto 01.07.2012, while upholding the demand of service tax payable including the extended period, along with the interest due thereon. We remit the matter back to the Adjudicating Authority solely for computing the service tax liability of the appellant for the period after 01.07.2012 afresh, which we have held as payable in the foregoing Paras including the redetermination of value for the period from 01.07.2012 to 31.03.2014. The adjudicating authority is required to put the appellant to notice of the quantification so arrived at and also adhere to principles of natural justice during the denovo adjudication proceedings, which are directed to be completed within ninety days of receipt of this order. The appellant is also directed to cooperate with the denovo adjudication proceedings.

15. Thus, the Appeal is disposed off on the above terms. (Order pronounced in open court on 29.10.2025)