No Service Tax On Non-Commercial Residential Construction: CESTAT Allahabad

The Allahabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 30 April held that service tax does not apply to construction services rendered for residential colonies not intended for commercial use. It also set aside the bulk of the demand on the ground of limitation.

A Bench comprising Judicial Member P. K. Choudhary and Technical Member P. Anjani Kumar allowed the appeal filed by Ashish Enterprises against the order confirming a service tax demand of Rs. 1.67 crore along with interest and penalty for the period 2009–2014. It observed:

“mere nonpayment of Service Tax and non-filing of returns would not in itself be a reason to hold that Appellants have suppressed material facts before the Department.”

Ashish Enterprises provided construction services to government bodies, including National Projects Construction Corporation Limited and Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited. The Department issued a show cause notice alleging suppression of facts and evasion of service tax, primarily based on discrepancies between Form 26AS, balance sheet entries, and declared taxable value.

The Department contended that Ashish Enterprises failed to discharge service tax on various contracts and wrongly availed exemptions and abatements.

The appellant argued that a substantial portion of the work related to construction of residential quarters and colonies for employees, which were not intended for commercial or industrial use and therefore fell outside the scope of taxable services. It also contended that certain activities qualified for exemption, fell below the threshold limit, or had already suffered tax in the hands of the principal contractor.

The Tribunal examined whether the services related to residential construction for non-commercial purposes. Relying on settled precedents, it held that construction of residential colonies not intended for commercial exploitation does not attract service tax under the relevant provisions. The Bench observed:

“....the Appellants are not required to pay Service Tax in respect of the services rendered in respect of 'Construction of Residential Complex Service.....”

The Tribunal further held that the adjudicating authority erred in focusing on the appellant's status as a sub-contractor instead of examining the nature and end use of the construction activity.

On limitation, the Tribunal ruled that the extended period could not be invoked merely on the basis of discrepancies in Form 26AS or balance sheet figures, in the absence of positive evidence of suppression or wilful misstatement.

It further held that non-payment of tax or differences in accounting records alone do not establish intent to evade tax, particularly when the taxpayer remains registered and files returns. It noted:

“...the learned counsel submits fairly that an amount of Rs.3,79,794/- tax remains to be paid and the same would be paid....”

Accordingly, the CESTAT partly allowed the appeal on merits and fully on limitation, setting aside the major portion of the demand. It upheld the liability only to the extent of Rs. 3.79 lakh for 2013–14, as admitted by the appellant.

For Appellant: Dharmendra Srivastava, Chartered Accountant

For Respondent: A. K. Choudhary, Authorized Representative