Service Tax Liability on Activities for Road, Dam, Canal Projects Fully Exempt: CESTAT
The Tribunal noted Inconsistencies in Impugned Order and Emphasised that No Condition Restricting Indirect Supply can be Read into Notification in Question
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai has set aside a major service tax demand against appellant, holding that site formation, excavation, earthmoving and allied activities undertaken for construction of roads, dams, canals, airports and similar public infrastructure are exempt, even when performed as a sub-contractor. The Tribunal also rejected the invocation of the extended limitation period, noting that the demand itself was contrary to factual records.
The appellant, Shri Narsinha Traders, a sole proprietorship engaged in drilling, blasting, land development and other site formation activities, had executed multiple work orders for contractors involved in large-scale infrastructure projects. The Department alleged that exemption under Notification No. 17/2005-ST and subsequently Notification No. 25/2012-ST was not available since the appellant had not provided services “directly” to government or eligible entities. On this basis, a demand exceeding ₹93 lakh was confirmed by the Commissioner, along with appropriation of amounts paid during investigation and attendant penalties.
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The Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) observed that the show cause notice itself relied entirely on the appellant’s own detailed records, including categorisation of work as road, canal, dam, airport and mining projects. Therefore, the finding in the adjudication order that the non-payment was “unearthed” during investigation was factually incorrect. The Tribunal also noted inconsistencies in the impugned order, which first denied exemption for lack of proof and then acknowledged that such services were exempt by definition.
On merits, the Tribunal held that Notification No. 17/2005-ST imposes no requirement that the services must be provided directly to the government or primary project owner. It exempts site formation and related activities when used in the course of construction of specified infrastructure, irrespective of whether rendered by a main contractor or a sub-contractor. The Tribunal emphasised that no condition restricting indirect supply can be read into the notification, relying on the Supreme Court’s ruling in Inter Continental (India) which bars the Department from adding unwritten restrictions to exemption notifications.
Examining the post-2012 position, the Tribunal held that entries at Serial Nos. 12, 13 and 14 of Notification No. 25/2012-ST clearly cover public utility works such as roads, water supply infrastructure, airports, ports, tunnels and similar projects. Citing its earlier rulings in Shree Nandi Logistics and Saritha Infra & Geo Structures, the Bench reiterated that sub-contractors executing portions of exempt projects cannot be denied the exemption, as the benefit flows to all executing layers of the same government-linked work.
Finding that the Commissioner had wrongly denied exemption for both periods and invoked extended limitation without factual basis, the Tribunal concluded that the entire demand was unsustainable. Accordingly, the impugned order was set aside in full, and the appeal was allowed with consequential relief.
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