The Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) held that the installation of transformer/substations undertaken independently is taxable under Erection, commissioning or installation services.
M/s.SKD & Co, the appellant provided services relating to cable laying for M/s.BSNL Erode SSA and Coimbatore SSA during the period 2008-09 to 2009-10. On verification of their ST-3 returns filed for these periods, it was noticed that the appellant had not discharged appropriate service tax on the amounts received for the services of cable laying provided to M/s.BSNL. The department was of the view that the said activity falls under ‘Erection, Commissioning or Installation Service’ as defined under Section 65 (39a) of the Finance Act, 1994.
Show cause notice was issued proposing to demand the service tax under the said category of service along with interest and also for imposing penalties. After due process of law, the original authority confirmed the demand for service tax along with interest and imposed penalties. On appeal, the Commissioner ( Appeals ) upheld the same.
Counsel Shri S. Murugappan appeared and argued for the appellant. It was submitted that the appellant is a Civil Contractor and undertook the activity of laying optic fibre cables for BSNL at Erode and Coimbatore regions. The appellant has been registered with the service tax department under ‘Manpower Recruitment Agency Service’ from April 2008. The appellant was informed by M/s.BSNL that the activity of laying of cable is exempted from service tax. The appellant did not discharge the service tax on the bonafide belief that the said activity is exempted from service tax.
Counsel adverted to Circular No.123/5/2010-TRU dt. 24.05.2010 issued by the Board. It is submitted that in para-3 in Sl. No.2 of the table, the activity of laying cable under and alongside roads is clarified to be not taxable under sub-section (105) of Section 65 of the Finance Act, 1994. The appellant had put forward this contention before the adjudicating authority as well as the Commissioner ( Appeals ). The plea of the appellant was not accepted holding that the Circular refers only to laying of electric cables and that it does not apply to telecommunication cables.
Counsel referred to the Circular and submitted that the subject mentioned in the Circular refers to the applicability of service tax on laying of cables and similar activities. This itself would show that the clarification issued is not confined to the levy of ‘electric cables’ only.
Counsel argued on the ground of limitation also. It is submitted that the department itself has taken the contrary view in different cases and the issue is therefore interpretational. The entire demand is raised invoking the extended period alleging suppression of facts. There is no evidence to show that the appellant has suppressed facts with intent to evade payment of service tax.
Shri M. Selvakumar appeared and argued for the department. It was pointed out that the activity rendered by the appellant is laying of optic fibre cables. The Board Circular referred by the appellant would apply only to laying of electric cables.
The issue that arises for consideration is whether the appellant is liable to discharge service tax for the activity of laying optic fibre cables. The definition of “Erection, Commissioning or Installation Service” under Section 65 (39a) of the Finance Act, 1994 has already been reproduced above.
The department viewed that the said activity would fall under ‘erection, commissioning or installation service’ and therefore the appellant is liable to pay service tax. On the contrary, the learned counsel for the appellant has relied upon the Board’s Circular No.123/5/2010. As per the circular Laying of electric cables between grids/sub-stations/ transformer stations en route is not a taxable service under any clause of subsection (105) of section 65 of the Finance Act, 1994. Installation of transformer/ substations undertaken independently Taxable service, namely Erection, commissioning or installation services [section 65(105)(D)].
The two-member bench of Ms Sulekha Beevi C S, Member (Judicial) And Mr Vasa Seshagiri Rao, Member ( Technical ) found that the department themselves had a contrary view holding that the activity is not subject to levy of service tax. Further, the Tribunal in the case of CCE Lucknow Vs Raj Electric Works – 2017 had held that the activity of laying opting fibre cables for M/s.BSNL is not subject to the levy of service tax.
Following the decision, the Tribunal held that the demand for service tax cannot be sustained and set aside the same while allowing the appeal.
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