CESTAT: Residential Projects With Less Than 12 Units And Electricity Utility Buildings Not Taxable
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench at New Delhi, has set aside a service tax demand of over ₹1.74 crore against a Rajasthan-based contractor, holding that construction activities involving low-density residential housing and non-commercial utility offices fall outside the ambit of taxable services under the Finance Act, 1994.
The appeal arose from two separate show cause notices issued to M/s. Gyarsilal Mohanlal, a registered service provider under the category of “Commercial or Industrial Construction Service.” The appellant had executed two major government construction contracts: the first, for constructing a group of residential apartments for the Rajasthan Housing Board (RHB) at Pratap Apartments, and the second, for constructing a corporate office building for Ajmer Vidyut Vitran Nigam Limited (AVVNL), a state-owned electricity distribution company.
Following scrutiny of the appellant’s work orders, balance sheets, and other documents for the financial years 2009–10 and 2010–11, the department issued show cause notices dated 01.07.2011 and 12.10.2011, demanding service tax of ₹1,04,91,715 and ₹69,12,709 respectively. These demands were confirmed through a common adjudication order dated 27.12.2012 passed by the Commissioner, Customs, Central Excise and Service Tax, Jaipur. The appellant challenged the said order before the tribunal.
The Tribunal bench comprising Judicial Member Ms. Binu Tamta and Technical Member Mr. Rajeev Tandon allowed the appeals, ruling that neither of the construction activities involved in the matter was liable to service tax. With regard to the RHB residential complex, the tribunal observed that the project involved construction of less than twelve residential units—specifically, G+3 floors of independent units—which did not meet the statutory definition of a “residential complex” under Section 65(91a) of the Finance Act. The tribunal relied upon a certificate dated 05.02.2024 issued by the Rajasthan Housing Board confirming the nature and scale of the construction. In view of multiple precedents such as Macro Marvel Projects Ltd [2008 (12) STR 603 (Tri)] and Onkar Lal Saini [F.O. No.ST/A/51134/2022 CU (DB) dt.23.11.2022], the tribunal reaffirmed that construction of individual or low-density housing units does not attract service tax.
The bench also clarified that the work undertaken for AVVNL did not constitute a commercial activity. Referring to CBIC Circular No. 80/10/2004-ST dated 17.09.2004, it was held that service tax under the category of commercial or industrial construction would apply only if the building is “used or to be used” for commerce or industry. Since AVVNL is a government-owned utility engaged in the distribution of electricity and the office building constructed was for administrative and public service functions, the construction was deemed non-commercial in nature. The Tribunal emphasized that government buildings used for civic amenities, office purposes, or welfare-related administration are not to be taxed merely because they are formally organized entities. It noted that the AVVNL construction was clearly outside the scope of commercial taxability under the Act.
The tribunal further highlighted that electricity-related activities, including the transmission and distribution of electricity, are exempt from service tax under Notification Nos. 11/2010-ST and 45/2010-ST. Given that AVVNL is a designated electricity distribution company under the unbundling scheme notified by the Government of Rajasthan, the service rendered to it qualified for statutory exemption. The Tribunal also cited relevant decisions such as Vivek Construction v. CCE & CGST [2021 (10) TMI 304 – CESTAT New Delhi] and Vraj Construction v. CCE [2024 (9) TMI 406 – CESTAT – Ahmedabad] reinforcing that construction services rendered to electricity distribution companies are exempt and that no element of wilful misstatement or suppression arises in such cases.
On the issue of limitation, the tribunal accepted the appellant’s argument that the extended period of limitation could not be invoked. It noted that a previous show cause notice had already been issued to the appellant on the same issue for the earlier period 2005–2009. Applying the Supreme Court's decision in Nizam Sugar Factory v. CCE [2006 (197) ELT 465 (SC)], the tribunal held that when facts were already in the department’s knowledge, subsequent show cause notices could not be sustained on the ground of suppression of facts. The bench concluded that the department’s reliance on extended limitation was wholly unjustified in the present matter.
The Revenue had also raised the issue of non-filing of ST-3 returns by the appellant for the year 2009–10. However, the Tribunal rejected the argument, holding that since the services rendered were not taxable, the failure to file returns was not fatal to the appellant’s case. It found no justification for adverse inference in such circumstances. Holding that the order-in-original lacked legal validity both on the merits and on the ground of limitation, the Tribunal quashed the demands and allowed the appeals filed by the contractor. The Tribunal granted full relief, along with consequential benefits as per law.
Appearance
Present for the Appellant: Shri Bipin Garg and Ms.Kainaat, Advocates
Present for the Respondent: Shri Aejaz Ahmed, Authorized Representative
Cause Title: M/s. Gyarsilal Mohanlal V. Commissioner-I , Customs, Central Excise & Service Tax, Jaipur
Case No: Service Tax Appeal No.56719 of 2013
Coram: Hon'ble Ms. Binu Tamta [Member (Judicial)], Hon’ble Mr. Rajeev Tandon [Member (Technical)]
