Exemption for Non-Commercial Govt. Works Must Be Properly Examined: CESTAT Remands Service Tax Demand

The Kolkata Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside substantial service tax demands against a works contractor and remanded the matter back to the adjudicating authority for fresh examination. The bench of Ashok Jindal (Judicial Member) and K.Anpazhakan (Technical Member) has held that services provided for non-commercial government purposes may qualify for exemption and must be properly verified before confirming tax liability. The case involved M/s Urmila RCP Projects Pvt. Ltd., engaged in works contracts including construction for government bodies, renting of immovable property, and sub-contracting activities. The dispute arose from multiple show cause notices covering the period from October 2007 to March 2015, involving service tax demands exceeding ₹11 crore along with penalties. The Tribunal noted that a significant portion of the demand was raised by invoking the extended period of limitation. However, it observed that part of the demand itself fell beyond even the extended five-year limitation period, rendering it unsustainable. The issue of limitation, including whether there was suppression or wilful misstatement, was directed to be re-examined by the adjudicating authority. A key issue in the case was the classification of services rendered by the appellant. The company argued that many of its projects—such as construction of school buildings, hostels, residential quarters for government employees, museums, and training centres—were meant for non-commercial use and therefore exempt from service tax. Detailed project-wise classifications (as reflected in tables on pages 8–11 of the order) showed several works categorized as “exempted,” including educational buildings, government housing, and public infrastructure. The Tribunal found merit in this contention and emphasized that if the services were indeed provided for use other than commerce, industry, or business, they would qualify as exempt services. However, since the adjudicating authority had not properly verified the nature of these works based on supporting documents like work orders, the matter required reconsideration. Another important aspect was the department’s reliance on Form 26AS and financial statements to raise service tax demands under best judgment assessment. The appellant argued that service tax liability cannot be determined solely based on income tax records, as both operate under different legal frameworks. While the Tribunal did not give a final finding on this issue, it directed that the entire matter be re-evaluated with proper verification of records. The Tribunal also addressed the long-standing issue of tax liability in sub-contracting arrangements. It observed that prior to the Larger Bench ruling in Melange Developers Pvt. Ltd., there was ambiguity on whether a sub-contractor was liable when the main contractor had already discharged service tax. In such cases, the Tribunal noted that there was effectively no revenue loss, and liability must be examined in light of prevailing legal interpretations during the relevant period. The appellant contended that several service tax payments made through challans were not properly considered, and that non-reflection of certain payments in ST-3 returns was due to procedural constraints rather than tax evasion. The Tribunal directed that such payments must be duly verified and accounted for during re-adjudication. The Tribunal set aside the impugned orders and remanded the matter back to the adjudicating authority. It directed the appellant to furnish all relevant documents, including work orders, within one month. The authority has been instructed to re-examine the nature of services, applicability of exemptions, limitation issues, and tax payments, and then pass a fresh order in accordance with law. Case Details Case Title: M/s Urmila RCP Projects Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Ranchi Citation: JURISHOUR-832-CES-2026(KOL) Case No.: Service Tax Appeal No.75596 of 2017 Date: 16 APRIL 2026 Counsel For Appellant: Nitin Kumar Pasari Counsel For Respondent: D.Sue & Shri P.Das Click Here To Read Order Read More: Service Tax Can’t Be Levied on Third-Party Trading Income; CESTAT Quashes Rs. 2.23 Cr Demand

Exemption for Non-Commercial Govt. Works Must Be Properly Examined: CESTAT Remands Service Tax Demand

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