Construction of Educational Institution Buildings Not Taxable as Commercial or Industrial Construction Service: CESTAT Chennai Sets Aside Service Tax Demand
Pranav B Prem
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that construction of buildings for educational institutions such as schools and colleges during the period 2008–2012 does not fall within the scope of “Commercial or Industrial Construction Service” under Section 65(25b) of the Finance Act, 1994. Allowing the appeal filed by the assessee, the Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) ruled that such activities cannot be treated as commercial merely because educational institutions charge fees, and therefore no service tax demand could be sustained.
The appellant, engaged in constructing buildings and civil structures, was registered under the category of Commercial or Industrial Construction Service. During scrutiny of the ST-3 returns for the period 1 April 2008 to 31 March 2012, the Department noticed that although the assessee had discharged service tax on certain construction contracts, it had not paid tax on amounts received for constructing buildings for schools and colleges, treating those activities as non-taxable. A Show Cause Notice was issued, and the adjudicating authority later confirmed a service tax demand of ₹1,20,20,608, holding that construction services rendered to educational institutions were meant for commerce since such institutions collect fees.
Challenging this finding, the assessee argued that the construction of buildings for educational purposes had always been regarded as non-commercial, relying on Para 13.2 of CBEC Circular No. 80/10/2004-ST dated 17.09.2004, which explicitly clarified that buildings meant for educational, religious, and charitable institutions cannot be treated as for commerce or industry. The assessee contended that the circular was binding on departmental authorities and that the nature of the institutions served was unquestionably non-commercial.
The Revenue, however, maintained that educational institutions charging fees were commercial enterprises, citing the Explanation inserted retrospectively (by Finance Act, 2010) in the definition of Commercial Training or Coaching Service. According to the Department, this clarification implied that fee-charging educational institutions are commercial for all service tax purposes, including construction services received by them.
The Tribunal rejected this argument, holding that the Explanation relied upon by the Commissioner was legislated exclusively for the purposes of Section 65(105)(zzc), which deals with Commercial Training or Coaching Service, and that it had no application whatsoever to Section 65(25b). The Bench observed that the adjudicating authority’s attempt to import an Explanation from a different service category not only lacked statutory support but also contradicted binding jurisprudence. The Tribunal underscored that the levy must satisfy the threshold requirement of being a “commercial or industrial construction”; educational institutions do not fall in that category.
The Tribunal found merit in the assessee’s reliance on the CBEC circular, noting that it remained in force during the entire period in dispute and clearly exempted construction for educational institutions from classification as commercial construction. The finding of the adjudicating authority that such construction was “commercial” merely because institutions collected fees was therefore unsustainable. Holding that the Department’s case failed at the very inception, the Tribunal concluded that the construction of school and college buildings was outside the ambit of Commercial or Industrial Construction Service, rendering the service tax demand invalid in law. Consequently, the CESTAT set aside the impugned order in its entirety and allowed the appeal filed by the assessee.
Appearance
Counsel for Appellant/ Assessee: M. Kannan
Counsel for Respondent/ Department: O.M. Reena
Cause Title: M/s. Deccan Construction Company v. Commissioner of GST and Central Excise
Case No: Service Tax Appeal No. 40931 of 2015
Coram: P. Dinesha (Judicial Member), Vasa Seshagiri Rao (Technical Member)
