CESTAT Hyderabad: No Service Tax on Repairs of School Buildings Run by Military Engineering Services
Pranav B Prem
The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member), has ruled that service tax cannot be levied on repair and construction activities carried out by M/s Chaitanya Constructions in respect of Sainik School buildings operated under the Military Engineering Services (MES), holding that such buildings are not meant for commercial use and thus fall outside the scope of service tax liability.
The appellant, M/s Chaitanya Constructions, undertook a variety of civil and electrical works during the period from October 2010 to September 2011. These included laying, shifting, and maintenance of pipelines for municipal authorities; construction of elevated level storage reservoirs and water supply systems for APIIC (SEZ and industrial growth centers); and certain repairs to municipal infrastructure. Among these, they also carried out civil and electrical works at Korukonda Sainik School for the MES. While most works were classified under “Works Contract Service” (WCS), repairs to municipal property were treated under “Management, Maintenance or Repair Service” (MMRS).
The adjudicating authority confirmed the entire service tax demand of ₹1,25,21,106/- under WCS, and ₹12,033/- under MMRS, also imposing penalties under Sections 76 and 77 of the Finance Act, 1994 for late payment and non-filing of returns. The Commissioner rejected the appellant’s claim that the services were rendered for non-commercial government use and thus exempt.
The Tribunal, however, after considering the submissions and examining applicable legal provisions and precedents, found that the adjudicating authority had erred in its interpretation and application of law. It noted that the construction of water distribution systems, regardless of whether executed as contractor or sub-contractor, was squarely for government departments or municipal bodies and intended for drinking water supply. It reiterated settled law that such services are not taxable under WCS. The Tribunal relied on several judicial pronouncements including CCE v. Indian Hume Pipes Co Ltd [2015 (40) STR 214 (Mad)] and Angraj Civil Projects Pvt. Ltd. v. CCE & ST, Lucknow [2020 (34) GSTL 574 (Tri-All)] , which had categorically excluded such activities from the ambit of service tax.
In relation to construction activities undertaken for APIIC, the Tribunal noted that APIIC is a public authority whose main function is to promote industrial development and not engage in commerce. Accordingly, construction of water facilities at its industrial growth centers does not attract service tax. Further, the Tribunal observed that since these activities were performed for SEZ developers, they qualify for exemption under Section 26(1)(e) of the SEZ Act, 2005, read with relevant notifications, including Notification No. 9/2009-ST and 17/2011-ST. The Tribunal also took into account the certificate from the Development Commissioner confirming that the services were for authorized SEZ operations.
Significantly, the Tribunal addressed the issue of repair services undertaken for the Sainik School under MES. It held that these services were for a government school not engaged in any commercial activity. Citing the scope of WCS as defined under Section 65(105)(zzzza) of the Finance Act, the Bench clarified that construction or repair services rendered in respect of properties not intended for commerce are outside the purview of service tax. It also highlighted that even repair services in respect of non-commercial government buildings were exempt from service tax during the relevant period, i.e., from 16.06.2005 to 30.06.2012.
In conclusion, the Tribunal found that the demands raised by the adjudicating authority were not sustainable either in fact or in law. Accordingly, it set aside the impugned order and allowed the appeal filed by M/s Chaitanya Constructions.
Appearance
Counsel for Appellant/ Assessee: D.V. Subba Rao
Counsel for Respondent/ Department: M. Anukathir Surya
Cause Title: M/s Chaitanya Constructions V. Commissioner of Central Excise & Service Tax, Visakhapatnam - I
Case No: Service Tax Appeal No. 3572 of 2012
Coram: A.K. Jyotishi [Technical Member], Angad Prasad [Judicial Member]
