CESTAT New Delhi Holds Sub-Contract Road Work Inherits Exemption, Sets Aside Over ₹35 Lakh Demand

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 30 June held that services relating to public road construction executed as a sub-contractor and construction of independent residential houses were eligible for exemption under Notification No. 25/2012-ST.

Judicial Member Binu Tamta and Technical Member P. V. Subba Rao allowed an appeal filed by contractor Harish Chandra Patel and set aside an impugned service tax demand of Rs. 35.14 lakh. The Bench held:

“we are satisfied that the contracts of the appellant with these three persons/entities were for construction of roads as sub-contractor which were exempted by S. No. 29(h) read with 13(a) of the notification”

The dispute arose from an investigation initiated by the department on the basis of third-party information, wherein it alleged that Harish Chandra Patel had provided taxable services under categories including construction services, residential complex construction, and maintenance services. A show-cause notice was issued proposing a service tax demand of Rs. 35.14 lakh along with interest, penalties, and late fees.

Patel contended that amounts received from contractors such as Bharat Singh Naval Singh, Shree Mewar Construction, and Gajendra Singh pertained to road construction works executed for the Public Works Department (PWD) as a sub-contractor.

He further submitted that construction undertaken for five individuals related to independent residential houses, which were exempt from service tax. He also contended that receipts towards bank interest and machinery rentals could not be subjected to tax.

Accepting the submissions, the Tribunal held that the material on record established that the contracts were for public road construction executed as a sub-contractor and were therefore eligible for exemption under Notification No. 25/2012-ST.

It held that construction of individual residential houses was also entitled to exemption and observed that absence of land ownership documents, complete addresses, or building blueprints could not, by itself, justify denial of the exemption benefit. It noted:

“We find that submission of documents of ownership of land or blue prints of construction or indication of complete addresses in the contracts is not essential to avail the benefit of the exemption notification. This part of the demand accordingly needs to be set aside and is set aside”

The Bench further held that bank interest could not be treated as consideration for taxable services and observed that receipts relating to vehicle and machinery charges also fell within the small service provider exemption threshold. It observed:

“This part of the demand needs to be set aside because interest received from the bank cannot be said to be a consideration for any service”

Accordingly, the CESTAT set aside the impugned order and allowed the appeal with consequential relief.

For Appellant: Ms. Shagun Arora and Ms. Srishti Yadav, Advocates

For Respondent: Ms. Shagun Arora and Ms. Srishti Yadav, Advocates