The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench, has held that the construction of a multi-level parking facility for the Chandigarh Administration is not a commercial activity and therefore qualifies for exemption under Notification No. 25/2012-ST.
The bench of Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) consequently dismissed the Revenue’s appeals and upheld the order setting aside a service tax demand of ₹1.85 crore, along with penalties.
The respondent/assessee was engaged in providing construction-related services including erection, commissioning, installation, construction of residential complexes and works contract services.
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During scrutiny of the contractor’s ST-3 returns for the financial year 2013-14, the Service Tax Department noticed that the assessee had declared nil taxable value. On examining the balance sheet, Form 26AS and work orders, the Department found that the contractor had executed a project for construction of a multi-level parking facility near Gurudev Studio, Sector-17, Chandigarh, for the Municipal Corporation, Chandigarh. The value of work executed during 2013-14 exceeded ₹11.08 crore.
The Department took the view that the parking structure was meant for commercial use and issued show cause notices demanding service tax.
The adjudicating authority confirmed demands aggregating ₹1,85,54,894, besides imposing penalties of ₹9.25 lakh under Section 76 and ₹20,000 under Section 77 of the Finance Act, 1994. The Commissioner (Appeals), however, set aside the demands, prompting the Revenue to challenge the order before CESTAT.
The department argued that the exemption under Serial No. 12A of Notification No. 25/2012-ST was wrongly extended.
According to the Department, the Tribunal should examine the overall nature and intended use of the structure. Since the parking facility collected parking charges and functioned as a multi-level parking complex, it should be regarded as a commercial activity liable to service tax rather than an exempt public infrastructure project.
The contractor contended that the project had been executed exclusively for the Chandigarh Administration with the objective of providing parking facilities to the general public.
It was argued that the construction was not undertaken for commercial exploitation or profit-making but formed part of public infrastructure. Therefore, the project squarely fell within the exemption available for original works constructed predominantly for purposes other than commerce, industry or business under Notification No. 25/2012-ST.
The respondent also relied upon earlier Tribunal decisions, including BG Shirke Construction Technology Pvt. Ltd., SRM Engineering Construction Ltd., and Commissioner v. Shalimar Corp Ltd., where similar projects had been held to be exempt from service tax.
After examining the exemption notification and earlier precedents, the Tribunal agreed with the contractor.
The Bench observed that Paragraph 12A of Notification No. 25/2012-ST exempts services provided to the Government or local authorities involving construction of original works that are predominantly intended for uses other than commerce, industry or business.
The Tribunal found that the multi-level parking had been constructed solely to provide parking facilities to the public and not for commercial profit.
According to the Bench, providing adequate parking infrastructure is one of the statutory public functions of a Municipal Corporation. The objective of such facilities is to reduce congestion, encourage organized parking and improve public convenience rather than generate commercial profits. Therefore, the activity cannot be classified as a commercial construction merely because a nominal user fee may be collected.
The Tribunal placed substantial reliance on its earlier decision in Commissioner of Central Excise & Service Tax, Lucknow v. Shalimar Corp Ltd., where construction of a multi-level parking facility for the Lucknow Development Authority had similarly been held to be outside the ambit of taxable commercial construction.
The earlier ruling had clarified that nominal parking charges collected from users do not convert a public welfare infrastructure project into a commercial venture. CESTAT found the present dispute to be identical and applied the same legal reasoning.
Holding that the Commissioner (Appeals) had correctly granted the benefit of the mega exemption notification, the Tribunal found no legal infirmity in the impugned order.
CESTAT dismissed both appeals filed by the Revenue, thereby confirming that the contractor was not liable to pay service tax on the construction of the multi-level parking project executed for the Chandigarh Administration.
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