Tribunal Exonerates Deccan Construction: Service Tax Demand on Educational Building Projects Quashed

Chennai Bench Rules Non-Profit Educational Institutions Exempt from Commercial Construction Taxation

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chennai bench has set aside the service tax demand of Rs. 1.20 crore imposed on M/s. Deccan Construction Company for building projects executed for educational institutions. The tribunal adjudicated that such constructions do not fall under "Commercial or Industrial Construction Service" as defined by the Finance Act, 1994, thereby exempting them from service tax.

The bench, comprising Mr. P. Dinesha and Mr. Vasa Seshagiri Rao, deliberated on the appeal filed by Deccan Construction against the Order-in-Original passed by the Commissioner of Central Excise, Madurai. The order had previously upheld the demand for service tax along with interest and penalties for projects conducted between April 2008 and March 2012, based on the premise that educational institutions charging fees are commercial entities.

The tribunal underscored the statutory definition under Section 65(25b) of the Finance Act, which exempts constructions for institutions established solely for educational, charitable, or religious purposes without a profit motive. The bench drew attention to earlier precedents and the Supreme Court's ruling in Queen's Educational Society v. State of Uttarakhand, affirming that surplus generation or fee collection does not render an institution commercial if surpluses are reinvested.

The tribunal also emphasized that the withdrawal of Circular No. 80/10/2004-ST by a Master Circular did not alter the statutory definition of commercial use, thereby ruling out tax applicability based merely on administrative changes. Furthermore, the bench highlighted that the taxability of construction services must be determined based on statutory provisions and not administrative circulars.

The decision is aligned with judicial precedents from the Karnataka High Court and CESTAT's prior rulings, reinforcing the exemption of charitable educational institutions from service tax under CICS. The ruling not only quashes the service tax demand but also sets a precedent for similar cases concerning construction services provided to non-profit educational entities.

Bottom Line:

Construction services for educational institutions that are established solely for educational, religious, charitable, health, or philanthropic purposes and not for profit are not taxable under "Commercial or Industrial Construction Service" as per Section 65(25b) of the Finance Act, 1994. Withdrawal of a circular does not alter the statutory definition or create taxability.

Statutory provision(s): Section 65(25b) of the Finance Act, 1994; Section 73(1) of the Finance Act, 1994

M/s. Deccan Construction Company v. Commissioner of GST and Central Excise, (CESTAT)(Chennai)(Regional Bench) : Law Finder Doc Id # 2818752