In an important ruling, the Hyderabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) found that the appellants have only used lubricants, consumables, spares in relation to heavy machineries and explosives for blasting and held that mere use of lubricants and consumables in dam construction work cannot be considered as Work Contract Service (WCS).
M/s Capital Housing Projects Pvt Ltd, the Appellant/Sub-Contractor, are in appeal against the OIO, whereby, the Original Adjudicating Authority has confirmed the demand of Rs.2,05,69,323/- and has also imposed equal penalty under Section 78 of the Finance Act, 1994.
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The appellants have mainly contested that they are eligible for exemption under S.No.12(d) of the Notification 25/2012 dt.20.06.2012. Alternatively, they have also canvassed that their activities are covered by the definition of ‘Works Contract’ and since they are a subcontractor to a contractor, who has been awarded the work for construction of dam, therefore, on this count also, they would be exempted from payment of service Tax. They have relied on various case laws in support of these two main lines of argument.
The appellants agreed with M/s Transstroy (India) Ltd (the Contractor), on 16.03.2016 to undertake “earthwork leveling works involving drilling, blasting, excavation and leveling of Hard Rock and soils to required level and slope” at Polavaram. The contractor had been awarded the work of constructing part of dam from M/s Transstroy – JSC EC UES JV (the Principal Contractor), who, in turn, was awarded the work by the Government of Andhra Pradesh for construction of dam.
The Department’s view was that as the sub-contractor was not providing any direct service to the Government, therefore, they would not be entitled for exemption under S.No.12(d) of Notification 25/2012. The Department was also of the view that, in view of the admitted position by the appellants, the nature of work performed by them was not in the nature of ‘Works Contract’ and therefore, they would also not be entitled for exemption under S.No.29(h) of the Notification 25/2012.
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The Adjudicating Authority has considered the arguments of the appellants and the charges leveled in the SCN and held that services were provided by the sub-contractor to the contractor, which is a non-Governmental organization . The Adjudicating Authority has observed that the nature of work awarded by the Government of Andhra Pradesh is to the Principal Contractor i.e., M/s Transstroy – JSC EC UES JV, which is in the nature of ‘Works Contract service’ (WCS) for construction of Polavaram dam. Whereas, in the case of sub-contractor, there does not appear to be use of any goods involving transfer of property in goods that are liable for tax as sale of goods and hence it would not be in the nature of WCS and thus, not eligible under S.No.29(h) of the notification.
The appellants have relied on various case laws in support that even if the activities being provided indirectly through main contractor then also they are entitled for the exemption. They have relied on the following case laws in support that since the ultimate beneficiary is the Government of Andhra Pradesh, in relation to construction of dam, merely because it has been provided indirectly, they cannot be denied the exemption:-
There are layers in between the appellant and the person referred to as Principal Contractor, who is actually constructing the dam and therefore, in this case, it cannot be held that the appellants have provided service by way of construction of dam. It was submitted that the activities undertaken by them in terms of agreement between the sub-contractor and the contractor are clearly in relation to construction of dam, as without these activities the dam cannot be constructed and merely because the subcontractor is not providing these services directly to the Government of Andhra Pradesh and the same are being provided to contractor, who, in turn, provides to principal contractor, who has been awarded the work for construction of dam, it would not take away the fact that these activities are in relation to construction of dam.
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Secondly, his submission is that they being a sub-contractor, is not a disputed fact and that there are various case laws in support of the fact that if the activities provided by the subcontractor are ultimately in connection with the exempted service, merely because it has not been provided directly, it would not debar them from the exemption.
On the other hand, AR for Revenue has mainly contested that the nature of activities, as reflected from the agreement, indicates that they are more in the nature of site formation, blasting, excavation, etc., which cannot, by any stretch of imagination, be considered as services towards construction of dam. Moreover, the sub-contractor has not provided any service directly to the Government and it is an admitted position that the services have been provided to the contractor, who, in turn, was awarded the work by the principal contractor, who the Government of Andhra Pradesh awarded the work.
A two member bench of A.K. Jyotishi, Member (Technical) and Angad Prasad, Member (Judicial) viewed that the appellants were not transferring any property in the goods to the Contractor, as is required to be done in the case of activities pertaining to WCS. From the agreement itself it is obvious that this is not in the nature of Works Contract.
It was found that the appellants have only used lubricants, consumables, spares in relation to heavy machineries and explosives for blasting, which were used for carrying out their activities of site preparation, drilling, blasting, etc. Therefore, mere use of lubricants, consumables and explosives, etc., in relation to their work cannot be considered as invoving transfer of property in goods involved in execution of such contract, which is leviable to tax as sale of goods, to fall within the category of WCS.
The bench held that the activities being performed by the appellant cannot be considered as WCS as there is no evidence to suggest that appellants were discharging VAT on this contract by treating it as deemed sales. Thus, even their alternative claim for exemption under S.No.29(h) of the Notification 25/2012 would also not be admissible because the nature of the work itself being provided by them to their Contractor is not in the nature of WCS and therefore, it would not be covered within the ambit of the said notification.
The Tribunal dismissed the the appeal filed by the appellant for setting aside the impugned order.
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