By TIOL News Service

MUMBAI, MAY 01, 2018: THE following issues are in dispute -

i) Whether the service provided for construction of hospital which is run by the trust is liable to service tax under 'commercial or industrial construction';

ii) Whether the GTA service provided for construction of building for Tata Consultancy Service located in SEZ is liable for service tax;

iii) Whether the GTA service availed in connection with the construction of hospital is liable to service tax; and

iv) Whether the demand(s) is/are hit by limitation.

The appellant while taking the support of Board Circulars dated 17.09.2004, 01/11/2006 and case laws submits that -

+ Hospital building is not used for commerce or industry as the hospital in the present case is run by a charitable trust, hence the construction thereof does not fall within the definition of 'commercial or industrial construction service'.

+ As per SEZ Act, 2005, the taxable service provided to a developer or a unit to carry on the authorized operations in a Special Economic Zone is exempt. Therefore, GTA service provided for construction of building for Tata Consultancy Services in the Special Economic Zone is exempt.

+ GTA availed in construction of hospital, Deenanath Mangeshkar Hospital and Research Centre run by Lata Mangeshkar Medical Foundation, show cause notice dated 31/12/2012 was issued for the period January 2011 to March 2012 by invoking the extended period, same is time-barred as the entire transaction was recorded in the books of account.

+ Appellant had provided all the information for issuance of show cause notice dated 31/12/2012. Therefore, in the second notice dated 14/10/2013 (for the period April 2011 to March 2012) the extended period for demand should not have been invoked.

+ There is no mala fide intention for non-payment of service tax, therefore, penalty under Section 78 cannot be imposed.

The AR submitted that hospital is also engaged in commercial activities, therefore, the construction service provided for construction of hospital is liable to service tax;that the appellant is the recipient of the service who is only located in SEZ, therefore, exemption provided for SEZ will not be available to the appellant;that the appellant have not provided the documents in time and therefore, the second show cause got delayed and cannot be considered as time-barred.

The Bench gave its findings on the four issues as below -

Issue (i)

++ Construction (service) of hospital building run by a charitable organization is not taxable being non-commercial venture [Board Circular 80/80/2004-ST dated 17.09.2004 and Circular 86/04/2006-ST dated 01/11/2006 relied upon along with decisions in G Ramamoorthi Constructions (I) P Ltd. - 2015-TIOL-1933-HC-MAD-ST & S M Sai Construction - 2016-TIOL-416-CESTAT-MUM - Demand set aside

Issue (ii)

++ Section 26 of the SEZ Act, 2005, clause (e) prescribes exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1944) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone. Service of GTA is admittedly provided for construction of building in SEZ, therefore, the said service is exempted. If at all the service tax is payable, the same is available as CENVAT credit to the appellant for the reason that appellant is service provider to SEZ; entire exercise is revenue neutral - Demand on this count is set aside.

Issue (iii)

++ In the present case, the GTA service is used by the appellant and the appellant is the deemed service provider. Hence the GTA service is integral to construction of hospital building. Therefore, the GTA service relating to construction of hospital is taxable in the hands of the appellant.

++ Appellant had not disclosed the transaction of GTA to the department as no ST-3 returns were filed declaring the value of GTA service to the department. Therefore, extended period in respect of show cause notice dated 31/12/2012 is rightly invoked.

++ Penalty commensurate to the demand of GTA relating to the hospital is maintained along with interest.

Issue (iv)

++ Limitation - SCN dated 14/10/2013 - once the department came to know about the activity of the appellant and a show cause notice was issued, then in the subsequent show cause notice invocation of extended period is not available to the department as held by the Supreme Court in the case of Nizam Sugar Factory - 2006-TIOL-56-SC-CX. Therefore, demand relating to show cause notice dated 14/10/2013 for the extended period i.e. for April 2011 to September 2011 is time-barred. Remaining demand is sustainable.

The appeals were partly allowed.

(See 2018-TIOL-1399-CESTAT-MUM)