CESTAT Chandigarh Holds Municipal Multi-Level Parking Not Taxable, Sets Aside ₹1.85 Cr Demand

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 1 July held that construction of a multi-level parking facility for a municipal corporation does not amount to a commercial activity when undertaken for public welfare and civic use.

Judicial Member S.S. Garg and Technical Member P. Anjani Kumar set aside a service tax demand of Rs. 1.85 crore raised against Gautam Builders, and upheld an order of the Commissioner (Appeals). The Bench observed:

“as per the para 12A above the services provided to a Local Authority in respect of construction of original works predominantly for use other than for commerce, industry, or any other business or profession are not taxable services as per the above mega exemption notification”

The Department alleged that Gautam Builders, engaged in construction services, executed work for a multi-level parking facility near Gurudev Studio, Sector-17, Chandigarh, pursuant to a contract awarded by the Municipal Corporation, Chandigarh. It scrutinised ST-3 returns for the financial year 2013-14 and found that the taxpayer declared nil taxable value despite executing works worth more than Rs. 11 crore.

Then, it issued demands aggregating about Rs. 1.85 crore along with interest and penalties, alleging that the construction activity qualified as a commercial project and attracted service tax.

Before the Tribunal, the Revenue argued that Mega Exemption Notification No. 25/2012-ST did not apply, as the multi-level parking facility constituted a commercial project. It submitted that the nature and usage of the facility reflected a profit-oriented activity.

Gautam Builders contended that it executed the project solely to provide public parking facilities and not for profit, and therefore the work fell within paragraph 12A of Notification No. 25/2012-ST, which exempts construction of original works provided to government or local authorities for predominantly non-commercial use.

The Tribunal accepted the taxpayer's submissions and held that providing parking facilities forms part of the core municipal functions aimed at public convenience and traffic decongestion. It observed that the construction of the multi-level parking facility served the objective of reducing congestion, improving traffic management, and enhancing public utility services rather than generating profit. The Bench held:

“We also not that providing parking facilities for the citizen is for the benefit of public at large which is one of the main objectives/activities of Municipal Corporation, therefore, by constructing multi level parking, Municipal Corporation, Chandigarh is providing parking facility to the citizen with an objective not to earn any profit but with an objective for the benefit of public at large”

Further, the Tribunal held that the mere collection of nominal user charges does not convert a public utility project into a commercial venture. Relying on its earlier ruling in Commissioner of Central Excise & Service Tax, Lucknow v. Shalimar Corp Ltd., it reiterated that civic infrastructure projects undertaken for public welfare cannot be treated as commercial activities solely because users pay charges.

Accordingly, the CESTAT found no infirmity in the Commissioner (Appeals)' order and dismissed the Revenue's appeals.

For Appellant: Shri Anurag Kumar and Shri G.D. Bansal, Authorized Representatives

For Respondent: Shri Atul Goyal, C.A.