No Service Tax Applicable on Construction of Center Medians for Roads: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal  ( CESTAT ) ruled that service tax is not applicable to the construction of center medians on roads. It held that the exclusion under the definition of "works contract" is based on the type of infrastructure involved such as roads, airports, railways, and other key public assets, which are fundamental to a region’s economic infrastructure.

M/s. Shree Mahalakshmi & Co., the appellant are registered with the Department as service providers of Commercial or Industrial Construction Services and Construction of complex services and is registered with the department and have also filed periodical ST-3 returns.

It had undertaken works contracts for the construction of center medians on National Highway No. 67 (Trichy Road) in Coimbatore. The  tax department argued that since the service was rendered to advertising agencies, it should be considered a commercial service and subject to service tax under the category of "Works Contract Service" under Section 65(105)(zzzza) of the Finance Act, 1994.  

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The counsel for the appellant submitted that the among the total demand, Service Tax and Cess of Rs. 6,37,360/- demanded for the period 2010-11 and 2011-12 actually pertained to works contracts for construction of center median in the National Highway, but was sought to be denied by the adjudicating authority on the ground that the service of construction of center medians was rendered to the service recipients who are advertising agencies and thus was for the purpose of display of advertisement and cannot be equated with that of construction of roads.

Additionally he submitted that while the nature of the work undertaken by the appellant is not denied the Department has not adduced any evidence to prove that it is for advertising whereas the evidence adduced by the appellant would indicate that it is construction of center median on the National Highway and Section 65 (105) (zzzza) excludes works contracts for roads from the levy. It is his submission that service tax and cess of Rs.53,283/- was demanded for the period 2011-12 for construction of Govt Buildings, which are non-commercial and Section 65 (105) (zzzza) excludes such buildings from the levy.

The CESTAT held that the construction of center medians on roads is explicitly excluded from the levy of service tax. The tribunal emphasized that the definition of "taxable service" under Section 65(105)(zzzza) of the Finance Act, 1994, clearly excludes "works contract in respect of roads."  

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The Tribunal held that the phrase “in respect of” broadly means “in connection with” or “with reference to,” and affirmed that the appellant was engaged in constructing center-medians on a public highway. While the Adjudicating Authority sought to levy service tax citing that the service was rendered to an advertising agency for commercial purposes, the tribunal rejected this reasoning. It clarified that the definition of works contract service excludes contracts related to roads, regardless of the service recipient’s identity or business purpose, making the authority’s contention irrelevant to the exemption claim.

The bench of Ajayan TV and Vasa Seshagiri Rao observed that the exclusion under the definition of "works contract" is based on the nature of the specified infrastructure such as roads, airports, railways, and similar public assets, which form the core of a region’s economic foundation. Since the appellant’s work of constructing center-medians on Highway No.67 (Trichy Road) is directly related to road infrastructure, it qualifies as a "works contract in respect of roads." Hence, the Tribunal held that the service tax demand on this activity is unsustainable and accordingly set it aside.

To Read the full text of the Order CLICK HERE

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