Construction of Educational Institutions Not Taxable Before 1 July 2012: CESTAT Chennai

On 8 June, the Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that works contract services used for construction of educational institutions were not liable to service tax during the relevant period prior to 1 July 2012, and dismissed the Revenue's appeal challenging the non-levy.

Technical Member M. Ajit Kumar and Judicial Member Ajayan T.V. decided the appeal filed by the Department against R.R. Thulasi Builders (India) Pvt. Ltd. The Bench held:

“...it stands conceded that the institution Periar Maniammai University has been granted a 'Deemed to be University' status in terms of Section 3 of the University Grants Commission Act and Periyar Teacher Training Institute is a Private Institution for teacher training. Thus, in the instant Appeal too, no case has been made out that these institutions are not used principally or solely for providing education…”

The dispute arose after the Department issued a show-cause notice alleging non-payment of service tax on construction activities undertaken for various educational institutions between 1 October 2008 and 30 June 2012. The notice proposed a demand exceeding Rs. 21.25 crore towards service tax, interest, and penalties.

During adjudication, the Commissioner confirmed a demand of about Rs. 19.76 crore for construction services provided to private educational institutions, while dropping a demand of Rs. 1.48 crore relating to construction services rendered to two institutions, treating them as Government educational institutions.

Aggrieved by the partial relief, the Department contended that one of the institutions functioned only as a private entity granted “Deemed to be University” status under Section 3 of the University Grants Commission Act and could not qualify as a Government educational institution. It argued that both institutions should be treated as private educational institutions and the entire demand should be confirmed.

The taxpayer submitted that the Tribunal had already set aside the service tax demand on construction services provided to private educational institutions in its earlier decision arising from the same adjudication order, and therefore the appeal lacked merit.

The Tribunal noted that it had earlier relied on CBEC Circular No. 80/10/2004-ST, which clarified that construction services provided to institutions established solely for educational, charitable, religious, health, or philanthropic purposes and not for profit do not constitute commercial activity and do not attract service tax. It also held that construction of educational institutions cannot be treated as taxable commercial construction.

The Bench referred to its earlier ruling and found that no allegation existed that the institutions were used for any purpose other than education. It further observed that the Department's grievance rested only on classification as private educational institutions. Since it had already held that construction of private educational institutions did not attract service tax, the Tribunal concluded that the Revenue's argument could not survive.

Accordingly, the CESTAT dismissed the appeal as devoid of merit, and the relief granted by the Commissioner was upheld.

For Appellant: Mr. N. Satyanarayana, Authorized Representative

For Respondent: Ms. Radhika Chandrashekar, Advocate