Laying of Telecom and Optical Fibre Cables Under or Alongside Roads Not Taxable to Service Tax: CESTAT [Read Order]

TheKolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the activity of laying telecom and optical fibre cables under or alongside roads is not liable to service tax and set aside the entire demand along with interest and penalty.

Precision Trenchless Laying Pvt. Ltd., the appellant, is a specialised contractor engaged in laying underground telecom and optical fibre cables using trenchless technology and conventional trenching methods for major telecom operators such as BSNL, Airtel, Vodafone, Reliance, and Tata during the period from 2008-09 to 2012-13.

The scope of work included route survey, obtaining right-of-way permissions, trenching or HDD drilling, laying of ducts, cable pulling and blowing, jointing, installation of chambers, road restoration, and maintenance.

The appellant executed pure service contracts, composite works contracts, and pure supply contracts liable only to VAT. There was no uniform industry practice on service tax liability for these activities. In some cases, service tax was paid by customers, while in others it was not. The appellant paid service tax wherever it was collected and regularly filed returns.

Following an audit, the department alleged short payment of service tax and issued a show cause notice. The Commissioner of Service Tax-II, Kolkata confirmed a service tax demand of Rs. 93,69,436 with interest and imposed an equal penalty under

The demands were raised under multiple heads, including alleged undervaluation based on sundry debtors, Point of Taxation Rules, denial of abatement, tax on right-of-way reimbursements, and reverse charge liability. Aggrieved by the order, the appellant approached the Tribunal.

The appellant argued that all amounts received related to laying of cables under or alongside roads, which was not taxable as clarified by CBEC Circular No. 123/5/2010-TRU. It was argued that the demand was arbitrary, that service tax could not be levied on unrealised amounts, that statutory right-of-way reimbursements were not consideration for service, and that extended limitation was wrongly invoked in the absence of suppression.

The revenue supported the impugned order and reiterated the Commissioner’s findings.

The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that CBEC Circular No. 123/5/2010-TRU clearly clarified that laying of cables under or alongside roads is not a taxable service.

The Tribunal explained that the circular was clarificatory and applicable retrospectively. It observed that all amounts received by the appellant pertained to a non-taxable activity and that invocation of the extended period of limitation was unsustainable.

The Tribunal pointed out that since the service tax demand itself could not be sustained, interest and penalty also did not survive. The appeal was allowed, and the entire demand along with interest and penalty was set aside, with a clarification that no refund would be available for tax already collected from clients and deposited with the government.

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