Works Contract Service

[Per: M. V. Ravindran] - This stay petition is directed for waiver of the pre-deposit of the following amounts:-

a. Service Tax - Rs.1,92,90,936/-

b. Interest.

c. Penalty @ 2% u/s 76.

d. Penalty - Rs.1000/- u/s 77.

e. Penalty - Rs.1,93,00,000/- u/s 78.

The issue involved in this case is regarding the service tax liability on the appellant as regards the services rendered by them to the Govt. of Andhra. Pradesh in form of turn key projects executed by them for the construction of reservoirs, canals, distributory system to feed various ayacut, land etc. The Revenue proceeded against the appellant on the ground that such an activity would fall under the category of works contract and will be covered under the definition of ‘works contract' more specifically under sub-clause (e) "turnkey projects including engineering; procurement and construction or commissioning (EPC) projects".

3. Ld. Counsel would draw our attention to the Show Cause Notice and submitted that it is an admitted fact that the activities rendered by the appellant is in respect of the irrigation system, right from investigating to the completion of the said system. He would also draw our attention to the finding of the adjudicating authority. He would submit that they have been claiming that they would fall under the category of ‘Commercial or Industrial Construction services’ under the provisions of Section 65(25b) of the Finance Act, 1994, but exempted from tax liability as the activity is not of a commercial nature. It is his submission that the said contention of the appellant was held to be correct by the Revenue till 1/6/2007, when works contract service was introduced in the Finance Act. It is his submission that in the works contract also, there is a clause which identifies the activity of construction activity for commercial or industrial purposes. It is his submission that the projects which are executed by the appellant would not be liable for service tax liability due to the reason that the Revenue in their Circular No.116/10/2009-ST dt. 15/9/2009 has clearly clarified that the work intended for commerce or industry will only be taxed and does not include the work or services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. He would submit that in this case there is no dispute as to the fact that they are providing the services to the Govt. of Andhra Pradesh for the irrigation system i.e. construction of reservoir canals etc. which is of non-commercial nature.

4. Ld. Jt.CDR on the other hand would submit that the Revenue is taxing this under the category of works contract as the projects executed by the appellant for the Govt. of Andhra Pradesh would directly fall under, the category of turnkey projects. It is her submission that the title of the agreement entered by the appellant with Govt. of Andhra Pradesh clearly indicates that it is a turnkey project, and hence it would be directly covered under the category of ‘works contract’. It is her submission that the adjudicating authority has correctly come to the conclusion that the appellant is liable to pay service tax on such services rendered by them. She would submit that the appellant should be put to some terms before the matter disposed of.

5. In his rejoinder, Id. Counsel submits that in an identical issue came up before a co-ordinate Bench of the Tribunal in the case of Radius Corporation Ltd. CCE, Raipur [2009(14) STR 693(Tri. Del.)] in a stay matter and the Bench has granted unconditional waiver from pre-deposit of the amounts involved.

6. We have considered the submissions made at length and perused records. The issue involved in this case is whether the appellant is liable to pay service tax on the services rendered by them by executing irrigation project which includes construction of reservoir, canal, feeder system etc. Prima-facie, we find that the said services would be covered under the ‘works contract’. The definition of ‘works contract’ services is reproduced herein below:-

"Section 65(105)(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

Explanation - For the purposes of this sub-clause, "works contract" means a contract wherein, -

(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(c) construction of a new residential complex or a part thereof; or

(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or

(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;"

It can be seen from the above reproduced portion that the definition at clause (b) is for "constructions" and which is not for the purpose of commerce or industry. We find that in this case, it is undisputed that the work executed by the appellant is in respect of the irrigation services and is not for any commerce or industry. We find that the Board vide its circular dt. 15/9/2009 has clarified as under:-

"3. The second issue is about Government taking up construction activity of dams, buildings or infrastructure construction etc. through EPC (Engineering Procurement & Construction) mode. The said service is covered under Section 65(105)(zzzza) of Finance Act, 1994. The said section itself excludes works contract in respect of dams, road, airports, railways, transport terminals, bridges & tunnels executed through EPC mode. Hence, works contract in respect of above works even if done through EPC mode are exempt from payment of service tax."

It can be seen from the above reproduced clarification given by the Board that “the activities which are concerned with welfare of the citizens of this country has been excluded from the liability of service tax."

7. We find that, prima-facie, the appellant has made out a case for waiver of the pre-deposit of the amounts adjudged by the adjudicating authority. In view of this, we allow the application for waiver of the pre-deposit of the amounts involved and stay the recovery thereof till the disposal of the appeal.

(Pronounced in Court on 04.12.09)