The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, has set aside a major portion of the service tax demand raised against M/s VSN Infratech Pvt. Ltd., Kanpur, holding that several of the construction services rendered by the company were non-commercial in nature and therefore not liable to service tax.
The two-member bench comprising Sanjiv Srivastava (Technical Member) and Angad Prasad (Judicial Member) observed that Construction for educational and irrigation projects was not liable to service tax. Industrial projects such as factory sheds and airfield works were taxable. Penalties under Sections 77 and 78 were proportionally modified in line with the revised tax liability.
The appellant/assessee, M/s VSN Infratech Pvt. Ltd., engaged in providing construction services, had registered for service tax in May 2011. During a departmental inquiry, it was alleged that the company had short-paid service tax for the period 2009–2012, despite filing a Voluntary Compliance Encouragement Scheme (VCES) declaration in December 2013.
The declaration was subsequently rejected by the Assistant Commissioner on the ground that the company had under-declared its liability. Thereafter, a show cause notice was issued demanding ₹38.76 lakh in service tax along with interest and equal penalty under Sections 73, 75, 77 and 78 of the Finance Act, 1994. The adjudicating authority confirmed the demand of ₹22.27 lakh and imposed equivalent penalties.
The Tribunal examined in detail the nature of works executed by VSN Infratech for various clients, including educational institutions, government departments, and public sector undertakings.
The appellant had constructed facilities such as septic tanks and rainwater harvesting systems for Vision Institute of Technology, Aligarh and Kanpur, run by Vision Educational & Charitable Trust.
The Tribunal held that such constructions, being for educational purposes and not for profit, are non-commercial in nature. Relying on CBEC Circular No. 80/10/2004-ST, it ruled that the services were not taxable.
The CESTAT stated that construction of canal lining for the Baghla Canal Division, Allahabad — part of the state’s irrigation department — was also found to be a sovereign function. Referring to CBEC Circular No. 116/10/2009-ST, the Tribunal held that canal systems built for public irrigation are not commercial ventures and thus exempt from service tax.
The Tribunal distinguished between construction activities at HAL (Hindustan Aeronautics Limited) in Korwa and Kanpur. Works at HAL, Korwa (construction of RCC roads and residential facilities) were exempt, being non-commercial in nature. However, works at HAL, Kanpur, such as construction of flight sheds and tarmacs, were held taxable, as they directly related to the company’s industrial operations.
Maintenance and cleaning services rendered to UPSIDC (U.P. State Industrial Development Corporation) and construction works for PACCFED (U.P. Processing & Construction Cooperative Federation) were held taxable, as both were commercially operating entities providing services for a fee.
The Bench rejected the appellant’s argument that its VCES declaration was improperly rejected or that its rectification application was not heard. It clarified that once the declaration under Section 106(2) of the Finance Act, 2013 had been rejected, the only remedy was to challenge it before the High Court, not through repeated rectification applications before the Commissioner.
The Tribunal cited the Supreme Court ruling in Deva Metal Powders Pvt. Ltd. v. Commissioner of Trade Tax (2008), emphasizing that a debatable issue cannot be treated as an “apparent error” for rectification under Section 74 of the Finance Act, 1994.
Case Details
Case Title: M/s VSN Infratech Pvt. Ltd. Versus Commissioner of Central Excise & CGST, Kanpur
Case No.: Service Tax Appeal No.70226 of 2018
Date: 16 October, 2025
Counsel For Appellant: Ankul Udai, Advocate
Counsel For Respondent: A.K. Choudhary, Authorised Representative
