By TIOL News Service

MUMBAI, MAR 20, 2014: THE applicant had undertaken interior work at 9th floor, State Bank Bhavan, Nariman Point, Mumbai.

The entry of Service Tax which is being discussed is section 65(25b) of the FA, 1994 and it 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"

The Commissioner of Service Tax, Mumbai-II was mesmerized by the 'KALA [art]' exhibited in the renovation work somuchso 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. The SCN is dated 14/10/2010 and the period is April, 2005 to March, 2010.

Not happy with the damaging interiors the demand would do to their balance sheet, the applicant 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.

++ Non-mention of the words '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 submitted that a 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 (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."

The appeal was heard more than six months ago.

The Member (Technical) had 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) held that the appellant was not able to produce any evidence showing that for the same period service tax as well as excise duty was demanded and hence the bar of limitation did not apply.

The Member (Judicial) agreed with the Member (Technical) as regards taxability of the service provided but had a differing view as regards the aspect of limitation and penalty.

Inasmuch as he observed that a SCN was issued on 21.3.2002 for the period 1997-98 alleging that the appellant is engaged in the manufacture of furniture etc. and had failed to pay excise duty on the excisable goods and this was adjudicated on 25.2.2008 confirming the demand. And that another SCN has been issued on 4.7.2007 on similar ground for the period 2005-06 and the same was also adjudicated in a similar manner on 25.2.2008 and it was noteworthy that levy of excise duty and/or Service Tax are mutually exclusive. It was further observed that from the clarification given in TRU letter dated 27.07.2005 a layman 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; that the illustrative list of activities mentioned in clause (c) and the Explanatory Circular indicated activity relating to new construction only and, therefore, 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. Furthermore, although detailed enquiry commenced since October, 2006, SCN was issued after lapse of nearly three years on 23.3.2009.

In fine, 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.

On this point of difference in opinion, the matter was referred to the Third Member (Technical).

We reported this order as - (2013-TIOL-1576-CESTAT-MUM).

And in a sixteen page order, the third Member concluded by concurring with the order passed by the referral Member (Technical) by inter alia observing thus -

++ As far as knowledge of the department is concerned, I agree with the learned AR that the Service Tax Law and Excise Law are two different laws and are implemented by two different set of officers having their own jurisdictions and enforcing the respective laws. The appellant has not shown any evidence whatsoever that the jurisdictional Service Tax officials were informed about the activities of the appellant and, therefore, they were fully aware about them. The jurisdictional Central Excise officials may be aware of the ongoing litigation but there is no evidence to indicate that the Service Tax officials were aware of appellant's activities. On the contrary, the appellant would be knowing the same and should have approached the Service Tax official for registration and inform of all the facts relating to their activities. The last contention is relating to revenue neutrality. I do not find any substance whatsoever in the argument of the learned Advocate. If such a theory is accepted, it will lead to a situation wherein the final consumer of goods or services only should be taxed or charged and all other irregularities by various manufacturers or service providers would become non-taxable. It is also noted that service tax authorities issued summons in February 2006 but appellant did not co-operate. Appellant also did not take registration. It was only in 2010, after lot of persistence that details could be obtained. Conduct of the appellant cannot be considered as bona fide.

The Majority decision, therefore, is -

"…, we uphold the classification of the services rendered by the appellant under "Commercial or Industrial Construction Service" and also the demand of service tax under the said classification during the impugned period along with interest thereon under the provisions of section 73 read with section 75 of the Finance Act, 1994. We also uphold the imposition of penalties under Sections 76, 77 & 78 of the said Finance Act and Rule 7C of the Service Tax Rules, 1994, except for the modification that for the period after 10/05/2008 only penalty under Section 78 would be imposable and not that under Section 76. If the appellant wants to claim any abatement towards supply of movable furniture, it is for the appellant to produce evidence in this regard and if the appellant furnishes such evidences before the adjudicating authority, the same shall be considered in accordance with law."

The appeal was disposed of in the above terms.

In passing: Extracts from Tribunal order dt. 20.08.2013 - (2013-TIOL-1576-CESTAT-MUM) -

++ since the appellant did not obtain any service tax registration nor discharge any service tax liability, a show-cause notice dated 14/10/2010 was issued demanding service tax of Rs.4,89,36,212/- on the activities undertaken by them during April 2005 to March 2010 along with interest thereon by classifying the service rendered as "commercial or Industrial Construction Service" and also proposing to impose penalties under the provisions of Finance Act, 1994.

++ The notice was adjudicated and the adjudicating authority held that the activities undertaken by the appellant is classifiable under "Commercial or Industrial Construction Service" and he allowed abatement, towards the value of goods supplied in terms of Notification NO. 15/2004-ST dated 10/09/2004 and 01/06-ST dated 01/03/2006 and accordingly confirmed a demand of service tax on 33% of the gross value charged. Thus, he confirmed a service tax demand of Rs.1,61,48,983/- along with interest thereon and also imposed penalties on the appellant under Section 76 & 78 of the Finance Act, 1994 and late fee at the rate specified in Rule 7C of the Service Tax Rules, 1994.

(See 2014-TIOL-426-CESTAT-MUM)