Custom, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai: In a case wherein appeal filed against order confirming the demand of service tax on construction activities rendered by the appellants-Pal Promoters Pvt. Ltd and its Managing Director (MD) fell under “Commercial or Industrial Construction Service” as per Section 65(25-b), Finance Act, 1994 (Finance Act) and “Construction of Complex service” as per Section 65(91-a), Finance Act, the Division Bench of M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member)* set aside the order of demand and held that constriction services provided did not constitute commercial construction activity.
Background
The appellant-Pal Promoters Pvt. Ltd. filed an appeal against order confirming the demand of service tax on construction activities. The appellant rendered civil construction works, i.e., construction of residential complexes in the Tsunami affected areas for Tsunami District Implementation Unit (TDIU), Pudukkotai and for Peoples Development Association (PDA), Tamil Nadu Police Housing Corporation (TNHPCL), Harley Ram Nursing Home as well as for Madurai Municipal Corporation. A show-cause notice was issued demanding service tax for the period from 1 April 2007 to 31 March 2012, alleging that the appellant had provided “Commercial or Industrial Construction Service” as per Section 65(25-b), Finance Act and “Construction of Complex service” as per Section 65 (91-a), Finance Act. The demand was confirmed by the adjudicating authority along with applicable interest and imposed equivalent penalty under Section 78, Finance Act and a penalty under both Sections 77 (1)(a) and (2), Finance Act. Hence, the appeal.
Another appeal was filed by MD of Pal Promoters Pvt. Ltd. Appellant 2 against the order of Commissioner (appeals) rejecting appeal against order adjudicating authority. Appellant 2 in his personal account was found to have undertaken construction of commercial building to Devadoss Multi Specialty Hospital, Madurai, residential complexes to World Vision India Limited and provided renting of immovable property service to PAL Promoters Private Limited. Hence, a show-cause notice alleging that Appellant 2 had provided taxable services during the period from 1 April 2007 to 31 March 2012 was issued and demand was confirmed by along with applicable interest and imposed equivalent penalty under Section 78, Finance Act and a penalty under both Sections 77 (1)(a) and (2), Finance Act. Thus, the present appeal.
Appellants submitted that TNPHCL is of government organisation and the construction was for the personal use of the police personnel and would be exempted in terms of Sl.No.12 of Mega Exemption Notification No.25/2012-ST dated 20 June 2012 (Mega Notification). Regarding the construction of houses for TDIU and for PDA undertaken by the appellants for World Vision India were not intended for sale, a condition precedent under Explanation under Section 65 (105) (zzzh), Finance Act for applicability of the said clause and hence construction of these individual houses for Tsunami affected poor homeless people provided by these organisations free of cost would come within the ambit of exclusion provided in connection with personal use in the Explanation to Section 65(91-a), Finance Act as well as the exemption in terms of Mega Notification. It was further submitted that hospital constructions cannot be considered as commercial or industrial construction services as stipulated in Section 65(105)(zzq), Finance Act.
The issues for consideration were whether the appellants were liable to pay service tax for the period from 1 April 2007 to 31 March 2012, pursuant to the demands confirmed invoking the extended period of limitation, on the allegation that the appellant had provided “Commercial or Industrial Construction Service” as per Section 65 (25-b), Finance Act and “Construction of Complex service” as per Section 65(91-a), Finance Act as well as whether Appellant 2 was liable to pay service tax for the alleged renting of immovable property service rendered.
Analysis, Law and Decision
The Tribunal relied on the decision of Manoharan & Co. v. CCE, 2019 SCC OnLine CESTAT 14 and held that the construction services rendered by the appellant to TNHPCL were not exigible to service tax and the findings in the impugned order in this regard were liable to be set aside. The Tribunal observed that the demand raised on the appellants pertaining to construction of residential houses in Tsunami affected areas were for construction of individual residential houses for respective organisations. The Tribunal following the decision of the Tribunal in K.B. & Co. v. Commr. of GST & Central Excise, 2025 SCC OnLine CESTAT 105, wherein similar issue arose and held that the appellant was not liable to pay service tax on the construction services rendered to TNHPCL, TDIU and for PDA and the demand confirmed and upheld in the impugned orders to that extent were liable to be set aside.
The Tribunal further observed that the constructions services rendered in respect of the hospitals as well as that rendered to Madurai Municipal Corporation, the demand was proposed to be confirmed under the category of “Commercial and Industrial Construction Services” for the relevant period. The Tribunal held that with advent of service tax on the construction services rendered by the appellants under the aforesaid category of “Commercial or Industrial Construction” was wholly unsustainable. By virtue of Mega Notification, the provisions of Section 65 ceased to apply from 1 July 2007. Therefore, for the period up to 31 March 2012, the services rendered by the appellants were outside the ambit of taxable service as provided under Section 65(105) (zzq), Finance Act under which the demand was proposed and stood confirmed. Regarding the construction for Madurai Municipal Corporation, the Tribunal held that the Department has not let in any evidence that the appellant had carried out the construction of a complex that was primarily for commerce. The Tribunal noted that there was no evidence relied on in the show-cause notice of any information gathered from the approved plan of the building or civil construction. Thus, the Tribunal held that the Department did not let in any evidence that the appellant had carried out the construction of a complex that was primarily for commerce.
The appellants contended that the demand was barred by limitation stating that the Department did not show evidence of any positive or deliberate act of wilful suppression or misstatement of facts with intent to evade payment of duty on the part of the appellant whereas the appellant had entertained a bona fide belief that the construction activities rendered by the appellants were not leviable to service tax given that they were either for government organisations or for welfare measures of the government/service-oriented non-governmental organisations (NGOs) and for hospitals that provided health services to general public. The show-cause notice did not let any evidence of any positive or deliberate act of wilful suppression or misstatement of facts with intent to evade payment of duty on the part of the appellants.
The Tribunal relied on Stemcyte India Therapeutics (P) Ltd. v. CCE, (2025) 144 GSTR 662 and held that mere non-payment of tax, without any element of intent or suppression was not sufficient to attract the extended period of limitation. The Tribunal further relied on Uniworth Textiles Ltd. v. CCE, (2013) 9 SCC 753 while considering the ingredients required to invoke the extended period of limitation, burden of proving any form of mala fide lied on the shoulders of the one alleging it. Therefore, the extended period of limitation invoked was held in favour of the appellant. Further, regarding demand of service tax on renting of immovable property could not be made on Appellant 2 as the service was susceptible to interpretational disputes and was the subject-matter of litigation, resulting in the levy being effectuated through retrospective amendment, the demand is wholly barred by limitation.
The Tribunal set aside the service tax demand and penalties on the appellants and allowed the appeal.
[Pal Promoters (P) Ltd. v. Commissioner of GST & Central Excise, 2026 SCC OnLine CESTAT 1432, Decided on 18-06-2026]
*Order by Ajayan T. V., Judicial Member
Advocates who appeared in this case :
For the Appellant (s): S. Sivalinga Kesavan, Advocate
For Respondent(s): Ms. O.M. Reena, Authorized Representative
