2010 (9) TMI 286 - HC - Service Tax

Road management, maintenance or repair services carried on by the petitioners - who are contractors - liable to pay service tax - Government of India in its Notification No. 23/2009 Service Tax, dated 27-7-2009 has granted exemption from the service tax levy to all persons, who are doing management, maintenance or repair of roads - Held that - Government of India, Ministry of Finance, having issued exemption Notification No. 24/2009 on 27-7-2009, it is beyond doubt that prior to the said date, the items of works namely maintenance and repair of roads was covered for the payment of service tax - contentions of the petitioners challenging the validity of the circular dated 23-2-2009 as it is a clarification of the Finance Act, 2005 and the circular dated 1-6-2005. If the Finance Act do not empower the respondents to levy service tax for maintenance of roads, repair works - petitions are not maintainable as contended by the respondents in the counter affidavit - finding given in this order need not be construed as giving any finding on the merits of the matter and the Department is bound to decide the issue in accordance with law, particularly Finance Act, 1994 and 2005 - time limit given to the petitioners to produce the records is over and therefore the concerned respondent is permitted to issue fresh summons - petitions are dismissed

Issues Involved:
1. Validity of Circular No. 110/4/2009-S.T., dated 23-2-2009
2. Liability to pay service tax on road management, maintenance, or repair services from 16-6-2005 to 26-7-2009
3. Retrospective application of Notification No. 23/2009-Service Tax, dated 27-7-2009
4. Prematurity of the writ petitions challenging show cause notices/summons

Detailed Analysis:

1. Validity of Circular No. 110/4/2009-S.T., dated 23-2-2009
The petitioners, who are road contractors, challenged the circular stating that it incorrectly categorized resurfacing, renovation, strengthening, relaying of roads, and filling up of potholes as "maintenance and repair" activities liable to service tax under Section 65(105)(zzg) of the Finance Act, 1994. They argued that these activities are exempt under Section 65(105)(zzzza) of the Finance Act, 1994, which excludes works contract in respect of roads. The court upheld the circular, stating it reflects the changes made in the Finance Act, 2005, and clarified that while construction of roads is not taxable, management, maintenance, or repair of roads are taxable services.

2. Liability to Pay Service Tax on Road Management, Maintenance, or Repair Services from 16-6-2005 to 26-7-2009
The petitioners contended that their activities, which include laying new roads and patchwork, should not attract service tax as these are covered under the definition of "Works Contract" and are exempt from service tax. The court noted that the contractors are engaged in road repair/maintenance works awarded by the Highways Department or Local Bodies. The court confirmed that the maintenance and repair of roads were subject to service tax before the exemption notification dated 27-7-2009.

3. Retrospective Application of Notification No. 23/2009-Service Tax, dated 27-7-2009
The petitioners argued that the exemption granted by the notification dated 27-7-2009 should apply retrospectively to the period from 16-6-2005 to 25-7-2009. The court ruled that the notification does not state it applies retrospectively. Citing precedents, the court held that unless explicitly stated, notifications are presumed to operate prospectively. Therefore, the exemption from service tax granted on 27-7-2009 cannot be applied to the earlier period.

4. Prematurity of the Writ Petitions Challenging Show Cause Notices/Summons
The respondents argued that the writ petitions are premature as no legal demand had been made yet; only information was being collected from the petitioners. The court agreed, stating that the petitioners must produce the requested documents, and any issues regarding the levy of service tax could be contested through the appropriate legal channels if a demand is made. The court emphasized that the adjudicating authority should decide the matter based on the Finance Act, 1994 and 2005, without being influenced by the circulars.

Conclusion:
The court dismissed the writ petitions, affirming the validity of Circular No. 110/4/2009-S.T., dated 23-2-2009, and held that the exemption from service tax granted by Notification No. 23/2009-Service Tax, dated 27-7-2009, is not retrospective. The petitioners are required to comply with the summons and provide the necessary documents, with the option to contest any subsequent demands through the legal process. The court clarified that its findings should not be construed as a decision on the merits of the case, and the authorities must decide the issue in accordance with the law.

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