SERVICE TAX LIABILITY – CONSTRUCTION OF SPORTS COMPLEX

[Mr. M. GOVINDARAJAN]

Section 65(25b) of the Finance Act, 1994 (erstwhile) defined the term ‘Commercial or Industrial Construction Service’ as construction of a new building or a civil structure or a part thereof which is used or occupied or engaged, primarily, for commerce and industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Thus any construction, if it is used for commerce or industry will attract service tax liability.   The issue to be discussed in this article whether the construction of sports complex is liable for service tax with reference to the decided case law.

The appellant in ‘B.G. Shirke Construction Technology Private Limited V. Commissioner of Central Excise, Pune – III’ – 2013 (11) TMI 870 - ITAT MUMBAI constructed a Sports Stadium Complex for Government of Maharastra at Mahalunge, Balewadi, Pune. The scope of the work is as below:

• Indoor Badminton Hall of size 60 m x 40 m;
• Fitness centre;
• Shooting range centre;
• Sports science centre;
• Press and media centre.

The tender also involved up gradation of existing facility, such as:

• Athletic Stadium additional track, warm up track;
• Tennis centre court and resurfacing of practice courts;
• Weightlifting hall;
• Hostels;
• Wrestling hall;
• Boxing hall;
• Swimming pool etc.,

The Adjudicating Authority observed that the facility constructed by the appellant in this case is to be used by the public and others for a consideration. Therefore the entire is commercial construction and he confirmed the demand along with penalty.

Aggrieved with the said order the appellant approached the Tribunal. The appellant submitted the following before the Tribunal:

• As per the certificate procured from the Grampanchayat, Mahalunge, it may be seen that the plot of land on which the complex is constructed, is not registered in their records either as for residential or commercial purpose;
• The said plot of land owned by the government of Maharastra is for the public welfare use;
• The buildings constructed in the said plot of land are not used for commercial purposes;
• The Director, Directorate of Sports & Youth Services, Pune, vide affidavit has deposed that the project of building/upgrading the stadium was undertaken for holding 3^rd Common Wealth Youth Games, 2008 in the month of October 2008;
• The project was financed and funded by the Government and the stadium is fully controlled by the Department of Youth Affairs and Sports, Government of Maharastra;
• The stadium will be continued to be used for non commercial purposes even after the finish of the Commonwealth Youth Games;
• The circular No. 80/10/2004-ST, dated 17.09.2004 which provides that service tax is not leviable if the constructions are used for educational, religious, charitable, health, sanitation or philanthropic purposes;
• The circular No. 151/2/2012-Service Tax, dated 10.02.2012 which provides in para 2.4 that mere change in use of building does not involve any taxable service unless conversion falls within the meaning of commercial or industrial construction service;
• The activity undertaken by the appellant does not come within the purview of the commercial or industrial construction services as defined under Section 65(25b);

The Department pointed out the following:

• In the rates given for the use of the stadium prepared, there is a column for usage for commercial purposes which points to the fact that the stadium is being allowed to be used for commercial purposes;
• Separate rates have been fixed for such usage;
• Para 2 of the Government Resolution provides that the Committee shall be competent to use the area to the extent of one third of the total area for commercial purposes;
• Thus it is made clear that apart from sports on use, the stadium is also to be used for commercial purposes;
• Therefore the construction is to be considered as a commercial construction and not as a non commercial construction.

The appellant submitted rejoinder as below:

• Different categories have been prescribed – a lower rate for schools, slightly higher rates for sports associations, another higher rate for institutions and clubs and the highest rate for usage for commercial purpose.  
• Merely because a higher rate has been prescribed for the corporate, it does not mean the use is other than organizing sports competition and conducting of sports activities cannot be held to be a commercial activity;
• It is not the purpose for which the stadium has been put to use that is relevant for classification purpose;

The Tribunal framed the question to decide in this case is whether the Sports Complex Stadium constructed for the purpose of holding games can be considered as a commercial or industrial construction, merely on the ground that the stadium is allowed to be used by the public and others later on, on payment of user charges.   In the view of the Tribunal, the Sports stadium is a public utility for the recreation of the public and it does not come under the category of commercial or industrial construction.

The Tribunal clarified as to what amounts to ‘public utility’. Public Utility means any work, project which is going to be useful to the members of the public at large.   The public benefit aided at or intended to be secured need not be to the whole community but to considerable number of people.   The Tribunal referred the meaning for the said terms in American law which defined as the following facilities owned by a State or local government such as-

• Any flood control, navigation, irrigation, reclamation, public power, sewage treatment and collection, water supply and distribution, watershed development or airport facility;
• Any other federal and street road or highway;
• Any other public building, structure or system, including those used for educational, recreational or cultural purposes;
• Any park.

The Tribunal held that sports stadium is used for public purpose.   Merely because some amount is charged for using the facility, it cannot become a commercial or industrial construction. Even in a children’s park entry fee may be levied for maintenance of the park.   Merely because some amount is charge for using the park it cannot be said that it is a commercial or industrial construction.   Adopting the same logic, the Sports Stadium in the present case is also a non commercial construction for use by the public. The Tribunal allowed the appeal filed by the appellant.