No service tax on repair of Roads - Commissioner (Appeals)
OFFICE OF THE COMMISSIONER, CUSTOMS, CENTRAL EXCISE & SERVICE
TAX (APPEALS)
4th Floor, CUSTOM HOUSE; PORT AREA, VISAKHAPATNAM - 530 035
APPEAL NO.5/2008(V-I) S.Tax Dated: 16.03.2009
ORDER-IN-APPEAL NO.27/2009(V-I) ST
PASSED BY Shri P.J.R. SEKHAR, I.R.S., COMMISSIONER (Appeals),
VISAKHAPATNAM ]
PREABLE (ST)
This copy is granted free of cost for the private use of the person to whom it is
issued.
2. Any assessee aggrieved by this Order, may appeal in Form ST-5 to the Customs,
Excise and Service Tax Appellate Tribunal, South Regional Bench, 1st Floor, WTC
Building, FKCCI Complex, Kempe Gowda Road, Bangalore - 560 009 against it, under
Section 86(1) of the Finance Act, 1994 (The Act), read with Rule 9(1) of the Service
Tax Rules 1994 (The Rules).
3. Under Section 86(2A) ibid, the Commissioner of Central Excise may, if he objects
to any order passed by the Commissioner of Central Excise (Appeals) under Section
85 ibid, direct the Assistant Commissioner of Central Excise or, as the case may be,
Deputy Commissioner of Central Excise to appeal to the Appellate Tribunal against
the order.
4. Under Section 86(3) ibid, Every appeal under sub-section (1) or Sub-Section (2)
or sub-section (2A) of Section 86 of the Act shall be filed within three months of the
date on which the order sought to be appealed against is received by the assessee,
the Board or by the [Commissioner] of Central Excise, as the case may be.
5. Under Section 86(4) ibid, read with Rule 9(3) of the Service Tax Rules, 1994. The
Commissioner of Central Excise or Assistant Commissioner of Central Excise or Duty
Commissioner of Central Excise or the assessee, as the case may be, on receipt of a
notice that an appeal against the order of the Commissioner of Central Excise or the
Commissioner of Central Excise (Appeals) has been preferred under sub-section (1)
or sub-section (2) or Sub-Section (2A) by the other party may, notwithstanding that
he may not have appealed against such order or any part thereof, within forty-five
days of the receipt of the notice, file a memorandum of cross-objections, in Form ST-
6 in quadruplicate, against any part of this order, and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within the
time specified in sub-section (3) of Section 86 ibid.
6. Under Section 86(5) ibid. The Appellate Tribunal may admit an appeal or permit
the filling of a memorandum of Cross-objections after the expiry of the relevant
period referred to in sub-section (3) or Sub-section (4) if it is satisfied that there was
sufficient cause for not presenting it within that period.
7. Under Section 86(6) ibid read with Rule 9(1) of Service Tax Rules 1984, an appeal
to the Appellate Tribunal shall be made in Form ST-5 in quadruplicate and shall be
accompanied by a copy of the Order appealed against (one of which shall be a
certified copy); and shall, except in the case of an appeal referred in sub-section (2)
or sub-section (2A) or a memorandum of cross-objections referred to in sub-section
(4), be accompanied by a fee-
(a) Where the amount of Service tax and interest demanded and penalty levied by
any Central Excise Officer in the case to which the appeal relates is five lakh rupees
or less, one thousand rupees;
(b) Where the amount of Service tax and interest demanded and penalty levied by
any Central Excise Officer in the case to which the appeal related is more than five
lakh rupees but not exceeding fifty lakh rupees, five thousand rupees;
(c) Where the amount of Service tax and interest demanded and penalty levied by
any Central Excise Officer in the case to which the appeal relates is more than fifty
lakh rupee, ten thousand rupees.
BRIEF FACTS OF THE CASE:
The appellant M/s. G.R. Constructions are contractors engaged in the activity of
construction and laying of roads. On gathering intelligence that the assessees evaded
payment of service tax, the officers of the Head Quarters Anti-Evasion,
Visakhapatnam- I Commissionerate conducted investigations and come across
evidence showing the appellant have indulged in rendering construction service and
management, maintenance or repair services and thereby evaded payment of
service tax. The officers found that the appellant rendered construction service to
M/s. HPCL, Visakhapatnam and management, maintenance or repair service to
various clients like R & B department of Andhra Pradesh State Government APIIC
and other clients.
2. During the course of investigation, the appellant agreed with his liability to service
tax on the commercial construction carried out and paid an amount of Rs.9,20,046/-
in two branches towards service tax. The appellant has not agreed with the view of
the department that the activity carried out by him in respect of roads fall under
management, maintenance or repair of immovable property but contended that the
same fall under commercial or industrial construction service as evidenced by the
letters issued by the authorities who have awarded the contracts and the same is
exempted from service tax in the Act itself. The appellant also contested that in as much as the activity of laying road itself is exempted the activity of repairs to roads
cannot be subjected to levy.
3. A notice has been issued to the appellant and the adjudicating authority has
confirmed the demand in respect of both the services. The adjudicating authority has
also demanded interest and imposed penalties under various provisions of the
Finance Act, 1994. In respect of commercial construction service there is no dispute
between the department and the appellant. The dispute is with regard to demand of
service tax in respect of activities carried out by them in respect of roads under
management, maintenance or repair service and imposition of penalties under
various provisions of the Finance Act, 1994.
4. The adjudicating authority has confirmed the demand under management,
maintenance or repair service on the ground that the activity carried out by them
does not amount to Construction of a Road as the same involves 1.Stripping of the
top soil within the road reserve; 2.Removal of in-situ ground using a heavy
motorized greater to a specified level (Road-bed level); 3. Compacting the road-bed
level using a heavy vibratory road roller (to the required density) after which the
pavement layers can be imported; 4.Importing of the first pavement layer-a selected
sub-grade (SSG) - which is usually a gravel type material; 5.Levelling off the placed
material by a grader and compacting to a required density using a road roller;
6.Importing of the next layer - a sub-base (higher quality than the selected subgrade - which is usually a gravel type material having higher California Bearing Ratio
(CBR); 7.Working the material of the sub-base by a grader and simultaneously
mixing with water to aid compaction; 8. Importing of the final layer, the base course
consisting of gravel or crushed stone; 9. Levelling and compacting of the base course
and 10.Placing of a surface course on the top of the base course, consisting of
asphalt concrete or a seal consisting of a mixture of similar sized small stones,
bitumen and Portland cement. Based on the above process mentioned in
www.wikipedia.com the adjudicating authority concluded that though the authorities
issued letters indicating the activity carried out by the appellant is not repairs since
they have not carried out the processes enumerated above, the same does not fall
under commercial or industrial construction service.
5. The appellant has contended that the activity carried out by them amount to
laying of roads and produced the letters issued by the authorities who awarded the
contracts; that the same is exempted from tax vide Section 65(25b) of the Finance
Act, 1994; that when the main activity of laying road is not liable to tax the activity
of repair to roads does not attract tax and that non payment of tax on their part is
due to bona fide error of interpretation of statute and requested to set aside the
order of lower authority. The appellant has attended the personal hearing on
12.02.2009 and reiterated the contentions put forth vide grounds of appeal. No cross
objections are filed by the department or any body attended the personal hearing.
FINDINGS:
6. I have gone through the entire case records and the contentions put forth by the
appellant. 7. I find from the records the appellant has not disputed his liability to tax on the
construction service carried out by him but resisted the penalties imposed under
various provisions of the Finance Act, 1994. The dispute is with regard to demand of
tax under the head management, maintenance or repair service on the activities
carried out by them in respect of roads. The adjudicating authority has confirmed the
demand on the sole ground that the appellant has not carried out of the processes of
1. Stripping of the top soil within the road reserve; 2. Removal of in-situ ground
using a heavy motorized grader to a specified level (Road-bed level); 3. Compacting
the road-bed level using a heavy vibratory road roller (to the acquired density) after
which the pavement layers can be imported; 4. Importing of the first pavement
layer-a selected sub-grade (SSG) - which is usually a gravel type material; 5.
Levelling off the placed material by a grader and compacting to a required density
using a road roller; 6. Importing of the next layer -a sub-base (higher quality than
the selected sub-grade) - which is usually a gravel type material having higher
California Bearing Ratio (CBR); 7. Working the material of the sub-base by a grader
and simultaneously mixing with water to aid compaction; 8. Importing of the final
layer, the base course consisting of gravel or crushed stone; 9. Levelling and
compacting of the base course and 10. Placing of a surface course on the top of the
base course, consisting of asphalt concrete or a seal consisting of a mixture of
similar sized small stones, bitumen and Portland cement. Construction of road alone
is exempted vide Section 65(25b) of the Finance Act, 1994 and going by the
activities carried out by the appellant it can not be termed as construction of road
but only repairs.
8. As seen from the definition of Commercial or Industrial Construction Service given
vide Section 65(25b) of the Finance Act, 1994 the same has been defined as
"Commercial or industrial construction service" meansa Construction of a new building or a civil structure or a part thereof; or
b Construction of pipeline or conduit; or
c completion and finishing services such as glazing, plastering, painting, floor and
wall tiling, wall covering and wall papering, wood and metal joinery and carpentry,
fencing and railing, construction of swimming pools, acoustic applications or fittings
and other similar services, in relation to building or civil structure; or
d repair, alteration, renovation or restoration of, or similar services in relation to,
building or civil structure, pipeline or conduit, which is -
(i) used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in, Commerce or 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;
9. As seen from the above definition the activity covers construction, completion and
finishing and repair, alteration, renovation or restoration or similar services and the
definition itself specifically excludes such services provided in respect of roads,
airports, railways, transport terminal, bridges, tunnels and dams. From the above it
is evident that not only construction services but also repair services provided in
respect of roads are exempted from tax. Though the same may also fall under
management, maintenance or repair service in terms of Section 65(64) of the
Finance Act, 1994, in view of specific exclusion of repair services provided in respect
of roads under Section 65(25b) of the Finance Act, 1994 the same can not be
subjected to any tax. If the intention of the government is to subject the repair
services provided to roads to tax, then the definition given under 'Commercial or
Industrial Construction Service' should have been suitably amended by omitting the
words "does not include such services provided in respect of roads, airports,
railways, transport terminals, bridges, tunnels and dams." Reading the definitions of
Commercial or Industrial construction serv ice and management, maintenance or
repair services together gives a meaning that repair of roads, airports, railways,
transport terminals, bridges tunnels and dams are excluded from service tax liability
in view of the specific exclusion provided in Section 65(25b) of the Finance Act,
1994. It also implies that management or maintenance of all immovable properties
including roads, Airports, transport terminals, railways, bridges, tunnels and dams
are liable to tax but not repairs in view of specific exclusion provided vide Section 65
(25b) of the Finance Act, 1994.
10. Para 16.2 of Board's letter B1/6/2005-TRU, dated 27-7-2005 which is reproduced
below fortifies my above view. 16.2: Prior to 16-6-2005 , such services covered
maintenance or repair or servicing of any goods or equipment, excluding motor
vehicles. However, since 16-6-2005 , services relating to maintenance or
management of immovable property (such as roads , airports, railways, buildings,
parks, electrical installations and the like) have also been covered under the purview
of service tax. Such services would be taxable when provided under a contract or an
agreement by any person or by a manufacture or any person authorized by a
manufacturer. The words maintenance or management are only finding place and
the word 'repair' is conspicuously absent.
11. In para 21 of the order it is mentioned that M/s. HPCL's Fax of intent dated
22.7.2005 and the Purchase order dated 15.09.2005, make a mention that the
contract value is exclusive of Cenvatable serv ice tax and that Cenvatable service tax
shall be reimbursed at actual against documentary evidence. From this it is evident
that the appellant has not collected any service tax from M/s HPCL as the same will
be reimbursed by M/s. HPCL on furnishing documentary evidence. This is the only
work carried out by them attracting tax under commercial or industrial construction
service as evidenced by the investigation carried out by the department. If the
appellant is aware of tax liability then he would have definitely paid the tax since the
contract provides for reimbursement of Cenvatable service tax based on
documentary evidence. When the tax is reimbursable it can be alleged that there is an intention to evade payment of tax. One can understand intention to evade tax if
the liability is on the appellant but when it is reimbursable at actuals by the
principals how any body can say there is an intention to evade tax. It is not the case
of the department that the appellant received the service tax amount from their
principals and appropriated the amount. A standard format of contract generally
contains the sharing of liabilities of taxes and that does not mean that they are
aware of tax liability. Moreover, service tax is a new levy and not every body is
thorough with the provisions. The appellant has paid the tax in two branches on
11.8.2006 and 10.10.2006 and the notice is issued on 17.01.2007. This shows that
the appellant has paid the tax amount as soon as he came to know about his tax
liability. The contention of the appellant that non payment of tax is due to bonafide
error is acceptable. In accordance with the provisions of Section 80 of the Finance
Act, 1994, the appellant is not liable for penalties under Sections 76, 77 and 78 of
the Finance Act, 1994.
12. Keeping in view the above discussions, I pass the following order.
ORDER
1. The appellant is not liable for tax on the activity of repairs carried out on roads.
Consequently, the demands confirmed under paras III & IV of the order under
challenge are set aside.
2. The penalties imposed under Sections 76, 77 and 78 of the Finance Act, 1994
under paras VI, VII & VIII of the order under challenge are set aside.
3. The appellants are liable to pay interest on the amounts confirmed vide paras I &
II of the order under challenge.
(P.J.R. SEKHAR)
Commissioner (Appeals) Central Excise, Customs & Service Tax
Visakhapatnam
By RPAD/SPPED POST/COURIER
1. M/s. G.R. Constructions, Flat No.104, MIG-II/A, Opp. Coromandel gate
sriharipuram, Visakhapatnam- 1.
2. Copy submitted to the Chief Commissioner of Central Excise & Customs,
Visakhapatnam Zone, Visakhapatnam .
Copy to
3. The Commissioner of Customs, Central Excise & Service Tax Visakhapatnam -I
Commissionerate// By name to Supdt.(Trib.)// 4. The Additional Commissioner of Customs, Central Excise & Service Tax,
Visakhapatnam -I Commissionerate
5. M/s. GR Kumar & Co., No.9 Merry Life Apartments, Doctor's Colony, Peda Waltair,
Visakhapatnam- 17.
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