The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that construction of roads within a Krishi Upaj Mandi qualifies for service tax exemption as roads meant for use by the general public, while simultaneously ruling that construction of auction platform coverings, boundary walls, check posts, and related market infrastructure does not qualify for exemption under the Finance Act, 1994.
The bench of Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) has set aside the service tax demand relating to construction of roads within the Krishi Upaj Mandi but upheld the demand on construction of auction platform coverings, boundary walls, check posts and other market-related infrastructure. The matter was remanded to the Assistant Commissioner solely for recalculation of the revised service tax liability and corresponding penalties.
The dispute pertained to service tax liability on various construction activities undertaken by the contractor for the Krishi Upaj Mandi Samiti during the period from April 2014 to June 2017. The department had originally issued a show cause notice proposing a demand of ₹18.81 lakh. After adjudication, the Assistant Commissioner confirmed a demand of ₹7.52 lakh along with interest and penalties, while the Commissioner (Appeals) further reduced the demand to ₹7.07 lakh.
The contractor challenged the surviving demand before the Tribunal, contending that the services rendered were covered under various entries of Service Tax Exemption Notification No. 25/2012-ST dated June 20, 2012.
The Tribunal examined three distinct categories of services rendered to the Krishi Upaj Mandi Samiti: Construction of covering over existing auction platforms; Construction of roads within the mandi premises; and Construction of boundary walls, check posts, approach roads, BT roads and other allied structures connected with auction platforms.
The appellant argued that the construction of coverings over auction platforms was exempt under Serial No. 12A(a) of Notification No. 25/2012-ST, which exempts construction of civil structures predominantly meant for use other than commerce, industry, business or profession.
Rejecting this contention, the Tribunal observed that an auction platform in a mandi is inherently a commercial facility. It noted that the primary purpose of such a platform is the auction of goods, which is unquestionably a commercial activity.
The Bench held that a structure facilitating auctions cannot be regarded as a civil structure predominantly meant for non-commercial use and therefore does not satisfy the conditions prescribed under the exemption notification. Consequently, service tax remained payable on the construction of auction platform coverings.
The most significant relief granted to the appellant concerned the construction of roads within the Krishi Upaj Mandi.
The department had denied exemption under Serial No. 13(a) of Notification No. 25/2012-ST on the ground that roads situated inside mandi premises were not roads meant for use by the general public.
However, the Tribunal disagreed with this interpretation.
It observed that Krishi Upaj Mandis are public market facilities used by farmers, traders, transporters and other members of the public involved in agricultural trade. Therefore, roads constructed within such market premises cannot be equated with private roads inside private properties.
Accordingly, the Bench ruled that the roads in question were intended for public use and qualified for exemption available to road construction services. The service tax demand relating to construction of roads was therefore set aside.
The appellant also sought exemption under Serial No. 14(d) of Notification No. 25/2012-ST for construction of boundary walls, check posts, approach roads, auction platform coverings and related structures, arguing that these constituted post-harvest storage infrastructure for agricultural produce.
The Tribunal rejected this argument as well.
It held that market infrastructure cannot be equated with post-harvest storage infrastructure. While agricultural produce may remain temporarily within market premises before sale, that temporary presence does not convert a market into a storage facility.
The Bench emphasized that auction platforms, boundary walls, check posts and similar facilities are integral components of a trading marketplace rather than warehousing or storage infrastructure. Therefore, these works were held ineligible for exemption under the notification.
The Tribunal also examined the appellant’s challenge to the invocation of the extended period of limitation and the imposition of penalties.
The contractor argued that all transactions had been duly recorded and that the dispute involved only interpretation of exemption notifications, with no intention to evade tax.
The department, however, pointed out that the appellant had neither obtained service tax registration nor filed ST-3 returns nor paid service tax during the relevant period. The investigation was initiated only after information was received from the Income Tax Department.
Accepting the department’s stand, the Tribunal held that the conduct of the appellant justified invocation of the extended limitation period. The Bench observed that the contractor had taken no steps indicating bona fide compliance and remained inactive until departmental investigations commenced.
Consequently, the extended period of limitation was upheld, and the Tribunal also sustained the penalties, subject to proportional reduction corresponding to the portion of demand that was set aside.
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