By TIOL News Service

MUMBAI, OCT 24, 2013: THE applicant had undertaken interior work at 9 th floor, State Bank Bhavan, Nariman Point, Mumbai.

The Commissioner of Service Tax, Mumbai-II was mesmerized by the ‘KALA [art]' exhibited in the renovation work so much so that he demanded and confirmed a ‘ SAGAR [sea] ' of Service tax of Rs.1.61 Crores from the interior decorator along with the accoutrements of interest and penalties.

Section 65(25b) of the FA, 1994 reads -

"commercial or industrial construction" means -

(a) construction of a new building or a civil structure or a part thereof; or

(b) construction of pipeline or conduit; or

(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,

which is -

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams"

Not happy with the damaging interiors the demand would do to their balance sheet, the applicant had filed a Stay application before the CESTAT.

It was submitted -

+ as per the work order, the applicant had only undertaken interior renovation of the part of the building, i.e. 9 th floor of the building.

+ as per the definition of ‘Commercial or Industrial Construction service', construction of  new  building and civil construction or part thereof are covered under the scope of tax leviable under the commercial or industrial construction.

+ The part of the building regarding which only the work of renovation has been undertaken cannot be considered as renovation in relation to the building.

+ The non-mentioning of ‘part thereof' in respect of renovation, repair, alteration or restoration shows the intention of the legislature that the renovation, alteration, repair or restoration are taxable under commercial or industrial service if it is undertaken in relation to building or civil structure.

+ as the applicant has undertaken the interior work at the 9 th floor of the building, the applicants cannot be held liable for providing commercial or industrial construction service hence the demand is not sustainable.

The Revenue representative relied upon the findings of the adjudicating authority and submitted that the combined reading of definition of commercial and industrial construction means the construction of new building and part thereof and it also includes repair, alteration, renovation or restoration of the building and part thereof. Inasmuch as the demand is rightly made.

The Bench had while allowing the Stay petition (See 2013-TIOL-956-CESTAT-MUM) observed -

"7. We have gone through the definition of commercial and industrial construction service. As per the definition, construction of new building or civil structure or part thereof is covered under the scope of taxable service. In respect of repair, alteration, renovation or restoration, it is specifically mentioned that it is in relation to building or civil structure. There is no mention in the definition ‘part thereof' in sub-clause (d) of the definition. In view of this, prima facie we find that the applicant has a strong in their favour, therefore the pre-deposit of the dues is waived and recovery of the same is stayed during the pendency of the appeal…"

We had while reporting this Order mentioned about the decision taken by the Bench in the cases of The Carpenters - (2013-TIOL-646-CESTAT-MUM) & Sandeep Vilas Kotnis - (2012-TIOL-328-CESTAT-MUM).

The appeal was heard recently.

The Member (Technical) observed thus -

+ The activity undertaken by the appellant falls under both clauses (c) and (d) of Section 65 (25b). Both these clauses do not specify that they should be undertaken in respect of a new building only and even if they are undertaken in relation to an old building, the provisions of these sections would apply. In fact repair, alteration, renovation or restoration or similar services would be mostly applicable to old buildings only. Therefore, the argument of the appellant that since the activities have been undertaken in respect of an old building and not a new building, service tax liability is not attracted would be ignoring the explicit provisions of law. It would amount to qualifying the building mentioned therein with an adjective “old”. It is a well settled position that a statute has to be interpreted in the way it has been worded by the legislature and no words can be added to or excluded from the statutory provisions. Therefore, completion and finishing services, repair, alteration or renovation and restoration or similar services provided, whether in respect of a new building or an old building would attract service tax liability under Section 65 (25b) and we hold accordingly.

On the question of limitation, the Member (Technical) viewed -

+ One of the grounds urged in the appeal is that the activities undertaken were known to the department and the department had issued show-cause notice for demand of excise duty earlier. However, on perusal of the record it is seen that the show cause notice issued to the appellant pertain to an earlier period, that is prior to 2004, when there was no service tax levy on ”Commercial or Industrial Construction Service”. The appellant was directed to furnish copies of the show-cause notices, if any, issued wherein there is an overlapping demand, that is, for both excise duty and service tax. The appellant was not able to produce any evidence showing that for the same period service tax as well as excise duty was demanded. In view of the above, the contention of the appellant that extended period of time could not have been invoked in the present case is not convincing.

The Member (Judicial) agreed with the Member (Technical) as regards the findings that the activity is taxable under the category ‘Commercial or Industrial Construction Service', but had a differing view as regards the aspect of limitation and penalty.

He observed thus -

+ Revenue was having the knowledge of the activity of the appellant in view of the fact that a show-cause notice was issued on 21.3.2002 for the period 1997-98 alleging that the appellant is engaged in the manufacture of furniture etc. and failed to pay excise duty on the excisable goods. After detailed scrutiny including recording of several statement and examination of the records, the show-cause notice was adjudicated vide order dated 25.2.2008 confirming excise duty payable by the appellant for the period 1997-98 along with penalty under Section 11AC for same set of activity. It is brought to notice that another show-cause notice has been issued on 4.7.2007 for levy of excise duty for the period 2005-06, which has been adjudicated vide order-in-Original dated 25.2.2008 confirming Central Excise duty of Rs.9,00,011/- along with penalty and interest. It is noteworthy that levy of excise duty and/or Service Tax are mutually exclusive.

+ It is further observed that the Revenue had issued summons as back as on 27.2.2006 and initiated detailed enquiry for levy of Service Tax. In the course of enquiry and recording of the statement on 11.8.2010, the proprietor of the appellant Mr. Bhosle had denied the liability of Service Tax in respect of its activity, which is after going through the show-cause notice dated 23.3.2009 in the matter.

+ It is observed from TRU letter dated 27.7.2005, wherein it has been clarified that post construction, completion and finishing services are sought to be covered under clause (c) of the Section 65(25b) of the Finance Act, 1994. In this clarification, it is not clarified that the activity undertaken in the nature of renovation, decoration of a unit or a part of building will be covered. Further, only in clause (a) of Section 65(25b), ‘part thereof' is mentioned, whereas in clause (c) and (d), under which the activity of the appellant is covered, there is no mention of ‘part thereof'. Hence, a layman from a plain reading of this section will possibly believe that only the activity of completion, furnishing and renovation, repair etc. is mentioned in the clause (c) and (d) and Service Tax will be attracted only if the work is in relation to building or civil structure and not with respect to a unit or part thereof. It is only on a homogenous reading to the whole sections involving rules of interpretation, it can be said that even the activity mentioned in the clause (c) and (d) of Section 65(25b), taxability of Service Tax will be attracted, even if the work is for a part thereof or a unit of the building or structure.

+ It is also noteworthy to mention that illustrative list of activities is mentioned in clause (c) and the Explanatory Circular indicates that the activity relating to new construction only. Further clause (d) although it mention repairs, installation/renovation but does not mention in relation to ‘part of a building or unit of building'.

+ It is further observed that the Section 65(30a) was also introduced simultaneously in the Finance Act, 1994 for levy of charge of construction or new residential complex or a part thereof and nowhere mentions in clause (c) of Section 65(30a) for repair, alteration or renovation shall be chargeable in respect of part or unit thereof.

+ in the case of Spandrel Vs. CCE, Hyderabad - (2010-TIOL-830-CESTAT-BANG) in similar circumstances the activity as of the appellant, it was the contention of the Revenue that the activities of the appellant fall under the category of ‘Interior Decorator Services' as defined Section 65(59) of the Finance Act, 1994. The Tribunal had taken a view in that case that the activity will not fall under ‘Interior Decorator Services' but will fall under ‘Commercial or Industrial Construction Services'

+ From the aforementioned observations, it is seen that the issue involved in the present case is one of interpretation of statutory provisions wherein the department has also tried to classify the same activity under ‘Interior Decorator Services', which was turned down by this Tribunal. Thus, it can be said that the proprietor of the appellant firm bonafidely had the belief that he was not chargeable to tax under the provisions of Finance Act, 1994. Further, it is observed that the Revenue inspite of starting detailed inquiry since October, 2006, in the present proceedings, have issued show-cause notice after lapse of nearly three years on23.3.2009, which evidently reflects that the Revenue also took pretty long time in resolving the taxability of Service Tax as regards the activity of the appellant.

Accordingly, the Member (J) while upholding the classification of the service undertaken by the appellant as taxable under ‘Commercial or Industrial Construction Service' also held that the extended period of limitation is not available to the Revenue and hence the penalty imposed is also required to be set aside.

Therefore, the following difference of opinion is placed before the CESTAT President for reference to the third Member -

i) Whether the confirmation of demand of service tax invoking extended period of time is sustainable in law as held by the Hon'ble Member (Technical) or the extended period of limitation is not attracted and, therefore, the service tax demand for the period beyond the normal period of limitation is not sustainable in law as held by the Hon'ble Member (Judicial)

ii) Whether imposition of penalties under Sections 76, 77 & 78 of the Finance Act, 1994 is sustainable in law as held by the Hon'ble Member (Technical) or whether the imposition of penalties under Sections 76, 77 & 78 of the Finance Act, are not imposable on the appellant as held by the Hon'ble Member (Judicial)

In passing: Old Bench - New Bench - We will keep you posted, renovation or not!

(See 2013-TIOL-1576-CESTAT-MUM)