2011 (5) TMI 152 - AT - Service Tax

Application for stay - Waiver of pre-deposit - Management, Maintenance or Repair Service - Notification No. 17/2005, dated 7-6-2005 - Where the department itself maintained doubt on whether service tax could be levied on management, maintenance or repair of roads, highways etc., any bona fide belief on the part of the appellants that they might not be liable to pay service tax on such activities, cannot be suspect - Decided in the favour of assessee

Issues:
1. Whether service tax is applicable on toll collected for management, maintenance, or repair services.
2. Whether the construction of roads falls under the purview of taxable services.
3. Whether the demand of service tax is justified in the present case.
4. Whether the extended period of limitation can be invoked for recovery of service tax.
5. Whether the quantification of service tax demand is arbitrary.

Issue 1:
The Appellate Tribunal considered the case of M/s. VIVA Highways Private Ltd. to determine if service tax was applicable on toll collected for management, maintenance, or repair services. The Tribunal analyzed the "Concession Agreement" between VIVA and NIGAM, where VIVA undertook the construction, operation, and maintenance of a road project. The Tribunal examined the scope of the project, which included routine and major maintenance tasks, toll collection, and operation as per specified standards. It was argued that toll collection was authorized as consideration for services provided, leading to the demand for service tax by the department.

Issue 2:
The Tribunal addressed whether the construction of roads falls under taxable services. The appellants argued that their activities were covered under works contracts and that construction of roads was excluded from taxable services. They cited previous stay orders in similar cases to support their position. The Tribunal considered these arguments and found a prima facie case in favor of the appellants, indicating a possible exemption from service tax on road construction activities.

Issue 3:
Regarding the justification of the service tax demand, the department raised the demand based on the toll collected by VIVA, deducting the construction cost from the total toll collection to determine the taxable value for service tax levy. The department contended that the services provided by VIVA under the agreement constituted management, maintenance, or repair services, making them liable for service tax. The Tribunal examined the arguments presented by both parties and found merit in the appellants' contentions, leading to the waiver of pre-deposit and stay of recovery of the demanded amount.

Issue 4:
The appellants contested the invocation of the extended period of limitation for recovery of service tax, highlighting divergent practices within the department regarding the levy of service tax on maintenance and repairs of roads. They referred to circulars acknowledging these divergent practices, indicating a lack of clarity within the department. The Tribunal considered this argument and found that the appellants maintained a bona fide belief that they were not liable to pay service tax on maintenance or repair of roads, leading to the conclusion that the extended period of limitation was not rightly invoked.

Issue 5:
The quantification of the service tax demand was challenged by the appellants, who argued that the determination of taxable value by deducting the construction cost from the toll collection was arbitrary. They contended that as they were not required to raise invoices on NIGAM under the contracts, the method of determining taxable value was flawed. The Tribunal reviewed this argument and found that the quantification method lacked a proper rationale, supporting the appellants' position.

In conclusion, the Appellate Tribunal granted the waiver of pre-deposit and stay of recovery in favor of the appellants, considering various factors such as the nature of services provided, the applicability of service tax, the construction of roads under taxable services, the justification of the service tax demand, the invocation of the extended period of limitation, and the quantification of the service tax demand. The Tribunal's decision was based on a detailed analysis of the arguments presented by both parties and relevant legal precedents.

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