The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has ruled that the construction of a Formula 1 race track does not qualify for service tax exemption under the category of public roads. The decision upholds the service tax liability of Rs. 2.24 crore for Paramount Infraventures Pvt. Ltd.
The case originated from an intelligence report by the Directorate General of Central Excise Intelligence ( DGCEI ), Delhi Zonal Unit, which revealed that Paramount Infraventures Pvt. Ltd. had constructed an earthen embankment for the Formula 1 Grand Prix race track at the Buddh International Circuit in Noida. The investigation suggested that the company had not discharged its appropriate service tax liability for the services rendered.
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The core of the dispute was whether the construction services provided by Paramount Infraventures fell under the exemption specified in Notification No. 17/2005-ST dated 07.06.2005. This notification exempts services related to the construction of roads, bridges, tunnels, or terminals for road transportation for public use from the whole of the service tax.
The appellant, Paramount Infraventures Pvt. Ltd., represented by Shri B.K. Singh and Ms. Vandana Singh argued that the services they provided, including site formation, clearance, excavation, and earthmoving for the race track, were akin to the construction of roads for public use.
It was also contended that the stormwater and sewage construction work, part of the same project, was also exempt from service tax as it was perceived to be for public welfare and non-commercial industrial use.
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The respondent revenue, Commissioner of Service Tax – Delhi II, represented by Shri S.K. Meena maintained that the exemption under Notification No. 17/2005-ST applies strictly to public roads and not to private or specialised constructions like a Formula 1 race track.
It was also argued that the race track does not meet the criteria of being a road for public use as defined in the notification.
The two-member bench comprising Dr. Rachna Gupta ( Judicial Member ) and Mrs. Hemambika R. Priya ( Technical Member ) noted that the race track, while technically a road, does not grant the public a right of access, which is a critical element for qualifying as a public road under the exemption notification.
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The bench cited various definitions and judicial interpretations of what constitutes a public road, emphasising the importance of public access rights. The bench referred to the decision of the Karnataka High Court in the case of Taxi Drivers’ Union And Anr. vs Kerala State Road Transport (1982), which distinguished between public roads and private access ways.
The Formula 1 race track is not recognised as a public road because it does not provide the public with a right of access. The service tax exemption under Notification No. 17/2005-ST applies only to roads meant for public use, where the public has a right to access the road. The race track, while technically a road, is a private facility designed specifically for racing events and is not accessible to the public as a matter of right. This distinction is crucial in determining eligibility for the service tax exemption.
The CESTAT concluded that Paramount Infraventures had misinterpreted the notification, leading to a wrongful claim of exemption. The bench also held that the extended period for issuing the show cause notice was rightly invoked, given the appellant company’s misrepresentation and failure to discharge its tax liabilities.
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The bench also addressed the appellant’s argument regarding the bona fide belief in the exemption’s applicability due to the nature of the event. The bench dismissed this argument, stating that professional advice should have clarified the tax obligations irrespective of the event’s international stature.
In result, the CESTAT upheld the original adjudicating authority’s order, confirming the service tax demand of Rs. 2.24 crore along with interest and penalties.
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