Case Law Details
Laing-Simplex JV Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)
The Hon’ble Kolkata High Court in M/s. Laing- Simplex JV v. Commissioner of Central Excise and Service Tax, Ranchi [Service Tax Appeal No. 70693 of 2013 dated October 04, 2023] held that the services provided during the construction of the large sports facility were not subject to service tax. This determination was based on the understanding that the primary purpose of the mega sports complex was not of a commercial nature.
Facts:
M/s. Laing-Simplex JV, (“the Petitioner”), was involved in the construction of a Mega Sports Complex in Ranchi for hosting the 34th National Games. They entered into two agreements with the Executive Engineer, Ranchi, Government of Jharkhand for this project. Notably, the Government had separately appointed a consulting engineer for various project-related services, while the appellant was specifically tasked with construction work.
The Petitioner contested the order (“Impugned order”) passed by the Commissioner of Central Excise and Service Tax, which confirmed a service tax demand along with interest. Furthermore, the Petitioner was also subjected to a penalty equal to the confirmed service tax, imposed under section 78 of the Finance Act, 1994 (“the Finance Act”). Additional penalties under sections 76 and 77 of the Finance Act were also imposed.
The Petitioner argued that the Sports Complex was not primarily intended for commercial or business purposes. They pointed out that the Executive Engineer, Special Works Division, had certified the non-commercial usage of the Sports Complex. The presence of restaurants, a VIP guest house, and hotel facilities within the complex, they contended, was solely for making the sports complex functional and in line with international standards. This, they argued, did not make the Sports Complex intended for commercial purposes.
On the other side, the Department (“the Respondent”), supported the decisions made by the lower authorities. He maintained that the Petitioner was indeed liable to pay the service tax, and the revenue’s demand was in accordance with the law and should be upheld.
Issue:
Whether the construction services provided by the Petitioner for a Mega Sports Complex, which included non-commercial amenities like restaurants, VIP guest houses, and hotels, are subject to service tax, or if they are exempt due to the non-commercial nature of the project?
Held:
The Hon’ble Kerala High Court in Service Tax Appeal No. 70693 of 2013 dated October 10, 2023, held as under:
- Took into account the case of CCE&ST Pune Vs B J Shirke Construction Technology Pvt Ltd [2019 (25) GSTL 8 (BOM)], and clarified that the construction of the Mega Sports Complex by the State government was not subject to service tax under the category of ‘Works Contract Service’.
- Held in favour of the Petitioner by nullifying the demand for service tax and the associated penalty imposed on the taxpayer.
Conclusion:
This judgment by the Kolkata High Court has significant implications for the service tax treatment of construction activities related to non-commercial projects. It underscores the importance of the primary use and intent of a structure when determining its tax liability. In this case, the court ruled that because the sports complex was not primarily meant for commerce, the construction services were exempt from service tax.
For businesses involved in construction, this verdict serves as a reminder that the nature of the project is a critical factor in determining tax liability. When projects are primarily non-commercial in nature, such as sports complexes, they may not be subject to service tax, even if they include ancillary amenities. This judgment provides a clear legal precedent that could be referenced in similar cases in the future.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The present appeal has been filed against the impugned Order-in-Original dated 28.03.2013 passed by the Commissioner of Central Excise & Service Tax, Ranchi, wherein service tax demand of Rs. 1,70,40,203/-was confirmed along with interest. Penalty equal to service tax confirmed was also imposed under section 78 of the Finance Act, 1994 along with Penalties under section 76 and 77 of the Act. Aggrieved against the impugned order, the Appellant ( M/s Laing-Simplex JV ) has filed this appeal.
2. Briefly stated facts of the case are that the Appellant had entered into two agreements dated 31/08/2006 with the Executive Engineer, Ranchi, Government of Jharkhand for construction of a Mega Sports Complex at Ranchi for hosting 34th National Games. The Government of Jharkhand has separately appointed a consulting engineer for planning, design, engineering, project management and other related services for development and construction of the said sports complex. The Appellant was only appointed for undertaking the activity of construction as per the scope laid down. The Mega Sports complex also contains restaurants, VIP gust house, Hostel facility, etc. The allegation of the Revenue is that since the Mega Sports Complex also includes restaurants, VIP guest house, Hostel facility, helipad, etc. the same indicates commercial activities and therefore the activity of construction of Mega Sports Complex is liable to service tax under Works Contract Services as defined under clause (ii) (e ) of Explanation to Section 65(105)(zzzza) of the Finance Act 1994. On the basis of this allegation, a show cause notice dated 17.09.2008 was issued to the Appellant demanding service tax of Rs.1,70,40,203/- for the period June 2007 to May 2008. The Ld. Commissioner has confirmed the demand of service tax along with interest and penalties vide the impugned order.
3. In their submissions, the Appellant stated that they were only engaged in the activity of construction of Mega Sports Complex at Ranchi for Government of Jharkhand for hosting 34th National Games. The activity of planning, concept, design and engineering was awarded to another Consulting Engineer. The scope of work of the Appellant as per the agreement only covers the activity of construction of buildings and surrounded area based on the design and engineering approved. In a way, they were in engaged in the activity of EPC contracts but only undertook construction contracts. Thus, they contended that their activity is not classifiable under clause (ii) (e) of the Explanation to Section 65(105)(zzzza) of the Act. Their activity is of construction of building and allied services which is primarily classifiable under clause (ii) (b) of section 65(105)(zzzza) which covers ‘Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purpose of commerce or industry’. However since the Sports Complex is not primarily meant for commerce and business, the same is not liable to service tax. The fact of non-usage of Sports Complex for commercial purpose was also certified by the Executive Engineer, Special Works Division. The Mega Sports Complex also contains restaurants, VIP Guest house, Hotel facility etc. is only for the purpose of making the sports complex habitable and functional and in accordance with international standards. The same in no way make the Sports complex is meant for commercial purposes.
4. In support of their contention, the Appellant relied on the decision in the case of CCE&ST Pune Vs B J Shirke Construction Technology Pvt Ltd [2019 (25) GSTL 8 (BOM)], wherein it has been held that construction of Mega Sports Complex by the State government is not liable for service tax under ‘Works contract Service’. The Appellant also relied on the decision of the Principal Bench of CESTAT, New Delhi, in the case of Jatan Construction Pvt Ltd vs. CCE, Jaipur (Final Order no. 58135 of 2017 in ST Appeal no. 60249 of 2013), wherein identical case has been decided in favour of the assessee by relying on the Larger Bench decision in Lanco Infratech Ltd vs. CCE, Hyderabad 2015 (38) STR 709 (Tri-LB). The above said decision of CESTAT in Jatan Construction (Supra) has been upheld by the Hon’ble Rajasthan High Court wherein the Revenue’s Appeal has been rejected. Identical views have been taken by co-ordinate Bench at Chennai in M/s. Shriram EPC Ltd vs. CCE (Final Order 42412-42415 of 2018 dated 14.09.2018 in Service Tax Appeal no. 410/2011 and ST 41633/2014).
5. In view of the decisions cited above, they prayed for setting aside the impugned order and allow their appeal.
6. The Ld. A.R. reiterated the findings in the impugned order.
7. Heard both sides and perused the appeal documents.
8. We observe that the issue to be decided in the present appeal is whether the activity of construction of Mega Sports Complex for hosting 34th National Games by Government of Jharkhand would amount to Works Contract Services as defined under Section 65(105)(zzzza) of the Finance Act, 1994. For the purpose of ready reference the said section is reproduced below:
“Works contract”, for the purposes of section 65(105)(zzzza), 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;
9. We observe that the adjudicating authority has held that the activity undertaken by the Appellant are covered under Clause (e) mentioned above as EPC project, whereas the Appellant claimed that their activity would fall under Clause(b) mentioned above as it is construction of a civil structure not primarily meant for commerce or industry. A perusal of the activity undertaken by the Appellant indicate that the sports complex is a civil structure, primarily meant for conducting sports activities and not meant for commercial purposes. We agree with the contention of the Appellant that the facilities like Restaurants, VIP Guest house, Hotel facility etc. is only for the purpose of making the sports complex habitable and functional and in accordance with international standards. The same in no way make the Sports complex is meant for commercial purposes. Accordingly, we are of the view that the activity of the Appellant are covered under Clause (b) of the definition of ‘Works Contract Service’ mentioned above. We observe that this view has also been taken by the Hon’ble Bombay High Court in the case of CCE&ST Pune Vs B J Shirke Construction Technology Pvt Ltd [2019 (25) GSTL 8 (BOM)]. The relevant part of the decision is reproduced below:
“13. There is no dispute that the plot of land on which the stadium is constructed is owned by Government of Maharashtra. The record maintained by the local authorities would indicate that the plot is for public welfare use and not for residential or commercial purpose. The question that arises for consideration is whether, user of the stadium area to the extent of 1/3rd of the total area for commercial purpose would tantamount to ‘commercial or industrial construction service’ as defined by Section [65(25b)] of the Finance Act, 1994. It is not even the case of the appellant that the stadium is exclusively used for commercial purpose. Relying on materials which indicate that 1/3rd of the area of the stadium can be utilized for commercial purpose, other than sports, the appellant wants us to arrive at a conclusion that construction is commercial construction service as defined under Section 65(25b) of the Finance Act, 1994. No doubt, various rates are specified for different facilities in the sports complex. As observed earlier, it is not even the case of the appellant that sports complex is exclusively or even primarily used for commercial purpose.
14. It may be that various rates are specified for different facilities in the sports complex. This by itself is not sufficient to establish that the sports complex is exclusively or primarily used for commercial purpose. The agreement itself permits the Committee to use the area to the extent of 1/3rd of the total area for commercial purpose.
15. Let us consider the definition of the term ‘commercial or industrial construction service’ which is extracted hereinbefore. Clauses (a) to (d) of the definition provides for various types of construction and allied works including glazing, plastering, painting etc. and also repair, alteration, renovation etc on which service tax can be levied. This construction of the allied works ipso facto does not attract the levy of the service tax as further part of the definition would indicate. The said construction, in order to attract service tax, will also have to satisfy the conditions laid down by subsequent part of the definition i.e.
(i) used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for commerce or industry
(emphasis supplied by us)
16. The language employed in the definition clause is clear and unambiguous. The plain meaning as can be understood from the definition clause, more particularly, the clarification contained in clauses (i), (ii), (iii) is that the construction ipso facto is not leviable to service tax, but it is only when it is used, or to be used, primarily for “commerce” or “industry” or work intended for “commerce” or “industry” that service tax can be levied. Thus, it is only that construction which is to be used or primarily to be used for commerce that is subject to levy of service tax.
17. In the present facts, we find that dominant user of the sports complex is non-commercial. The definition uses the words “used or to be used primarily for commerce or industry” clearly indicating that the user is to be exclusively for commercial purpose or at least it must be primarily for commercial purpose. The definition leaves us in no manner of doubt that if the predominant user of the “sports stadium” is not commercial, then the same cannot be subjected to levy of service tax. Thus, in the facts of the present case, though an area to the extent of 1/3rd is used for commercial purpose prescribing separate rates for such user, this by itself is not sufficient to attract service tax.
18. Even the circulars issued by the Board dated 17-9-2004 and 10-22012 would indicate that only if such constructions are for commercial purposes, like, local government bodies constructing shops for letting them out, such activities would be commercial and builders would be subjected to service tax. The Director of Sports and Youth Services, Pune in his Affidavit filed before the authorities on earlier occasion has deposed that the stadium will be continued to be used for the noncommercial purposes even after the Commonwealth Youth Games, 2008 are over. The materials on record do not satisfy the test that the stadium is used or used primarily for commercial purpose. It is the stand of the respondent that while pursuing their object of popularizing sports by selecting best available means, they incidentally charge for the usage and the said revenue will not convert the activities into commercial use. The stand is reasonable.
19. We therefore do not find this to be a fit case to interfere with the order passed by the CESTAT in exercise of our further Appellate jurisdiction. The order under challenge is neither perverse nor vitiated by an error apparent on the face of the record.”
10. We also observe that the same view has been held by the Principal Bench of CESTAT, New Delhi, in the case of Jatan Construction Pvt Ltd vs. CCE, Jaipur (Final Order no. 58135 of 2017 in ST Appeal no. 60249 of 2013), wherein identical case has been decided in favour of the assessee by relying on the Larger Bench decision in Lanco Infratech Ltd vs. CCE, Hyderabad 2015 (38) STR 709 (Tri-LB). The above said decision of CESTAT in Jatan Construction (Supra) has been upheld by the Hon’ble Rajasthan High Court wherein the Revenue’s Appeal has been rejected.
11. By relying on the decisions cited above, we hold that the activity undertaken by the Appellant is ‘Works Contract Service’ as defined under Clause (b) of Section 65(105)(zzzza)mentioned above and hence the activities undertaken are not liable to service tax as the mega sports complex is not primarily meant for commercial purposes. In view of the above, we set aside the demands confirmed in the impugned order. As the demand itself is not sustainable, the question of charging interest and imposing penalty does not arise.
12. In view of the above discussion, we set aside the impugned order and allow the appeal filed by the Appellant.
(Dictated and pronounced in the open Court)
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