Construction Of Tourism Huts For Renting To Tourists Is Commercial Activity, Service Tax Payable: CESTAT Delhi
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi has held that construction of tourism huts and similar structures for renting to tourists is a commercial activity, thereby attracting service tax, and does not fall under service tax exemptions meant for non-commercial government works. The Tribunal affirmed that exemption notifications must be interpreted strictly and the burden lies on the assessee to establish eligibility for exemption.
A Bench comprising Judicial Member Binu Tamta and Technical Member Hemambika R. Priya delivered the decision while dismissing the appeal filed by M/s NU Wood Industries against the service tax demand on works contract services rendered between 2013–14 and 2016–17. The case originated when Garhwal Mandal Vikas Nigam Ltd. (GMVNL) informed the department that payments exceeding ₹13.74 crore had been made to the appellant for works contract services. Subsequent investigation revealed that although the appellant obtained service tax registration only in May 2015, it had carried out multiple projects for various government entities and had paid service tax only in part. It was also found that service tax was not discharged on freight expenses under the Goods Transport Agency category.
The adjudicating authority issued a show cause notice in September 2018 demanding ₹65.62 lakh in service tax along with applicable interest, penalties and late fees for non-filing and delayed filing of ST-3 returns. The demand was confirmed in July 2019 and later upheld by the Commissioner (Appeals) in June 2020, prompting the appellant to file an appeal before the Tribunal.
Before CESTAT, NU Wood Industries argued that the construction projects were funded by the Uttarakhand Tourism Development Board (UTDB) and executed for government agencies such as GMVNL, KMVNL and Uttarakhand Pey Jal Nigam. It claimed that the works qualified for exemption under Clause 12 of Notification No. 25/2012-ST and that works executed under contracts entered before March 1, 2015 were also exempt under Clause 12A. The appellant further submitted that it acted merely as a sub-contractor and that the primary liability to pay service tax rested with the main government contractors.
The Tribunal rejected these contentions. It held that the exemption under Clause 12 applies only to works predominantly meant for non-commercial use. The construction of eco huts, single-bedroom huts and double-bedroom huts that were intended for renting to tourists was clearly commercial in nature, thereby excluding the appellant from the scope of the exemption. The Tribunal reiterated that exemption notifications must be construed strictly and that the assessee must prove that its case strictly satisfies the conditions prescribed.
On the issue of liability as a sub-contractor, the Tribunal relied on the Larger Bench ruling in CST v. Melange Developers Pvt. Ltd., holding that a sub-contractor is independently liable to discharge service tax even if the main contractor has paid tax on the same project. It concluded that the appellant could not escape its tax liability on the ground that it was working under government agencies or primary contractors.
Finding no infirmity in the reasoning of the lower authorities, the Tribunal upheld the demand of service tax along with interest and penalties and declined to interfere with the order passed by the Commissioner (Appeals). Accordingly, the appeal filed by NU Wood Industries was dismissed in its entirety.
Appearance
Counsel For Appellant: None
Counsel For Respondent: S.K. Meena
Cause Title: M/s. NU Wood Industries Versus Commissioner of CGST
Case No: Service Tax Appeal No. 51013 Of 2020
Coram: Judicial Member Binu Tamta, Technical Member Hemambika R. Priya
