In an important ruling, the Hyderabad bench of the Customs, Excise And Service Tax Appellate Tribunal ( CESTAT ) held that service tax exemption is unavailable to subcontractors for site formation activity for dam construction on the post-negative list regime. The bench found that appellants are neither eligible for exemption under S.No.12(d) nor under S.No.29(h) of the Notification 25/2012-ST dt.20.06.2012
M/s Capital Housing Projects Pvt Ltd, the Appellant/Sub-Contractor are in appeal against the OIO dt.07.07.2022, whereby, the Original Adjudicating Authority has confirmed the demand of Rs.2,05,69,323/- and has also imposed equal penalty under Section 78 of the Finance Act, 1994.
Take Your SME to the Next Level with IPO Insights – Click here to Register
The appellants have mainly contested that they are eligible for exemption under S.No.12(d) of the Notification 25/2012 dt.20.06.2012. Alternatively, they have also canvassed that their activities are covered by the definition of ‘Works Contract’ and since they are a subcontractor to a contractor, who has been awarded the work for construction of dam, therefore, on this count also, they would be exempted from payment of Service Tax. They have relied on various case laws in support of these two main lines of argument.
The appellants entered into an agreement with M/s Transstroy (India) Ltd (the Contractor), on 16.03.2016 to undertake “earthwork leveling works involving drilling, blasting, excavation and leveling of Hard Rock and soils to required level and slope” at Polavaram. The contractor had been awarded the work of constructing part of dam from M/s Transstroy – JSC EC UES JV (the Principal Contractor), who, in turn, was awarded the work by the Government of Andhra Pradesh for construction of dam.
The Department’s view was that as the sub-contractor was not providing any direct service to the Government, therefore, they would not be entitled for exemption under S.No.12(d) of Notification 25/2012. The Department was also of the view that, in view of the admitted position by the appellants, the nature of work performed by them was not in the nature of ‘Works Contract’ and therefore, they would also not be entitled for exemption under S.No.29(h) of the Notification 25/2012.
Take Your SME to the Next Level with IPO Insights – Click here to Register
The Adjudicating Authority has considered the arguments of the appellants and the charges leveled in the SCN and held that services were provided by the sub-contractor to the contractor, which is a non-Governmental organization and the fact that services rendered i.e., earth excavation/leveling works, which are ‘Site Formation services’ (SFS) are also not covered in the Notification 25/2012 and therefore, they are not entitled for the benefit of exemption under S.No.12(d) of Notification 25/2012.
The Adjudicating Authority has observed that the nature of work awarded by the Government of Andhra Pradesh is to the Principal Contractor i.e., M/s Transstroy – JSC EC UES JV, which is in the nature of ‘Works Contract service’ (WCS) for construction of Polavaram dam. Whereas, in the case of sub-contractor, there does not appear to be use of any goods involving transfer of property in goods that are liable for tax as sale of goods and hence it would not be in the nature of WCS and thus, not eligible under S.No.29(h) of the notification.
On the issue of benefit under S.No.29(h) of Notification 25/2012, he has reiterated the observations made by the Adjudicating Authority that in view of the evidence on record, there was no transfer of property on which VAT has been paid and therefore, there is no question of considering these activities as activities covered under the definition of WCS. He has relied on various judgments in support that site formation activities, etc., are clearly distinguished from construction services and therefore, the appellants cannot avail the exemption under S.No.29(h) also.
Take Your SME to the Next Level with IPO Insights – Click here to Register
The appellants/sub-contractor entered into an agreement on 16.03.2016 with the contractor for earth excavation work in all soils up to SDR and in Hard Rock at Polavaram Irrigation Project as described at clause (9) of the agreement. On completion of the work, the sub-contractor raised invoices on the contractor for the work done in terms of the said agreement, as also on account of certain related issued like VAT reimbursement, cess reimbursement, price differences, etc. However, admittedly, no VAT has been paid on such invoices, even though the learned Advocate has shown an extract of the ledger showing deduction of VAT @3.5% by the contractor in respect of work executed by the sub-contractor. Therefore, the scope of work, which has been defined by the agreement, has been claimed to be a work which has been done in relation to construction of dam, whereas, the department is contesting that it cannot be considered as work done in relation to construction of dam.
It was evident that their activities are apparently a precursor to construction of dam and site formation would invariably be required for construction of dam. However, the activities being performed by them, per se, can be considered as activities covered within the definition of construction of dam or otherwise needs to be analyzed. Various services at different stages would be required for the construction of dam and there could be multiple levels of service providers for varied services, which ultimately would lead to the construction of dam.
Therefore, when the expression used in the notification is “by way of construction”, whether it should mean actual construction of dam or it should mean any activity, howsoever remote it may be that ultimately lead into emergence of dam/ construction of dam. Another aspect, which is also crucial to understand is that similar activities of site formation, excavation, etc., were otherwise specifically covered under the specific classification of service prior to introduction of negative list based Service Tax in 2012. There was also an exemption available to such site formation services (vide Notification 17/2005-ST dt.07.06.2005) when provided in relation to, inter alia, construction of dam.
However, after the introduction of Negative List, no such exemption is available for any site formation activities or services provided, which may be in relation to construction of dam. Therefore, going by the strict interpretation of notification, the activities of site formation, excavation, removal of soil boulders, etc., for dam spillway intake structure, etc., would not strictly be covered within the ambit of the expression “by way of construction” of dam.
Take Your SME to the Next Level with IPO Insights – Click here to Register
A two member bench of A.K. Jyotishi, Member (Technical) and Angad Prasad, Member (Judicial) viewed that the site formation services were separately classifiable service prior to 2012 and were also otherwise exempted in relation to dam, etc.. Still, no such exemption, per se, is available post 2012 and therefore, even by the plain reading it would be obvious that it is the construction of dam, as such, which is exempted. The activity of site formation cannot be brought in within the expression to consider this for exemption under S.No.12(d) of Notification 25/2012. Thus, even if there is some ambiguity the benefit will go to Revenue.
It was found that the activities undertaken by the appellant are not covered within the expression in Notification 25/2012 then whether they have been provided directly or indirectly would not have any significance. Secondly, when the Government intended to provide exemption to site formation and clearance, excavation, earth moving and demolition, which exactly are the kind of activities assigned to the appellant, when provided to any person by any other person in the course of construction of roads, dams, etc., there was a specific exemption available for the activities. Therefore, in the absence of any specific exemption available for the activities being performed by the appellant in the post Negative List regime, their activities cannot be considered for coverage under S.No.12(d) of Exemption Notification 25/2012.
The bench held that appellants are neither eligible for exemption under S.No.12(d) nor under S.No.29(h) of the Notification 25/2012-ST dt.20.06.2012. In so far as the issue relating to limitation is concerned, we find that the Adjudicating Authority has sustained invocation of extended period. The reasons for sustaining the same has been elaborated in Para 54, 55 & 56 of the impugned order. The main ground considered by the Adjudicating Authority is that the appellants had consciously suppressed the fact of providing taxable services and their value and the same came to the knowledge only after the detailed investigation carried out by the officers of DGGI, VZU, Visakhapatnam.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
