Construction Of Public Parking, Government School Not Commercial Activity For Service Tax: CESTAT Delhi

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside rejection of a Rs. 1.58 crore service tax refund to Road Infrastructure Development Company of Rajasthan Ltd. (RIDCOR), holding that construction of public parking facilities and a government residential school was not a commercial activity.

A Bench of Judicial Member Dr. Rachna Gupta and Technical Member P.V. Subba Rao, in its order dated 13 February 2026, held that parking projects constructed for municipal use fall within public functions under Article 243W of the Constitution.

“The parkings constructed by the government are claimed to be run for the public used/welfare in public interest under the Constitution of India, Article 243W and hence, cannot be treated as a commercial concern,” the tribunal observed.

RIDCOR had been awarded contracts by the Rajasthan Government for construction of multilevel parking at Nayi Sadak, Jodhpur, underground parking at Gandhi Maidan, Jodhpur, Hathiwala Park at Udaipur, and the Eklavya Model Residential School at Rajgarh, Alwar.

Service tax exemption for specified government construction contracts entered into prior to 1 March 2015 was withdrawn with effect from 1 April 2015. It was later restored retrospectively through insertion of Section 102 of the Finance Act, 1994 by the Finance Act, 2016. The provision mandated refund of service tax paid during the intervening period.

RIDCOR filed a refund claim of Rs 1,58,03,017 for tax paid between 1 April 2015 and 29 February 2016. The Department rejected the claim, contending that the parking projects were commercial in nature, that requisite documents were not furnished, and that unjust enrichment had not been rebutted.

CESTAT rejected all three grounds.

The tribunal held that the authorities erred in treating revisions made in 2016 as fresh contracts. The original agreements had been executed in 2013. They therefore qualified for the retrospective exemption.

On unjust enrichment, the bench recorded that a Chartered Accountant's certificate confirmed that the incidence of tax had not been passed on. Credit notes had been issued refunding the tax component to the government authorities. The Department produced no evidence to contradict this.

The Tribunal clarified that the refund in this case arises under Section 102 of the Finance Act, 1994, a special provision granting retrospective exemption from service tax for specified government construction contracts entered into before 1 March 2015.

Since Section 102 creates a separate and mandatory refund mechanism, the Tribunal held that decisions in BT (India) Pvt. Ltd. and ITC Ltd., which deal with the general refund framework, were not applicable.

Allowing the appeal, CESTAT set aside the order denying the refund in full.