The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the construction of public amenities like parking lots for a local authority, which is part of its statutory duties under the Constitution, does not constitute an activity for “commerce, industry, or any other business or profession” merely because a nominal fee is collected from the public for its maintenance and proper use. Such activities are not undertaken with a profit motive and are therefore eligible for service tax exemption under Entry 12A(a) of Notification No. 25/2012-ST.
Thus, the CESTAT clarified that a refund claim filed under a special legislative provision like Section 102 of the Finance Act, 2016, which grants a retrospective exemption and mandates the refund of tax collected during the interim period, is absolute and not governed by the procedural requirements or limitations applicable to general refund claims, such as the necessity to challenge the self-assessment.
The Division Bench comprising Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the central issue was whether the appellant’s services were eligible for exemption under Entry No. 12A of Notification No. 25/2012-ST, as retrospectively applied by Section 102 of the Finance Act, 2016. The Tribunal analysed the term ‘commercial’, and opined that an activity is commercial in nature only if it is carried on with a profit motive.
The Tribunal noted that providing public amenities, including parking lots, is a constitutional responsibility of state municipalities under Article 243W of the Constitution of India. It accepted a letter from the Commissioner, Jodhpur Nagar Nigam, which clarified that the parking facility was constructed for public convenience pursuant to a High Court directive in a PIL and was not for any commercial purpose.
Thus, the collection of a nominal fee from users was deemed to be for the maintenance of the facility and not for earning profit, thus distinguishing the activity from a commercial venture, clarified the Tribunal.
The ESTAT further observed that the refund provision under Section 102(2) of the Finance Act, 2016, uses the word ‘shall’, making it a mandatory and special provision distinct from the general refund mechanism under Section 11B of the Central Excise Act. On the issue of unjust enrichment, the Tribunal found the Chartered Accountant’s certificate, stating that the incidence of tax had not been passed on, to be sufficient and admissible evidence.
Briefly, the appellant, engaged in providing Works Contract Services, filed a refund claim for Rs. 1.58 Crores for service tax paid on the construction of multilevel and underground parking facilities in Jodhpur, a park in Udaipur, and a residential school in Alwar. The claim was based on a retrospective exemption introduced by Section 102 of the Finance Act, 2016, which stipulated that no service tax would be levied or collected for the period from April 01, 2015 to February 29, 2016 for specified construction services provided to a government, local authority, or governmental authority.
The contracts for these projects were entered into with government bodies prior to March 01, 2015. The department rejected the refund claim, primarily on the ground that the construction of parking facilities was a commercial activity, as the local bodies charged fees from the public, and thus the exemption was not applicable.
Appearances:
CA, M.B. Maheshwari, for the Appellant/ Taxpayer
AR, Jaya Kumari, for the Respondent/ Revenue
