In a significant judgment, the Calcutta High Court ruled that services rendered in implementing government projects for public utilities are not exigible to service tax under the Works Contract Service category.
This decision was delivered in a case involving M/s Electrosteel Castings Limited, which had undertaken water supply infrastructure projects for the Kerala Water Authority (KWA).
A Division Bench comprising Chief Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya observed that such projects, aimed at providing civic amenities, could not be classified as commercial or industrial ventures.
Mr. Uday Sankar Bhattacharyya, Adv. Mr. Tapan Bhanja appeared for the appellant and Adv. Mr. Rahul Dhanuka, Adv. Mr. Niraj Baheti, Adv. Ms. Sreeja Chakraborty, Adv appeared for the respondent-assessee.
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Electrosteel Castings Limited carried out the laying of pipelines and other associated services for a drinking water supply system in Thiruvananthapuram. The Court noted that such activities were inherently non-commercial and served the public at large.
The works included construction of a distribution system for water supply for Thiruvananthapuram City. Prior to 1st June, 2007 such service although was classifiable as commercial and industrial commercial service (CICS) was not taxable as the same was not commercial and not industrial in nature and service tax was not charged on the invoices raised upon Kerala Water Authority before the period 01.06.2007.
With effect from 01.06.2007 “Work Contracts Services” were covered as taxable services under Section 65(105)(zzzza) of the Finance Act, 1994. The assessee opined that the services provided by them were covered under works contract services and they started raising invoice reflecting service tax and suo-motu depositing the same with the Government exchequer.
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Referring to CBEC circulars from 2009 and 2010, the Court reiterated that services exclusively for government projects, like irrigation systems or water supply, do not attract service tax as they do not fall under the definition of “commercial or industrial construction.”
The Court upheld the Customs, Excise, and Service Tax Appellate Tribunal’s (CESTAT) earlier ruling that service tax was erroneously levied and must be refunded to the respondent.
The Court dismissed the revenue department’s argument on unjust enrichment, stating that the tax paid by the company was neither reimbursed by the government nor mandated under the applicable law.
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The Court clarified that payments made under a mistaken interpretation of tax liability fall outside the purview of Section 11B of the Central Excise Act, 1944, reminding that the department had no authority to retain such funds.
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