Ahmedabad CESTAT Grants Service Tax Relief On Government Staff Quarters, Remands APMC Issue

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 9 July held that construction of residential staff quarters and government infrastructure meant for personal use of government employees is not liable to service tax under the Finance Act, 1994.

Technical Member Sanjiv Srivastava and Judicial Member Dr. Ajaya Krishna Vishvesha partly allowed the Revenue's appeal against contractor Paresh S. Patel. While it granted relief for construction works undertaken for several government bodies, it remanded the issue relating to works executed for the Agricultural Produce Market Committee (APMC) for fresh computation in light of the Supreme Court's ruling in Krishi Upaj Mandi Samiti. The Bench observed:

"Thus, in respect of the demand made on services provided to APMC, we are of the view that Revenue should succeed both on the ground of merit and limitation. However, we are of the considered opinion and also in view of the decision of Hon'ble Supreme Court in the case of Larsen & Toubro, the benefit of composition scheme as provided by Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and the cum-tax benefit as per Section 67 would be available to the respondent while computing the service tax demand."

The Revenue had challenged the Commissioner's order dropping the demand raised against Patel. The Department alleged that the construction activities undertaken by him for various government bodies were taxable as works contract services under the Finance Act, 1994.

Patel had undertaken construction works for government authorities including the Gujarat State Police Housing Corporation, Road and Building Department, APMC, Gujarat Energy Transmission Corporation Limited (GETCO) and other public bodies. The projects included residential quarters, hostels, educational institutions, government offices, libraries, roads and other infrastructure.

The Tribunal examined the nature of the contracts and held that residential quarters constructed for government employees fell within the exclusion for "personal use". It relied on decisions including Khurana Engineering Ltd., Sugandha Construction Ltd. and Nitesh Estates Ltd. to hold that such construction activity was not liable to service tax.

Further, the Bench observed that the residential complexes were not constructed for any commercial purpose but were intended to provide accommodation to government employees. It held that public facilities such as libraries and educational institutions were not primarily meant for commerce or industry.

However, it noted that the Commissioner had erred in granting complete relief for the works executed for APMC. Relying on the Supreme Court's decision in Krishi Upaj Mandi Samiti, it held that those activities were liable to service tax.

At the same time, the Bench held that Patel would be entitled to the benefit of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and the cum-tax benefit under Section 67 of the Finance Act, 1994. It therefore remanded the matter only for re-computation of the demand and consequential penalty.

Accordingly, the CESTAT partly allowed the Revenue's appeal, set aside the Commissioner's findings only in relation to APMC works, and directed fresh computation after granting the statutory benefits available to Patel.

Appearance for the Appellant/Revenue: Shri Neilprakash G. Makwana, Superintendent (AR)

Appearance for the Respondent: Shri Jigar Shah, Shri Amber Kumrawat and Ms. Devanshi