Service Tax exemption to Repair & Maintenance of ‘Roads’ not applicable to ‘Airport runways’: Bombay HC [Read Judgment]

The division bench of the Bombay high Court, in a significant ruling, held that the airport runways are not “roads” for the purpose of service tax and therefore, the maintenance/repair etc of the same is liable to service tax under the head “management, maintenance and repair service”.

The Court was considering appeals and a Writ petition against the order of the Appellate Tribunal in which it was held that service tax must be imposed on such services.

The petitioner is a company incorporated under the Indian Companies Act, 1956, engaged in the business of construction of roads for NHAI (National Highway Authority of India), CPWD (Central Public Works Department) and NMC (Nagpur Municipal Corporation), Construction of runways for Airport Authority of India Ltd. Strengthening renewal of roads. And improving and surfacing of runways, Site preparation, excavation for further construction of roads either on its own behalf or for the clients having contracts for construction of roads.

The Department passed an order against the petitioners by imposing service tax along with interest and penalty on ground that the verification of documents revealed that the services rendered by them are liable to be taxed under the head (a) Management, Maintenance or Repair; (b) Commercial and Industrial Construction Service and (c) site formation and excavation clearance service.

The petitioners denied their liability to tax for the reason that the said activities are covered by the definition of pre-existing category “commercial or industrial construction service” as defined in clause (25b) of section 65 of the Act and such services when rendered in respect of roads and airports were excluded from the levy of service tax and therefore, the same could not be levied under the category of “management, maintenance and repair” service.

Further, it was contended that amongst the various activities covered by the show cause notice were services of excavation and earth work carried out in respect of roads, which were totally exempt from service tax by Notification No. 17 of 2005-Service Tax, dated 7th June, 2005. The petitioner also maintained that Service tax was demanded on the gross receipts without allowing the cum-tax benefit in terms of section 67(2) of the Act. The Board’s circular upon which the order is based on, was prospective in effect and based on such circular, demand of service tax could not be raised for the past period. Lastly, it was argued that The extended period of limitation under proviso to section 73(1) of the Act could not be invoked because the Department itself was in doubt about the taxability of the various activities in relation to road as was apparent from the Board’s circular which was issued on a representation made by the Nasik Commissionerate and because the details of receipts made in respect of the services provided were reflected in the balance sheet of the petitioner’s company which was a public document.

On appeal, the Commissioner of Central Excise has confirmed the impugned order without considering the above averments raised by the petitioner. The petitioner, therefore approached the Appellate Tribunal on second appeal. During the pendency of appeal, Finance Act, 2012 was passed by including sections 97 and 98. Section 97 provide for retrospective exemption to activity of management, maintenance or repair of road with effect from 16th June, 2005. Similarly section 98 provides for retrospective exemption to activity of management, maintenance or repair of non-commercial Government building with effect from 16th June, 2005.

The appellate tribunal, observed that section 97 and section 98 of the finance Act, 1994, which provides retrospective exemption to the services, namely, “repairs and maintenance of roads” and “repairs and maintenance of non-commercial Governmental buildings” were not there in the statute book when the Commissioner passed the order as these sections were subsequently introduced. The matter was further remanded to the original authority, i.e, the Commissioner.

While confirming the impugned order, the Tribunal held that runways cannot be said to be covered under the term “road” and hence the exemption extended to repair or maintenance of roads is not available with respect to the activity of repair/maintenance of runways carried out by the petitioner during the disputed period. The Tribunal further observed that even though services of repair, alteration, renovation, restoration or similar services with respect to roads and airports are excluded from the levy of service tax under “commercial or industrial construction” service, the same are still taxable under the taxable head of “management, maintenance or repair service” defined in section 65(64) of the Finance Act.

The Petitioners approached the High Court. The question before the High Court was that whether the services provided including extension, strengthening of runways, taxi ways, apron taxi waysfalls under the category of maintenance and repair of roads?

While upholding the decision of the Tribunal, the division bench comprising of Justice S C Dharmadhikari and Justice G S Kulkarni observed that “We are concerned here with appellant’s specific case. Some of the services provided included extension, strengthening of runways, taxi ways, apron taxi ways. We are concerned with these services. Whether these services are falling in the category of maintenance and repairs of road is the question before us. We do not think that we are required to find out whether definition of “airport” itself includes runways and even if they are so included, whether those are contemplated by section 98. Section 98 refers to building services relating to management etc. of non commercial Government buildings. We are not construing the ambit and scope of such services. We are concerned with the excision from the definition of this service the maintenance of road, repair to runway etc. That exclusion is clear.”

Read the full text of the Judgment below.