No Service Tax on construction activities for Mega Sports Complex to be used for non-commercial purposes

The Kolkata High Court has ruled that service tax is not applicable to the construction of a Mega Sports Complex intended for non-commercial purposes. The court found that amenities like restaurants and guest houses within the complex were necessary for its functionality and did not render the project commercial. Consequently, the demand for service tax and penalties against the construction company was nullified.

The Hon'ble Kolkata High Court in M/s. Laing- Simplex JV v. Commissioner of Central Excise and Service Tax, Ranchi [Service Tax Appeal No. 70693 of 2013 dated October 10, 2023] held that the services provided during the construction of the large sports facility were not subject to service tax. This determination was based on the understanding that the primary purpose of the mega sports complex was not of a commercial nature.

Facts

M/s. Laing-Simplex JV, ("the Petitioner"), was involved in the construction of a Mega Sports Complex in Ranchi for hosting the 34th National Games. They entered into two agreements with the Executive Engineer, Ranchi, Government of Jharkhand for this project. Notably, the Government had separately appointed a consulting engineer for various project-related services, while the appellant was specifically tasked with construction work.

The Petitioner contested the order ("Impugned order") passed by the Commissioner of Central Excise and Service Tax, which confirmed a service tax demand along with interest. Furthermore, the Petitioner was also subjected to a penalty equal to the confirmed service tax, imposed under section 78 of the Finance Act, 1994 ("the Finance Act"). Additional penalties under sections 76 and 77 of the Finance Act were also imposed.

The Petitioner argued that the Sports Complex was not primarily intended for commercial or business purposes. They pointed out that the Executive Engineer, Special Works Division, had certified the non-commercial usage of the Sports Complex. The presence of restaurants, a VIP guest house, and hotel facilities within the complex, they contended, was solely for making the sports complex functional and in line with international standards. This, they argued, did not make the Sports Complex intended for commercial purposes.

On the other side, the Department ("the Respondent"), supported the decisions made by the lower authorities. He maintained that the Petitioner was indeed liable to pay the service tax, and the revenue's demand was in accordance with the law and should be upheld.

Issue

Whether the construction services provided by the Petitioner for a Mega Sports Complex, which included non-commercial amenities like restaurants, VIP guest houses, and hotels, are subject to service tax, or if they are exempt due to the non-commercial nature of the project?

Held

The Hon'ble Kerala High Court in Service Tax Appeal No. 70693 of 2013 dated October 10, 2023, held as under:

• Took into account the case of CCE&ST Pune Vs B J Shirke Construction Technology Pvt Ltd [2019 (25) GSTL 8 (BOM)], and clarified that the construction of the Mega Sports Complex by the State government was not subject to service tax under the category of 'Works Contract Service'. 
• Held in favour of the Petitioner by nullifying the demand for service tax and the associated penalty imposed on the taxpayer.