No Service Tax Demand on Construction Services Provided to Educational and Govt. Institutions: CESTAT Allahabad
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, has set aside a substantial portion of the service tax demand raised against M/s VSN Infratech Pvt. Ltd., Kanpur, holding that construction services rendered to educational and government institutions were non-commercial in nature and thus not liable to service tax under the Finance Act, 1994. The two-member Bench comprising Sanjiv Srivastava (Technical Member) and Angad Prasad (Judicial Member) observed that construction works related to education and irrigation projects fell outside the purview of taxable services, while industrial works such as factory sheds and airfield construction were taxable.
Background
The appellant, M/s VSN Infratech Pvt. Ltd., was engaged in providing construction services and registered for service tax in May 2011. During a departmental inquiry, it was alleged that the company had short-paid service tax for the period 2009–2012, despite filing a Voluntary Compliance Encouragement Scheme (VCES) declaration in December 2013. The declaration was rejected by the Assistant Commissioner on the ground that the company had under-declared its liability. Subsequently, a show cause notice was issued demanding ₹38.76 lakh in service tax, along with interest and equal penalties under Sections 73, 75, 77, and 78 of the Finance Act, 1994. The adjudicating authority later confirmed a demand of ₹22.27 lakh with equivalent penalties.
Tribunal’s Analysis
The Tribunal undertook a detailed examination of the nature of construction projects executed by the appellant for multiple clients, including educational institutions, government departments, and public sector undertakings. The appellant had carried out civil construction works, including septic tanks and rainwater harvesting systems for Vision Institute of Technology, Aligarh and Kanpur — institutions managed by Vision Educational & Charitable Trust.
The Bench held that such constructions were educational and charitable in nature and not commercial ventures. Relying on CBEC Circular No. 80/10/2004-ST, the Tribunal ruled that such services were not taxable under the category of Commercial or Industrial Construction Services.
Government and Public Projects
The Bench also examined construction works executed for Baghla Canal Division, Allahabad, which forms part of the State Irrigation Department. Referring to CBEC Circular No. 116/10/2009-ST, the Tribunal held that canal and irrigation projects are sovereign functions and cannot be treated as commercial activities, thereby exempting them from service tax. Regarding works undertaken for Hindustan Aeronautics Limited (HAL), the Tribunal distinguished between projects at Korwa and Kanpur:
Works at HAL, Korwa — including construction of RCC roads and residential buildings — were held non-commercial and exempt from service tax.
Works at HAL, Kanpur — including construction of flight sheds and tarmacs — were held taxable, as they related directly to industrial and manufacturing operations of the company.
Further, maintenance and cleaning services provided to UP State Industrial Development Corporation (UPSIDC) and construction for U.P. Processing & Construction Cooperative Federation (PACCFED) were deemed taxable, since both entities were commercially operating organizations engaged in activities for profit or service charges.
Rejection of VCES-Related Arguments
The Tribunal dismissed the appellant’s contention that its VCES declaration had been improperly rejected or that its rectification applications were not properly adjudicated. It held that once the declaration had been rejected under Section 106(2) of the Finance Act, 2013, the appropriate remedy was to approach the High Court, not to seek rectification from the Commissioner. Citing the Supreme Court’s decision in Deva Metal Powders Pvt. Ltd. v. Commissioner of Trade Tax (2008), the Bench reiterated that a debatable issue cannot constitute an “apparent error” for rectification under Section 74 of the Finance Act, 1994.
While partially upholding the demand related to taxable works, the Tribunal set aside the service tax demand for construction activities related to educational, charitable, and irrigation projects. The penalties under Sections 77 and 78 were also proportionately reduced in line with the revised liability. The appeal was allowed in part, with consequential reliefs to the appellant.
Appearance
Shri Ankul Udai, Advocate for the Appellant
Shri A.K. Choudhary, Authorised Representative for the Respondent
Cause Title: M/s VSN Infratech Pvt. Ltd. Versus Commissioner of Central Excise & CGST, Kanpur
Case No: Service Tax Appeal No.70226 of 2018
Coram: Sanjiv Srivastava (Technical Member), Angad Prasad (Judicial Member)
