Service Tax Not Payable on CWG Stadia, Transport Terminals & APMC Construction: CESTAT Hyderabad

NCC Ltd. Vs Commissioner of Central Tax (CESTAT Hyderabad)

Summary: CESTAT Hyderabad allowed the appeals of NCC Ltd. and set aside service tax demands arising from construction of Commonwealth Games-2010 infrastructure, transport terminals, APMC markets and certain ongoing works-contract projects. The Tribunal held that construction of transport terminals was specifically excluded from Works Contract Service under Section 65(105)(zzzza) of the Finance Act, 1994 for the pre-1 July 2012 period. For the subsequent period, services supplied to Government/Government corporations were covered by the exemption under Notification No. 25/2012-ST. Construction undertaken for Commonwealth Games-2010 was held to relate to an international sporting event rather than a commercial activity and was consequently not taxable. Construction for Delhi University was likewise non-commercial. As regards APMC markets, the Tribunal held that APMC was a statutory authority constituted under State legislation and relied upon the existing Tribunal precedent and CBEC Circulars to hold the construction non-taxable; post-1 July 2012, exemption under Notification No. 25/2012-ST, as amended by Notification No. 2/2014-ST, was available. On ongoing projects, the Tribunal relied on the subsequent Supreme Court ruling in Larsen & Toubro concerning composite works contracts and held that the benefit of the composition scheme could not be denied merely because the assessee had not opted within time. The Tribunal further held, following Chandrapur Magnet Wires, that reversal of CENVAT credit meant that credit was effectively not taken and therefore the abatement under Notification No. 1/2006-ST could not be denied. The limited NGHC-Ranchi computation was remanded for verification. Extended limitation was rejected because NCC was registered, regularly filed returns, maintained audited books and there was no misrepresentation, suppression, misstatement or fraud. All penalties were consequently set aside and consequential relief was granted.

Cases Discussed

• Areva T & D India Ltd. Vs CCE, LT&U, Chennai — 2022 (59) G.S.T.L. 80 (Tri.-Chennai) — cited by the appellant in support of availability of the Works Contract Composition Scheme notwithstanding the objection regarding exercise of option under Rule 3(3).
• B.G. Shirke Construction Technology Pvt. Ltd. Vs CCE & ST, Pune-III — 2020 (43) G.S.T.L. 242 (Tri.-Mumbai) — held that commercial outlets and other passenger amenities do not deprive a bus terminal of its essential character as a transport terminal; relied upon in support of exclusion from service tax.
• CCE & ST, Pune-III Vs B.J. Shirke Construction Technology Pvt. Ltd. — 2019 (25) G.S.T.L. 8 (Bombay High Court) — held that construction is taxable only when used or intended to be used primarily for commerce or industry; predominant non-commercial use of a sports stadium takes it outside the levy.
• Punj Lloyd Ltd. Vs Commissioner of Service Tax, New Delhi — 2019 (22) G.S.T.L. 85 (Tri.-Delhi) — cited for the proposition that civil construction relating to Commonwealth Games-2010 was not primarily for commerce or industry.
• Murari Lal Singhal Vs CCE, Jaipur-I — 2019 (25) G.S.T.L. 45 (Tri.-Del.) — cited in support of the appellant’s claim to Works Contract Composition Scheme benefit.
• Satish Kumar and Company Vs CCE & ST, Jaipur-I — 2018 (6) TMI 1085 — cited regarding availability of the Works Contract Composition Scheme despite the dispute concerning exercise of option.
• A.B. Projects Pvt. Ltd. Vs Commissioner of Central Excise, Nagpur — 2017 (5) G.S.T.L. 195 (Tri.-Mumbai) — relied upon for the proposition that construction of market stalls for APMC is not commercial in nature. The final findings refer to the precedent as Andhra Pradesh Projects Pvt. Ltd. Vs CCE, Nagpur.
• Shapoorji Pallonji & Company Pvt. Ltd. Vs CC, C.Ex. & ST, Patna — 2016 (42) S.T.R. 681 (Patna High Court) — interpreted the definition of “governmental authority” in Notification No. 25/2012-ST as amended by Notification No. 2/2014-ST and treated clauses 2(s)(i) and 2(s)(ii) as independent/disjunctive provisions.
• Mehta Plast Corporation Vs CCE, Jaipur — 2016 (44) S.T.R. 651 (Tri.-Del.) — cited for composition-scheme eligibility; the Tribunal subsequently referred to the line of decisions after Larsen & Toubro supporting composition benefit.
• Commissioner of Central Excise & Customs, Kerala Vs Larsen & Toubro Ltd. — 2015 (39) S.T.R. 913 (SC) — Supreme Court ruling subsequently settling that indivisible/composite works contracts could not be subjected to service tax under the pre-existing service categories prior to 01.06.2007; relied upon by CESTAT while dealing with ongoing projects and composition scheme.
• Lanco Infratech Ltd. Vs CC, CE & ST, Hyderabad — 2015 (38) S.T.R. 708 (Tri.-LB) — Larger Bench ruling relied upon for the exclusion of works contracts whose rendition was primarily for non-commercial/non-industrial purposes.
• Ahluwalia Contracts (India) Ltd. Vs CST, New Delhi — 2015 (38) S.T.R. 38 (Tri.-Del.) — relied upon by Revenue concerning the composition scheme for ongoing projects.
• JMC Projects (India) Ltd. Vs CST — 2014 (36) S.T.R. 1223 (Guj.) — relied upon by Revenue for the contention that in the absence of exercise of the prescribed option, composition-scheme benefit was unavailable.
• B.J. Shrike Vs CCE & ST, Pune — 2014 (33) S.T.R. 77 (Tri.-Mumbai) — cited regarding non-commercial character of construction undertaken for Commonwealth Games-2010.
• NCC Vs Government of India — 2010 (19) S.T.R. 321 (A.P.), affirmed in 2012 (28) S.T.R. 561 (SC) — relied upon by Revenue regarding the composition scheme for projects already under execution before 01.06.2007.
• Nizam Sugar Factory Vs CCE — 2006 (197) E.L.T. 465 (SC) — cited against repeated invocation of extended limitation where the Department already knew the relevant facts from an earlier show-cause notice.
• Hyderabad Polymers (P) Ltd. Vs CCE — 2004 (166) E.L.T. 151 (SC); P & B Pharmaceuticals (P) Ltd. Vs CCE — 2003 (153) E.L.T. 14 (SC); Geo Tech Foundation & Construction Vs CCE — 2008 (224) E.L.T. 177 (SC); and ECE Industries Ltd. Vs CCE — 2004 (164) E.L.T. 236 (SC) — cited by the appellant against invocation of the extended limitation period in subsequent periodical notices.
• Chandrapur Magnet Wires (P) Ltd. Vs Collector of Central Excise — Supreme Court authority relied upon by the Tribunal for the principle that when CENVAT/modvat credit initially taken is reversed, it is treated as though the credit had not been taken; consequently, denial of Notification No. 1/2006-ST abatement was held unsustainable.

FULL TEXT OF THE CESTAT HYDERABAD ORDER

1. The Appellant herein is a public listed infrastructure company with a centralized service tax registration vide STC No. AAACN7335CST001 under the category of “Works Contract Services”, “Consulting Engineering Services” etc.

2. The Appellant was engaged in construction of various large scale government projects such as Commonwealth Games-2010 (CWG-2100), Transport Terminals for various State Governments, Agricultural Produce Market Committee (APMC) for Government of Karnataka. Based on the investigation, the Department was of the opinion that the Appellant is not properly discharging Service Tax liability by claiming exemptions/exclusions wrongly under Chapter V of the Finance Act, 1994. Further, it is the contention of the Department that the Appellant was short paying Service Tax on certain ongoing projects in terms of sub rule (2) of Rule 3 of Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007.

2.1 Accordingly, the Appellant was issued the periodical show cause notices which were confirmed by the Adjudicating Authority under different orders.

2.2 The Appellant submits that the construction services provided by them during the material period involved in the above cases relates to the construction of Sports Stadia and associated facilities to the Common Wealth Games held in Delhi in 2010, the construction of godowns, sundry sheds and markets for the APMC Market and the construction of Transport Terminals for various state governments in the State of Karnataka, Kerala, and other states. The issue involved in the above Appeals is – whether the above said construction services would be liable to Service Tax during the impugned period or not.

3. Prior to 01.07.2012, as per the main part of the definition of ‘Works Contract Service’ under Section 65(105)(zzzza) of Finance Act, 1994, all works contract services are liable to Service tax, but excludes works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams from the ambit of levy of Service tax. Further as per Explanation (ii)(b) to Section 65(105)(zzzza), works contract means, a contract carrying out – “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;”. In other words, any construction of a new building or a civil structure if not primarily for the purposes of commerce or industry will not come within the definition of ‘works contract service’ and is therefore not liable for Service tax. In this reference, the reference is invited to the decision of the Larger Bench of this Tribunal in the case of Lanco Infratech Ltd. Vs. CC, CE & ST, Hyderabad – 2015 (38) STR 708 (Tri. LB), where in para21(b)(ii), it is held that – “the bundled bouquet of services provided as turnkey/EPC contract, classifiable as commercial or industrial construction service (CICS) prior to 1-6-2007, would be classifiable under clause (b) explanation (ii) Section 65(105)(zzzza) from 1-6-2007 and would not be excisable to service tax if the rendition of service thereby is primarily for on-commercial, non-industrial purposes, in view of exclusionary clause in clause (b) of the definition of works contract service.” The ratio laid down after thorough analysis by the Larger Bench of the definition of the works contract service (WCS) hereinabove, would mean that any construction which is for non-commercial or non-industrial purposes, service tax liability under WCS will not arise. Further, the Hon’ble High Court of Bombay, had anoccasion to address the clause ii(b) of section 65(105)(zzzza) of the Act, in the case of CCE & ST, Pune-III Vs. B.J. Shrike Construction Technology Pvt. Ltd., – 2019 (25) GSTL 8 (Bom)., wherein it was held that –

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 noncommercial. 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. …………………. ”

3.1 Post 01.07.2012, the construction services provided by the Appellant comes within ambit of ‘works contract’ as defined under section 65B(54) of Finance Act, 1994. However, Notification No. 25/2012-ST, dated 20.06.2012 vide clause 12(a) provides for exemption if a civil structure or any other original works is meant predominantly for use other than for commerce, industry, or any other business or profession.

4. CWG-2010 held in New Delhi was an international sports event for the Commonwealth nations and not a commercial event. Further, Delhi University which awarded the construction contract to the Appellant through Engineers India Ltd., a project management consultant, is not a commercial concern. This being the factual position, the construction service for building a sports stadia and associated civil structures in relation to the CWG-2010 cannot be construed as services primarily for the purposes of commerce or industry. (prior to 1.7.2012). The demand of tax on the construction services of CWG-2010 in the instant case is only for the period from 01.06.2007 to 31.03.2012[covered under Appeal No. ST/26383/2013 and Appeal No. ST/20487/2014].

4.1 Further urges that, in the following cases, the Tribunal and High Court of Bombay have held that the civil construction services in relation to the CWG-2010 are not primarily for the purpose of commerce and industry.

• B.J. Shrike Vs. CCE & ST, Pune – 2014 (33) S.T.R. 77 (Tri-Mum)
• C.C.E. & S.T., Pune-III Vs. B.J. Shirke Construction Technology Pvt. Ltd. – 2019 (25) G.S.T.L. 8 (Bom.)
• M/s. Punj Lloyd Ltd., Vs. Commissioner of Service Tax, New Delhi -2019 (22) G.S.T.L. 85 (Tri. – Del.)

4.2 The objection of the department in written submission, that the Appellant has not submitted any documentary evidence issued by service recipient to show that the construction services are for non-commercial purposes, is little absurd, inasmuch as it is a settled law that what is obvious, need not be proved. It is widely known position that CWG-2010 was a sport event participated by the commonwealth nations, of which India is also one, for furtherance of sports and extending bilateral relationship between said countries, which was organized by the Commonwealth Organizing Committee and the Government of India. The construction of Sports Stadia and associated civil structures for CWG-2010 cannot be held as a commercial construction (primarily for the purpose of commerce or industry), by any stretch of imagination and are thus excluded from the ambit of ‘works contract service’ under Section 65(105)(zzzza) of Finance Act, 1994 and no Service tax liability arises. In any case, the Department has not produced any contrary evidence to this effect, neither in Show Cause Notice nor in Order-in-Original.

4.3 Another objection raised is that the Letter of Intent dated 04.08.2008 issued by M/s Engineers India Ltd., the Project Consultants to Delhi University, mentioned that the contracted price is inclusive of Service tax. It is not uncommon in a tender process calling for bids, the contracted price quoted is inclusive of taxes, if any, as an abundant precaution. Merely because such a clause exists, it would not mean that the Service tax has to be charged and collected from the service recipient, irrespective of the fact that such levy exists or not for such service activity. Since the Appellant were clearly conscious of the fact that the construction services for Common Wealth Games infrastructure is outside the purview of levy of Service tax. It is not the case of the Department in the present proceedings, that the Appellant has charged and collected Service tax from the service recipient and not paid to the Government. If that be the case, the demand in this case should be under Section 73A of the Finance Act, 1994 and not under Section 73(1) of the Act, as is in the present case. In any case, it is not under dispute in the instant case that the Appellant has not charged and/or collected Service tax from the service recipient.

5. The Appellant constructed Transport Terminals for M/s. Karnataka State Road Transport Corporation, Bangalore Metro Transport Corporation, Interstate Bus Terminal, New Delhi, NBS, Agartala and at Vytilla, Kerala for Vytilla Mobility Hub Society. All these contracts were executed for respective State Governments, under the Jawaharlal Nehru Urban Renewal Mission (JNNURM). The issue is whether the transport terminals constructed for travellers with commercial establishment in the said terminals alter the characteristic of such terminals. The demand is in respect of construction of Transport Terminals for the period pre and post 1.7.2012.

5.1 The Appellant submits that the essential character of transport terminal is to provide passengers and buses a point to embark/ disembark. They also help in management of traffic as the buses do not stop haphazardly on the roads and instead enter the transport terminals into specific bays. It is the case of the department that there are commercial establishments in the said transport terminals, therefore, it is a civil construction primarily for commerce. Merely because there are facilities for passengers to purchase amenities or the fact that the bus terminals raise revenue by renting out such commercial spaces does not alter the character of the transport terminal to a commercial building. It still remains a transport terminal for use of general public and mere presence of some commercial spaces created for public convenience would not make the said civil structures primarily for the purposes of commerce and industry.

5.2 For the period prior to 01.07.2012, the ‘transport terminal’ is clearly excluded from the main part of the definition of ‘works contract service’ under section 65(105)(zzzza) itself, which reads as follows:

“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”

In the light of the clear exclusion of the construction services in respect of ‘transport terminals’ from the definition of ‘works contract service’, there cannot be any levy of Service tax at all, prior to 01.07.2012.

5.3 For the period post 17.2012, Clause 13(a) of Notification No. 25/2012- ST dated 30.06.2012 clearly exempt construction of transport terminals from payment of Service tax, which reads as follows:

“13. Services provided by way ofconstruction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of-

a. a road, bridge, tunnel, or terminal for road transportation for use by general public; “

5.4 The Appellant also submits, the construction of transport terminals are also exempted in terms Clause 12(c) of Notification No. 25/2012-ST since the Appellant satisfy both the conditions of the said clause i.e., (i) the services provided to Government, a local authority or a governmental authority by way of construction of a civil structure or any other original works and such service is (ii) meant predominantly for use other than for commerce, industry, or any other business or profession. In the instant case, the transport terminals were constructed for Karnataka State Transport Service Corporation (KSRTC), which is wholly owned by State Government of Karnataka, Bangalore Metropolitan Transport Corporation (BMTC), which is wholly owned by State Government of Karnataka, Delhi Transport Corporation, which is wholly owned by State Government of Delhi (Inter State Bus Terminal, New Delhi), Tripura Road Transport Corporation, which is wholly owned by State Government of Tripura (NBS-Agartala), and Kerala State Transport Corporation, which is wholly owned by the State Government of Kerala (Vyttila Bus Terminal). All these corporations are set up under Central Act viz., The Road Transportation Corporation Act, 1950 and therefore come within the meaning of ‘governmental authority’ as defined under clause 2(s) of Notification No. 25/2012-ST dated 20.12.2012, which was further clarified by an amendment by Notification No. 2/2014-ST dated 30.01.2014, to read as follows:

(s) “Movernmental authority” means an authority or a board or any other body;

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by Government,

with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution; “

Thus, the Appellant satisfies the condition that the services were provided to governmental authority i.e., State Transport Corporations (any other body), which are set up by a Central Act, The Road Transportation Corporation Act, 1950. Clause 12(c) of Notification No. 25/2012-ST dated 20.12.2012 read with clarificatory amendment vide Notification No. 2/2014-ST dated 30.01.2014was examined and interpreted by the Hon’ble Patna High Court in the case of  Shapoorji Paloonji& Company Pvt. Ltd. Vs. C.C., C. Ex. & S.T., Patna – 2016 (42) S.T.R. 681 (Pat.), wherein it was held as follows:

“11. We have heard learned counsel for the parties and found the arguments raised by Mrs. Nivedita Nirvikar are not sustainable in law. The Governmental Authority as defined in the Notification dated 30th January, 2014, means an authority or a board or any other body set up by an Act of Parliament or State Legislature. The provisions contained in sub-clause (i) and sub-clause (ii) of Clause 2(s) are independent dis-conjunctive provisions and the expression “90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution” is related to sub-clause (ii) of Clause 2(s) alone. The clause (i) is followed by “;” and the word “or”. Therefore, each of the sub-clauses is independent provision. The condition of 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution is relatable to only sub-clause (ii) of Clause 2(s). It means that an authority established by Government should have 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution to be eligible for exemption. The Authority set up by an Act of Parliament or State Legislature is not and cannot be made subject to the condition of 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution. Thus, the construction activity undertaken by the petitioner in respect of the academic block of the Institute-Respondent No. 4, is exempt from payment of service tax in terms of Notification, dated 20th June, 2012 as amended.”

5.5 Further urges – the other eligibility under Notification No. 25/2012-ST, whether the construction of transport terminal service is meant predominantly for the use other than commerce or industry or not, it is submitted that use of transport terminals created by the Government bodies are predominantly for public use only and therefore are for non-commercial purposes. In this reference, attention is invited to the decision of this Tribunal in the case of B.G. Shirke Construction Technology Pvt. Ltd., Vs. C.C.E. & ST-Pune III reported in 2020 (43) G.S.T.L. 242 (Tri. – Mumbai), wherein it was held that –

7. The generic expression ‘transport terminal’ must be read in the context of its usage for servicing means of public transport. While ‘airports’ may have been enumerated separately in the exclusions within the taxable entry, it too is a transport terminal as the distinguishing characteristic of such facilities is connectivity, interface and buffer. It is for the last of these, viz., buffer for stepping up or stepping down to capacity of the next level of interface, that space is constructed to offer a bouquet of services and goods to passengers during the waiting time. Therefore, the utilisation of built-up space by commercial entities does not detract from the essential purpose of such terminals and, traditionally, every bus terminal has outlets serving the passengers. In the absence of legislative intent or legislative delegation, an artificial delineation of space, at the discretion of tax authorities, is not acceptable. It is also specious to argue that absence or limits of security restrictions, unlike that elaborately designed, for obvious reasons at airports, should disentitle bus terminal from application as exclusion. Thus, ‘terminals’, such as the one impugned before us, are, in the absence of express legislative intent to limit application on the basis of scale of use or scale of access, within the ambit of exclusion from tax.

8. In view of the above, we find that the demand in the impugned order fails the test of law and must be set aside. The appeal is allowed.”

5.6 Further reference is invited to the clarification sought by the Commissioner of Central Excise, Mysore Commissionerate vide C. No. IV/16/17/2009-HPU-ST dated 27.08.2009 sought for clarification regarding  the taxability of Inter Model Transit Centre (IMTC) built by KSRTC, from the CBEC. The Board vide their letter in F. No. 137/93/2009-CX.4 dated  07.01.2010, clarified that they shall be classified by the essential characteristics of the construction. It further clarified that, prima facie, the construction of transport terminal by KSRTC could not be for commerce irrespective of the revenue that would be generated from its operations and therefore held, it is the transport terminal that gives its essential operations. Further, it was also clarified that it is a question of fact that must be decided by the adjudicating authority as to whether the building is a transport terminal OR only a construction to facilitate customer to come to the commercial complex. In the instant case, it is the former in as much as the building is primarily a transport terminal and not a commercial complex for customers, for example a mall.

5.7  In view of the above, it is submitted that the construction of Transport Terminals falls under exclusion in the main part of the definition of works contract as defined under Section 65(105)(zzzza) of the Act and are also not meant primarily for the purpose of commerce and industry (prior to 01.07.2012) and also exempted in terms of Clause 13(a) of Notification No. 25/2012-ST and not predominantly used for commerce, industry, or any other business or professions per as per Clause 12 of the said Notification (post 01.07.2012).

6. The State Government of Karnataka, in order to facilitate farmers to sell their produce and get reasonable prices, created Agricultural Produce Market Committee (APMC) in many towns of State of Karnataka, which is a statutory body, set under the Act of State Legislature viz., ‘The Karnataka Agricultural Produce Marketing (Regulation and Development) Act, 1966’. In these APMC markets, the traders and marketing agents are provided stalls and shops for purchase of agricultural produce from the farmers. An Agricultural Produce Market Committee (APMC) is a marketing board established by state governments in India to ensure farmers are safeguarded from exploitation by large retailers, as well as ensuring the retail price spread does not reach excessively high levels. APMCs are regulated by states through their adoption of Agriculture Produce Marketing Regulation (APMR) Act. APMCs operate on two principles:

(i) Ensures that farmers are not exploited by intermediaries (or money lenders) who compel farmers to sell their produce at the farm gate for an extremely low price.

(ii)All food produce should first be brought to a market yard and then sold through auction.

Each state that operates APMC markets (mandis) establish their markets in different places within their territory, geographically dividing the state. Farmers are required to sell their produce via auction at the mandi in their region. Traders require a license to operate within a mandi. Wholesale and retail traders (e.g. shopping mall owners) and food processing companies cannot buy produce directly from a farmer.

6.1 The demand in respect of construction of APMC Markets for the period pre and post 01.07.2012.

6.2 The Appellant submits that the service provided for construction of sub-market yard is not for commerce or industry, but it is a facility provided to the farmers by the Government of Karnataka through APMC, which itself is not an organization functioning with profit as motive and thus go outside  the purview of definition of ‘works contract service’ under section 65(105)(zzzza) of the Act, as it does not come within clause (b) of explanation (ii) to the said Section, i.e., construction services meant primarily for the purposes of commerce and industry.

Reference is invited to the decision of the Hon’ble Tribunal, Mumbai in the case of A.B. Projects Pvt. Ltd. Vs. Commissioner of Central Excise, Nagpur [2017 (5) G.S.T.L. 195 (Tri. – Mumbai)], wherein it was held that the construction for APMC for market stalls are not commercial in nature and reads as follows:

“4. We have gone through the rival submissions. We find that Hon’ble High Court in appellant’s own case has held that APMC is constituted for charitable purposes. In this regard the C.B.E. & C. Circular No. 157/8/2012-S. T., dated 27-4-2012 and Circular No. 80/10/2004-S.T., dated 17-9-2004 which are reproduced below:

“Circular No. 157/8/2012-S.T., dated 27-4-2012

4. When examined with reference to its constitution and functions, the services provided by APMC out of the ‘market fee’ collected from the licensees, do not appropriately fall under the category of BSS. The distinction between BSS and BAS is explained in the instructions dated 28-2-2006 issued from F.No. 334/4/2006-TRU. In the light of the above instruction, the service provided by APMC out of the market fee is not in the nature of ‘outsourced service’. It is not possible to hold that the licensees have outsourced the development and maintenance of agricultural market to the APMC, which could have been otherwise undertaken by them, solely in their business interest. Development and maintenance of agricultural market infrastructure undertaken by APMC in accordance with the statute, is for the benefit of all users, rather than an activity  solely in the interest of licensees. Hence, APMC cannot be said to be rendering `business support service’ to the licensees. Market fee’ is not in the nature of consideration for such BSS.

5. As statutory bodies, APMCs provide basic facilities in the market area out of the ‘market fee’ collected from the licensees, mainly to facilitate the farmers, purchasers and others. APMCs provide a host of services to the licensees in relation to the procurement of agricultural produce, which are ‘inputs’ in terms of the definition given in section 65(19) of the Finance Act, 1994 itself. To that extent the meaning of ‘input’ is much wider in scope than the meaning assigned in rule 2(k) of Cenvat Credit Rules, 2004. Therefore, it is clarified that the services provided by the APMC are classifiable as BAS and hence covered by the exemption under Notification 14/2004-S.T.”

Circular No. 80/10/2004-S. T., dated 17-9-2004

In view of above, the activities of APMC in respect of these contracts are not commercial in nature. Thus, these contracts are not covered under the purview of commercial and industrial construction service.”

6.3 For the period post 1.7.2012 also the construction services of APMC markets is entitled to the benefit of Notification No. 25/2012-ST as amended by Notification No. 2/2014-ST, since the services were rendered to the Government of Karnataka and the APMC is a non-commercial statutory body.

6.4 The objections/grounds raised with regard to APMC in the additional submissions filed by the Revenue are general in nature, and in the light of the submissions and precedent rulings, there is no need for specific rebuttals for such objections/grounds.

COMPOSITION SCHEME-Ongoing Projects [Appeal No. ST/30015/2016]:

7. In Appeal No. ST/30015/2016, the Appellant is also contesting the demand of tax in respect of certain ongoing projects. Under the impugned order the benefit of abatement under Notification No. 1/2006-ST dated 1.3.2006 [Service tax shall be calculated on a value equivalent to 33% of the gross amount charged) was rejected erroneously on the ground that the  Appellant have taken Cenvat credit of duty on inputs/capital goods and  Cenvat credit on input services were taken, and differential  tax demand of Rs. 99,72,000/- (from October 2011 to June 2012) was confirmed under the impugned order, in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2007, completely ignoring the evidence filed before him, that the Cenvat credit taken inadvertently was already reversed along with interest and was also informed to the jurisdictional Commissioner vide letter dated  05.02.2013 and obtained acknowledgement. This clearly indicates that the impugned order is passed without proper application of mind. The Ld. Commissioner does not even whisper about the evidence in his findings. On this ground itself the said demand of Tax is liable to be set aside.

7.1 Further the impugned order also denied the benefit of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, and demand was made in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006, since the Appellant failed to exercise the option to operate under such scheme in terms of Rule 3(3) of the said Rules. In this regard, the Appellant submits that the non-fulfilment of Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 would not disentitle them to the said scheme, in terms of the following decisions:

• Mehta Mast Corporation Vs. CCE., Jaipur – 2016 (44) S.T.R. 651-(Tri.-Del)
• Satish Kumar and Company Vs. CCE & ST, Jaipur-I [2018 (6) TMI 1085]
• Murari Lai Singhal Vs. CCE., Jaipur-I – 2019 (25) G.S.T.L. 45 (Tri.-Del)
• Aistom T&D India Ltd., Vs. CCE, Chennai – 2020 (34) G.S.T.L. (Tri.-Chennai)
• Areva T & D India Ltd., Vs. CCE, LT&U, Chennai – 2022 (59) G.S.T.L. 80 (Tri.- Chennai)
• Kunnel Engineers and Contractors Pvt. Ltd. v. Commissioner — 2020-VIL-294-CESTAT-BLR-ST
• Vaishno Associates v Commissioner — 2018-VIL-217-CESTAT-DEL-ST

7.2 For the period post 01.07.2012, the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is no longer in vogue and  accordingly the payment for works contract services, have to be made in terms of Rules 2A of Service tax (Determination of Value) Rules, 2006 at the full rate on the 40% of the total value of contract (services). It is an admitted position in the impugned order that for the period from 1.7.2012 to 30.09.2014, there were only two ongoing projects viz., NGHC-Ranchi and NTPC-Noida. It is also admitted fact that the Appellant were discharging Service tax in terms of Rule 2A of Service tax (Determination of Value) Rules, 2006. The Ld. Commissioner, however, in the impugned order records that there is short payment of tax in respect of services rendered to NGHC-Ranchi to the extent of Rs. 7,04,639/- for the period July 2012 to March  2013 and Rs.7,10,971/- for the period from April 2013 to September 2014, with some unintelligible reasons, which the Appellant is unable to decipher and therefore are not in a position to counter. The Appellant, however, categorically denies the alleged short payment of tax and asserts that they paid the full and correct Service tax in terms of Rule 2A of the Service tax (Determination of Value) Rules, 2006 as per the worksheet filed before the Ld. Commissioner, during the adjudication proceedings.

8. Without prejudice to the above submissions on merits, the Appellant submits that the impugned orders, in Appeal Nos. ST/20487/2012 and ST/30015/2016 could not have invoked extended period of limitation, when the department is in complete knowledge of the construction services provided to CWG/various State Bus Terminals/APMC Yard, etc. at the time of issue of show cause notice vide O.R. No. 120/2011-Adjn dated 22.10.2011 on the same set of facts and allegations, and the proceedings in the above said appeals being periodical. In other words, the first show-cause notice itself was issued based on certain relevant facts and when there was no change of facts for the subsequent period, the allegation of suppression of facts raised in the subsequent periodical notices was untenable, in terms of the following decisions:

• Nizam Sugar Factory Vs.CCE -2006 (197) ELT 465 (SC)
• Hyderabad Polymers (P) Ltd. Vs. CCE -2004 (166)ELT151 (SC)
• P & B Pharmaceuticals (P) Ltd.Vs. CCE – 2003 (153) ELT 14(SC)
• Geo Tech Foundation & Constr. Vs. CCE -2008 (224) ELT 177(SC)
• ECE Industries Ltd Vs. CCE – 2004 (164) ELT 236(SC)

Demand for short payment of Service tax amounting to Rs. 4,00,06,437/-as per ST-3 Return for the period October 2010 to March 2011 [Appeal No.  ST/26383/2013].

9. In Appeal No. ST/26383/2013, the total demand of Service tax is Rs.24,08,46,851/-, consisting of demand of Service tax amounting to Rs.20,08,40,415/- relating to construction services, relating to CWG-2010, Transport Terminals, APMC markets and a demand of Service tax amounting to Rs.4,00,06,437/- relating to short payment of Service tax as per ST-3 Return for the period October 2010 to March 2011. The Appellant submits  that the short payment of the said Service tax liability was made known to  the Department at the time of filing the ST-3 Returns for the period October 2010 to March 2011 vide letter dated 8.09.2011 wherein it was specifically  stated that the short payment of tax amounting to Rs. 4 crores for the said  period was due the fact that the said amount has already been deposited by  them in an ongoing investigation, being conducted by Anti-evasion team of Commissionerate II, which they had requested to adjust towards the Service tax liability after completion of the investigation. In fact, the said amount deposited during investigation was appropriated in the impugned order at Para 25(i), which is reflected at page 152 of Appeal No. ST/26383/2013. It is therefore submitted that the short payment of Service tax liability of Rs. 4 cores cannot be equated to evasion of tax, in order to invoke section 78 to impose equivalent penalty. In the absence of any of the ingredients of provisions of the said section, no penalty is imposable.

10. Since the demand of tax itself is not sustainable the demand of interest on the tax demanded and penalties imposed are also liable to be set aside.

11. Further urges, in the light of the above submissions, it is prayed that this Tribunal may set aside the impugned order in toto and allow the appeal, with consequential relief(s).

12. Learned AR for Revenue relies on the impugned order.

13. He further urges, as regards the issue of abatement under Notification No. 1/2006-ST, that the appellant had produced CA certificate dated 14.08.2015 wherein it is certified that no Cenvat Credit is availed on the projects. However, on verification of ST-III returns of the appellant the said claim appeared to be untrue. CA certificate appears to be erroneous. It was also found that appellant have not filed any supporting documents about the value of the materials consumed in execution of the works contract. Appellant also did not produce any evidence in support of payment of VAT/Sales Tax for consideration of abatement as regards the material component.

13.1 As regards availment of composition scheme assessee is require to opt for the scheme under Rule 3(3) of Works Contract Composition Rules, 2007. However, Rule 2A of Service tax (Determination of Value) Rules, 2006 provides that value of taxable service will be gross amount charged for works contract, less the value of transfer of property in goods, in execution of the work.

13.2 Appellant have also raised the plea that 2 projects NTPC and NTPC – Noida have been sub-contracted on back to back basis, and tax liability on these works can be fastened only on the sub-contractor.

14. Adjudicating Authority held that in respect of services rendered to NGHC – Ranchi, the service tax payable at the rate of 12.36% on 40% of the total value of contract, works out to 4.94%, whereas appellant have paid service tax at 4.12% only during the period July 2012 to September 2014. The short paid service tax amounting to Rs. 7,04,639/- have been rightly confirmed.

15. So far, transport terminals constructed by appellant, it is contended that these are for commercial purpose. Commerce, exchange of goods or services, it need not be necessarily for commercial purpose/for profit making. Further, only a part of the transport terminal is used for transport. The classification of taxable service is to be determined by essential character of service. Similarly, APMC markets are primarily meant for sales and purchase of agriculture produce like vegetables, fruits, grains etc., which are directly given under the definition of commerce.

16. Learned AR has relied on the following rulings:

i) NCC Vs Government of India [2010 (19) STR 321 (AP)] dated 07.06.2010 wherein the Hon’ble Supreme Court has held any option to pay service tax under composition scheme under the head Works Contract Service with respect to ongoing projects under execution prior to 01.06.2007, benefit of composition is not available. The said order was confirmed by Supreme Court reported at [2012 (28) STR 561 (SC)].

ii) JMC Projects (India) Ltd., Vs CST [2014 (36) STR 1223 (Guj)]. In this ruling, the Hon’ble Supreme Court held that in case of ongoing project prior to 01.06.2007 it was upon to the assessee to change the classification, provide or specify the option therefor. However, in the absence of option, composition scheme was not available.

iii) Ahluwalia Contract (India) Ltd., Vs CST, New Delhi [2015 (38) STR 38 (Tri-Del)] Final Order dated 27.11.2014.

17. Having considered the rival contention, we find that so far construction of transport terminal is concerned, the same was exempt under the definition of works contract service under Section 65 (105) (zzzza), firstly, because the definition read with explanation (II) (b) specifically provides construction of a new building or civil structure primarily for purposes of commerce or industry. Further, the main definition provided the exclusion of transport terminals. Further, we find from 01.07.2012 as admittedly the service was provided to Government or Government Corporations, we hold the same are exempt under Clause No. 12 of Notification No. 25/2012-ST wherein clause ­A provides for exemption of services provided to Government, Local Authorities or Government Authorities in respect of a civil structure or other original work meant predominantly for used other than for commerce nature or any other business or profession.

18. So far the construction done for Common Wealth Games – 2010 is concerned, we hold that the same was an International Sporting Event and not a commercial activity. Accordingly, we hold that the same was exempt and not taxable.

19. So far construction done for Delhi University, wherein the work was awarded through Engineers India Ltd., (consultant management) admittedly, we find Delhi University is an academic institution, and construction provided to it are held to be not commercial in nature, and accordingly, we hold the same are exempted. In the facts and circumstances, we find that the Learned Commissioner have erred in observing that the appellant could not prove that services for these purposes are non-commercial in nature. We also hold that inclusion of the clause in the agreement that service tax if any has to be borne by the contractor/ service provider, does not alter in any way the provisions of service tax with respect to the tax liability. We also find that the works of construction of transport terminal is also exempt from service tax under clause 12(a) of Notification No. 25/2012-ST, as the said clause provided for exemption in respect of construction etc., of interalia terminals for road transport for use by general public. Our findings are supported by clarification by Board Circular vide its letter number F.No. 137/93/2009-CX 4 dated 07.01.2010.

19.1 So far the construction of APMC Market is concerned, we find that the market committee under the APMC is a statutory authority, set up under the Act of State Legislature. We further find that the issue is no longer res-integra as it had been held not taxable by this Tribunal in the case of Andhra Pradesh Projects Pvt Ltd., Vs CCE, Nagpur [2017 (5) GSTL 195]. Further, non-taxability with respect to work for Andhra Pradesh has been clarified by the Board vide Circular No. 157/8/2012-ST  read with Circular No. 80/10/2004-ST. We, however, find that post 01.07.2012 the services provided to APMC are in the nature of construction is exempted, under Notification No. 25/2012-ST as amended by Notification No. 2/2014-ST. Since the services were rendered to the State Government or a Government Authority.

19.2 So far the issue of tax liability with respect to ongoing projects (which were started prior to 01.06.2007) when the head of works contracts was introduced in the Finance Act, view had been taken by the Revenue and also by some High Courts that in case of ongoing projects though the activity is classifiable under ‘works contract service’ with effect from 01.06.2007 however, the benefit of composition scheme cannot be availed. We find that the rulings being relied upon by the Revenue against the appellant are all prior to August, 2015 when the Apex Court held that in case of composite contracts, service tax cannot be demanded prior to 01.06.2007 under the existing heads of services like CCS, ECIS, CICS etc., as there was no mandate in the Act to bifurcate a composite contract and tax the service component. The Apex Court categorically held that prior to 01.06.2007 only simple contracts involving only service, and no deemed transfer of material can be subjected to service tax. Thus the issue of ongoing projects prior to 01.06.2007 stands settled by Hon’ble Supreme Court in the subsequent ruling of L & T in August, 2015. In the circumstances, as the scheme of composition was introduced for the first time for ease of business, and to avoid harassment to the assessees, the window to pay tax under the composite scheme was provided. The benefit of the scheme to the appellant was denied as it could not opt for composition scheme in due time. Thus, we hold that benefit of composition scheme is available to the assessee, and accordingly the denial of benefit of composition scheme is set aside.

20. So far the issue of benefit of abatement (for material) under the Notification No. 1/2006-ST is concerned, the appellant had initially taken the Cenvat Credit which they had reversed under intimation to Revenue. Such claim have not been found to be wrong. Hon’ble Supreme Court have held in the case of Chandrapur Magnet Wires that where the Cenvat Credit taken is reversed, it amounts to Cenvat Credit have never been taken. Accordingly, we hold that the denial of benefit of abatement under Notification No. 1/2006-ST is bad and is set aside. Subsequent to the ruling of Larson & Toubro (SC), Tribunal and the High Courts in several matters have held that the assessee are entitled to composition scheme, particularly in the case of Mehta Corporation Vs CCE, Jaipur (supra).

21. So far the demand of tax with respect to the work executed for NG, Ranchi Rs. 7,04,639/- and Rs. 7,10,971/- is concerned, the same is set aside and allowed by way of remand. The appellant shall file fresh computation of tax for this work before the Adjudicating Authority. Same will be accordingly verified and in case any short fall is pointed out, the appellant shall deposit the same.

21.1 So far the ground taken by the appellant, that extended period of limitation could not have been invoked, in the facts and circumstances, we find that appellant was registered with the Department and regularly filing their ST-III returns. Further, appellant maintains proper books of accounts which are subject to audit by the company auditor and also under tax audits. Further, we find whatever demands have been raised, has been raised based on the records maintained by the appellant and there is no mis representation, or any suppression or mis statement or fraud on the part of the appellant. Accordingly, we hold that extended period of limitation is not available to Revenue.

21.2 In view of our findings, we set aside all the penalties imposed. Thus the appeals are allowed and the impugned orders are set aside. The appellant shall be entitled to consequential benefits, if any, in accordance with law.

(Order Pronounced on  11.10.2023 in open court)