1. The appellants are engaged in providing Residential Complex Services, Construction of Commercial or Industrial Complex Services and Works Contract Services. They have two divisions, namely, (i) Internal Division, which is engaged in rendering Works Contract Service (Civil) for M/s. SRM Institute of Science and Technology [hereinafter referred to as "M/s. SRMIST"] and M/s. Valliammal Society [hereinafter referred to as "M/s. VS"] and other entities of the group, (ii) External Division, which is engaged in rendering Civil Works for the buildings and factories for other than the group clients. The present appeal relates to Works Contract Services rendered by the Internal Division of the appellant-Company. A show-cause notice was issued for the period Oct.'08 to Jun.'12', alleging short-payment of service tax on Works Contract Services, which after adjudication, culminated in confirmation of service tax along with interest and also imposition of penalties. Hence this appeal.
2. On behal
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f of the appellants, the Ld. Consultant Shri Prasanna Krishnan adverted to the definition of Works Contract Services under Section 65(105) (zzzza) of the Finance Act, 1994 and argued that the appellant had constructed buildings for educational institutions and, therefore, could not fall within the definition of Works Contract Services. He submitted that the department has issued the show-cause notice as well as confirmed the service tax liability mainly relying upon the clarification issued by the Board's Circular No. 80/10/2004, dated 17-9-2004. The appellants had constructed buildings for the clients which are educational institutions and the said buildings are primarily not used for commerce or industry but for educational activities. That the service tax liability for the period Oct.'08 to Jun. '12 was therefore not sustainable. Ld. Consultant adverted to the financial statements of the customers of the appellants, namely, M/s. SRMIST and M/s. VS and argued that the revenue collected from educational activities of the customers are very high when compared to the value of other taxable services rendered by such customers. In the case of M/s. SRMIST, the revenue collected from educational institutions by way of fees and other charges would be Rs. 1,500 crores, whereas, the total taxable value services would be only Rs. 20 crores, which is not even 1% of the revenue collected from educational activities. In the same manner, in the case of M/s. VS, the revenue collected from educational activities for the combined four years would be Rs. 475.4 crores, whereas, the value of other taxable services would only be Rs. 1.53 crores. This data would clearly show that the primary activity of the customers of the appellants, namely, M/s. SRMIST and M/s. VS is that of rendering educational services. The department has proceeded to confirm the liability by erroneously holding that the appellants having rented out part of the building as well as being engaged in scientific and technical services, are engaged in services which are of profit motive. He argues that these activities only are incidental or secondary activities of the customers of the appellants. He also contended that M/s. SRMIST is a Trust and the object of the Trust Committee is to provide for instruction and training in various activities of learning. In the case of M/s. VS, the bye-law provides that the Society is to strictly abide by the clauses provided in Tami Nadu Societies Registration Act. As per this Act, the appellants cannot utilise the income received for any other purposes other than educational activities. A letter dated 30-7-2008 issued by M/s. SRMIST to the appellant has also been highlighted by the Ld. Consultant to urge that the building constructed, namely, Medical Institution, Medical Hospital, University Building, University Block, Hospital 'K' Block, New Hospital 'M' Block etc., were only used for conducting legally recognized courses for medical stream education for the M/s. SRMIST Deemed University and also for conduct of recognized courses in engineering system. In the said letter, they had also apprised the appellants that service tax need not be charged for the reason that the buildings are not intended for any commercial or industrial purposes. With regard to the demand for the period Apr. 13 to July, 2013, the Learned Consultant submitted that appellants admit this tax liability and the same has been paid along with interest before 236 days prior to the issuance of the show-cause notice. Therefore, the penalty is unwarranted and should be set aside.
3. The learned Authorised Representative Shri B. Balamurugan reiterated the findings in the impugned order. He laid thrust upon the Circular dated 17-2-2004, wherein the Board has issued a clarification with regard to that is commercial or industrial construction. He submits that only when such constructions are for the use of organizations or institutions being established solely for education, religious, charitable, health, sanitation or philanthropic purposes and not for the purpose of profit, such building would be non-commercial in nature. The buildings constructed by the appellants are not solely used for education purposes. Customers of the appellants are renting out parts of the building and also conducting Scientific and Technical Consultancy Services, Manpower Supply Services and Training Activities in these buildings and, therefore, these buildings can be solely used for educational purposes, as required and clarified by the Board. He also contended that the customers of the appellant-Company are earning profit from such activities and, therefore, being profit oriented activities, the buildings cannot be said to be solely used for educational purposes. With regard to the plea raised by the appellants on penalty, the learned Authorised Representative submitted that the appellants had discharged duty only after the department has pointed out the same, and, therefore, penalty imposed is legal and proper.
4. Heard both sides and we have gone through the records.
5. For better understanding of the issue under consideration, the definition of Works Contract Services in Section 65(105)(zzzza) of the Finance Act, 1994 (as amended) is reproduced as under:-
"Taxable Service" means any service provided or to be provided to any person, by any other person in relation to the execution of a Works Contract in respect of roads, airports, railways', transport terminals, bridges, runnels and dams.
Explanation: for the purpose of this sub-clause, "Works Contract" means a contract wherein,--
(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purpose of carrying out,--
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or a conduit, primarily for the purpose of commerce or industry, would fall within the definition of Works Contract Service.
(c) to (e) ................"
6.1 The appellants have produced materials before us to contend that the customers, namely, M/s. SRMIST as well as M/s. VS are engaged primarily in rendering of educational services and, therefore, the building constructed for these clients would not fall within the definition of Works Contract Services. On examining the financial statements of these customers, M/s. SRMIST as well as M/s. VS, we find that the argument put forward by the learned consultant is not without substance. The revenue earned by this institution/society by availing services in the manner of collection of fees and other charges is very high when compared to the value of other taxable services in which they are engaged. The letter of M/s. SRMIST, dated 30-7-2008 clearly states that the purposes for which the buildings are intended to be used. The department has stressed on a Circular issued by the Board dated 17-9-2004. This Circular is with regard to the clarification issued for Commercial or Industrial Services, which has come into the service tax net with effect from 10-9-2004. The clarification issued for Commercial or Industrial Services, which has come into service tax net, is with effect from 1-6-2007. We find that Revenue is attempting to adopt the said Circular issued for Commercial Construction or Industrial Services to contend that if the building is not solely used for educational services, the same has to be considered for use of commerce or industry.
6.2 In the present case, it is established from the records that the buildings are predominantly used for educational activities. Merely because some incidental activities of renting of space for Scientific or Technical Services or Manpower Recruitment services occurs, it cannot be said that the buildings are not primarily used for educational services. We, are therefore, of the considered opinion that the demand for the period Oct/08 to June, 2012, is unsustainable, and is therefore required to be set aside, which we hereby do.
The Ld. Consultant has further submitted that for the period Apr.'13 to Jul.'13 the appellant does not wish to contest the liability to pay service tax and is confining the challenge on the penalties imposed. It is brought out from the arguments that the appellant had discharged the tax liability on being pointed out by the department and much before the issuance of the show-cause notice. Applying the ratio laid down in the case of Commissioner of Service Tax-VH v. S.M. Sai Construction reported in : 2016 (42) S.T.R. 716 (Tri. - Mumbai), we hold that the imposition of penalty for the period from Apr.'13 - July, '13 is not justified. Hence, the impugned order is modified only to the extent of setting aside of the demand, interest and attendant penalties for the period Oct. 08 to July/12 and setting aside of the penalty imposed for the period from Apr.'13 to July, '13. The appeal is partly allowed in the above terms with consequential reliefs, if any