By TIOL News Service

NEW DELHI, NOV 21, 2017: THE appellants are engaged in construction activities of both residential and commercial buildings. The dispute in the present appeal relates to tax liability for the period 10.08.2004 to 31.03.2008. The impugned order confirmed the service tax liability against the appellant amounting to Rs.92,88,572/- under two tax entries viz. "Construction of Residential Complexes" and "Commercial and Industrial Construction Services". Penalties were also imposed under the FA, 1994.

In their appeal before the CESTAT, the appellant submits that insofar as "Construction of Residential Complexes" is concerned, the same were for personal use of the army personnel and were built for Directorate General of Married Accommodation Project, Indian Army and are not liable to service tax.

Regarding their tax liability under "Commercial and Industrial Construction Services", it is submitted that the said property is not for sale and same is for use by Cantonment Authorities for commercial purposes; that these construction activities are carried out in pursuance of composite works contract involving supply of goods as well as provision of service and accordingly, cannot be taxed under this tax entry; that the tax liability will arise only w.e.f. 1.6.2007 in terms of the decision of the Supreme Court in the case of Larsen & Toubro Ltd. -   2015-TIOL-187-SC-ST .

The AR reiterated the findings of the Original Authority.

The Bench observed –

"7. On the first issue, we note that the tax liability of such residential units built for DGMAP, Ministry of Defence, has been clarified by the jurisdictional Commissionerate vide letter dated 10.08.2008 based on the Board's clarification to the effect that construction of complexes for MAP for Army personnel is not liable to tax if their layout does not require approval by an authority under any law for the time being in force. This clarification has been issued after a specific reference has been made by the Director (Contracts), DGMAP, Army Headquarters, New Delhi. In view of this fact, we note that such construction activity will get excluded from the tax entry. Further, we also note that the construction is for the Ministry of Defence for use of the Army personnel and as such, these are for personal use. In such situation also, it gets excluded from the tax entry. [Khurana Engineering Ltd. -   2010-TIOL-1712-CESTAT-AHM refers.]"

In the matter of service tax liability on construction of commercial shops, in view of the fact that the appellant claimed that these are carried out in pursuance to a composite works contract, the Bench opined that the matter would require a fresh decision by the original authority in terms of the Apex Court decision in Larsen & Toubro Ltd. (supra).

In fine, the CESTAT held –

++ Appellants are not liable for service tax for construction of residential units for the army personnel.

++ Regarding their tax liability for construction of commercial shops and complexes, the matter is remanded back to the Original Authority.

The appeal was disposed of.

(See 2017-TIOL-4082-CESTAT-DEL)