CESTAT Delhi Holds Construction Of Roads Inside Krishi Upaj Mandi Eligible For Service Tax Exemption

Construction of roads within the premises of a Krishi Upaj Mandi is eligible for service tax exemption, while works such as auction platform coverings, boundary walls, check posts and an approach gate are not, the Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has ruled in a dispute involving a Rajasthan contractor.

A bench of Judicial Member Dr. Rachna Gupta and Technical Member P. V. Subba Rao held that roads inside a Krishi Upaj Mandi are meant for use by farmers, traders and the general public. It, however, found that auction platforms and other market structures cannot be treated as post-harvest storage infrastructure.

"The roads in question are not private roads in a private property. Krishi Upaj Mandi is meant for use by general public such as farmers, traders, etc. and hence any roads constructed therein are also meant for use of public. Therefore, the appellant is entitled to the benefit of this exemption," the tribunal held.

The appeal was filed by Maturam Construction Company against an order of the Commissioner (Appeals), Jaipur, which had partly upheld a service tax demand on construction services provided to Krishi Upaj Mandi Samiti, Kotputli. The dispute related to services rendered between April 2014 and June 2017.

The contractor challenged the service tax demand on three categories of work. These included construction of coverings over existing auction platforms, construction of roads inside the mandi, and construction of boundary walls, check posts and an approach gate.

Maturam Construction Company argued that all three categories of services were exempt from service tax under the applicable exemption notification. It maintained that no service tax was payable on the works executed for the Krishi Upaj Mandi Samiti.

The tax department opposed the appeal. It argued that construction of auction platform coverings was linked to commercial activity because auctions are conducted there. It also contended that roads inside the mandi were meant only for mandi users and not for the general public. According to the department, construction of boundary walls, check posts and the approach gate also did not qualify for exemption.

Examining the first category of work, the tribunal observed that an auction platform in a Krishi Upaj Mandi has only one primary function. It is meant for the auction of goods. The tribunal therefore held that the structure is used for commerce and could not qualify for the exemption claimed.

The tribunal then considered the claim relating to roads constructed inside the mandi premises. It disagreed with the department's contention that these roads were not intended for public use.

It observed that a Krishi Upaj Mandi is meant for use by farmers, traders and other members of the general public. Roads within the premises therefore could not be treated as private roads.

The tribunal also examined the exemption claimed for construction of auction platform coverings, boundary walls, check posts and an approach gate as post-harvest storage infrastructure. It rejected that contention.

"Clearly, auction platforms and other structures of a market are not warehouses meant for Post harvest storage but are markets meant for trade. In our considered view, they cannot be called post harvest storage infrastructure but can only be called market infrastructure. It is true that when goods are brought to the market for selling, they are stored for sometime but that does not make market a storage area. The exemption notification is not available to the appellant for these constructions," the tribunal observed.

The tribunal also upheld the invocation of the extended period of limitation. It noted that the contractor had not obtained service tax registration. It had neither filed service tax returns nor paid service tax during the relevant period.

The tribunal further observed that the department initiated its investigation only after obtaining information from the Income Tax Department.

According to the tribunal, the contractor took no steps to demonstrate bona fide intentions until the department started its investigation. It therefore held that invocation of the extended period of limitation was justified. The tribunal also upheld the penalties imposed.

The appeal was partly allowed. The tribunal set aside the service tax demand relating to construction of roads inside the Krishi Upaj Mandi. It upheld the remaining demand. The matter was remanded to the Assistant Commissioner for recalculation of the service tax and the corresponding penalty.

For Appellant: Advocate Ajay Kumar Mishra,

For Respondent: Shashank Yadav, Authorised Representative