Contractor Cleared of ₹1.74 Cr Tax Demand for RHB and AVVNL Works
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, has struck down a service tax demand of over Rs. 1.74 crore on a contractor, ruling that construction services for low-density residential buildings and non-commercial government utility offices are exempt from service tax under the Finance Act, 1994.
Background of the Case
The contractor was registered under the “Commercial or Industrial Construction Service” category and undertook two major government construction projects in Rajasthan. A residential complex (G+3 floors) for the Rajasthan Housing Board (RHB) at Pratap Apartments. A corporate office building for Ajmer Vidyut Vitran Nigam Limited (AVVNL) at Panchsheel, Ajmer.
The tax department, after reviewing the contractor’s balance sheets and work orders, issued two show cause notices dated July 1, 2011 and October 12, 2011, demanding ₹1,04,91,715 and ₹69,12,709 respectively for FY 2009–10 and 2010–11. A common adjudication order passed in December 2012 upheld the demands, which the contractor challenged before the appellate tribunal.
Tribunal’s Key Observations
The CESTAT bench, comprising Judicial Member Ms. Binu Tamta and Technical Member Mr. Rajeev Tandon, ruled in favour of the contractor based on the following grounds:
Residential Complex with Less Than 12 Units Not Taxable
The RHB project involved constructing less than 12 independent dwelling units, which do not meet the definition of “residential complex” under Section 65(91a) of the Finance Act, 1994. Citing past rulings and departmental clarifications, the tribunal held that such constructions are not liable to service tax.
AVVNL Office Construction Not Commercial
The AVVNL building was for office use by a state-owned electricity distribution utility. Relying on CBIC Circular No. 80/10/2004-ST, the tribunal noted that government buildings used for public services and not for profit do not fall under the taxable category.
Electricity-Related Services Statutorily Exempt
The tribunal also noted that AVVNL’s activities fall under electricity distribution—a sector exempt from service tax as per Notification Nos. 11/2010-ST and 45/2010-ST.
Limitation Barred Extended Demand
Since an earlier show cause notice had already been issued for the period 2005–09 on similar grounds, the tribunal cited the Nizam Sugar Factory v. CCE judgment to hold that invoking an extended limitation period was unjustified.
Non-Filing of Returns Not Fatal
While the Revenue pointed to non-filing of ST-3 returns for 2009–10, the tribunal ruled this to be non-consequential given that the underlying services were non-taxable.
The tribunal allowed the appeal, set aside the Commissioner’s order-in-original, and granted full relief to the contractor.
Case Details
Case Title: M/s. Gyarsilal Mohanlal Versus Commissioner-I , Customs, Central Excise & Service Tax, Jaipur
Case No.: Service Tax Appeal No.56719 of 2013
Date: 17.07.2025
Counsel For Appellant: Bipin Garg
Counsel For Respondent: Aejaz Ahmed
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Mariya is the Senior Editor at Juris Hour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
