Service Tax Not applicable on Public Utility Works including Laying of Pipelines, Repairs of Sainik Schools: CESTAT quashes Demand [Read Order]

In a recent ruling, the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Hyderabad Bench, has set aside a demand by holding that public utility works such as laying and maintenance of pipelines, construction of water distribution systems, repairs of sainik schools and infrastructure works for SEZ developers are not liable to service tax.

The Tribunal comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) emphasized that service tax under the Works Contract Service (WCS) cannot be levied on projects undertaken for municipal authorities, government departments, or SEZs, as these are not works “primarily for commerce or industry.”

The issue is related to works executed by the appellant, Chaitanya Constructions, between October 2010 and September 2011, including laying, shifting, and maintenance of pipelines for municipal corporations, construction of water supply facilities at industrial growth centers for the Andhra Pradesh Industrial Infrastructure Corporation (APIIC), and execution of elevated storage reservoirs and other facilities for SEZ operations.

The adjudicating authority had confirmed service tax liability by classifying the services under WCS, along with penalties under Sections 76 and 77 of the Finance Act, 1994.

Allowing the appeal, the Tribunal held that laying of pipelines and construction of water distribution facilities are recognized as public utility works falling outside the scope of service tax, citing precedents such as CCE v. Indian Hume Pipes Co. Ltd. and Angraj Civil Projects Pvt. Ltd. v. CCE & ST.

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Further, works executed for SEZ developers were found exempt under Section 26(1)(e) of the SEZ Act, 2005, read with relevant notifications, as they were for authorized operations duly certified by the Development Commissioner. Similarly, the bench said that the services rendered to the Military Engineering Services (MES) for repairs at Sainik Schools were held to be non-taxable since such buildings were not used for commerce.

Accordingly, the bench of A.K. Jyotishi (Technical member) and Angad Prasad (Judicial member) observed that government bodies such as APIIC and municipal authorities are public authorities whose projects are for promotion of public welfare and industrial infrastructure, and not for commercial exploitation.

Therefore, the demand confirmed by the lower authority was quashed in entirety, and the appeal was allowed in favor of the assessee.

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