Service Tax Exemption on Road Construction Depends on Public Use: CESTAT
Pranav B Prem
The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, has remanded a service tax dispute involving a construction contractor, holding that the crucial issue is whether the roads constructed under the work order were meant for use by the general public—a mandatory requirement for claiming exemption from service tax. The Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that the exemption under the relevant notification is strictly confined to roads intended for general public use, and not to roads constructed within residential complexes, townships, or other restricted areas.
The appellant, M/s Shri Balaji Construction Company, was registered with the Service Tax Department for providing various services including management or repair, construction of residential complexes, and construction of commercial or industrial buildings. The dispute arose after the department received third-party information from the Income Tax Department indicating that the appellant had received ₹54.50 lakh during the financial year 2012–13, on which tax had been deducted at source under Section 194C of the Income Tax Act. The department alleged that taxable services had been provided without payment of service tax amounting to ₹6.73 lakh and issued a show cause notice invoking the extended limitation period.
As the appellant neither replied to the show cause notice nor appeared for personal hearing, the adjudicating authority passed an ex parte order confirming the demand as proposed.
In appeal before the Commissioner (Appeals), the appellant contended that it had executed the work of renewal of internal roads in a Jaipur Development Authority (JDA) area as a sub-contractor and that the services were exempt under Mega Exemption Notification No. 25/2012-ST. It was argued that the roads were meant for public use and therefore qualified for the exemption.
The Commissioner (Appeals), however, held that the exemption applied only to roads meant for use by the general public. Since the roads in question were considered internal roads intended for the residents of the complex and their visitors, and as no supporting evidence was produced to establish public use, the exemption claim was rejected.
Before the Tribunal, the appellant relied on the work order dated 11 October 2012, which referred to renewal of internal roads in Sector-5, Zone-5 area of JDA, Jaipur, to contend that the work was carried out under a government authority and was meant for public use. The Revenue, on the other hand, reiterated that the appellant had failed to cooperate with the proceedings and had not discharged the burden of proving eligibility for the exemption.
The Tribunal noted that the appellant had not responded to the show cause notice and had not produced adequate documents before the adjudicating or appellate authorities to establish that the roads were meant for general public use. It also referred to an earlier decision in Warsi Buildcon v. Principal Commissioner, where it was held that exemption for construction of roads is limited to those meant for use by the general public, and that roads constructed within residential complexes or townships for restricted use do not qualify for the benefit.
At the same time, the Tribunal observed that the appellant had relied upon a work order issued by the Jaipur Development Authority, a government authority, and that the nature of the work required proper examination. The central issue, according to the Tribunal, was whether the roads constructed under the work order were genuinely meant for the general public or were merely internal roads with limited access.
Holding that this factual aspect had not been properly examined, the Tribunal set aside the impugned appellate order and remanded the matter to the original adjudicating authority. The authority was directed to examine the relevant documents, ascertain the nature of the work order, and determine the appellant’s eligibility for exemption in accordance with law. The appeal was accordingly allowed by way of remand.
Cause Title: M/s. Shri Balaji Construction Co. Versus Commissioner
Case No.: Service Tax Appeal No.50951 of 2020
Coram: Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member)
