Turnkey Govt Projects Not Consulting Engineer Service: CESTAT Quashes Service Tax Demand on Hindustan Steel Works [Read Order]

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal ruled that turnkey government construction projects executed by Hindustan Steel Works Construction Limited were not taxable as “Consulting Engineer Service”.

Hindustan Steel Works Construction Limited, a Central Public Sector Undertaking, executed government projects such as construction of Community Health Centres, Navodaya Vidyalaya buildings, canal works for the Water Resources Department, and roads under the PMGSY scheme in Jharkhand.

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The department issued a show cause notice dated 23 April 2015 for the period 2009-10 to 2013-14. It alleged that the appellant had provided Consulting Engineer Service under Section 65(31) of the Finance Act, 1994 without registration and without payment of service tax. The demand was based on the fee or margin received by the appellant under the contracts.

The appellant’s counsel argued that the projects were turnkey works contracts on a cost-plus-margin basis. They stated that the fee was a profit margin for execution of the entire EPC contract and not consultancy charges. The counsel also argued that the works involved public utility construction and were exempt from service tax.

The appellant’s counsel relied on Daelim Industrial Co. Ltd., Simplex Infrastructure Ltd. v. CST, and Ballast Nedam International to argue that composite works contracts cannot be split and taxed under a different service category.

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The revenue counsel argued that the appellant had received a percentage amount as consultancy charges and had failed to obtain service tax registration.

The two-member bench comprising R. Muralidhar (Judicial Member) and Rajeev Tandon (Technical Member) examined the agreements, running bills, and TDS certificates. The tribunal observed that the appellant was responsible for materials, labour, sub-contractors, quality control and project execution.

The tribunal found that the contracts were EPC or turnkey works contracts. It observed that the margin was part of the contract consideration and not a separate consultancy fee. The tribunal also observed that TDS was deducted under Section 194C of the Income Tax Act on the full contract value. This supported the appellant’s case that it was treated as a contractor and not as a consulting engineer.

The tribunal held that the revenue failed to prove that the appellant rendered Consulting Engineer Service. It also held that extended limitation was not available, as the demand was based on records already reflected in the appellant’s books. The impugned order was set aside and the appeal was allowed with consequential relief.

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