2014 (3) TMI 778 - AT - Service Tax

Commercial or Industrial Construction Services or works contract service - vivisection of contract - Services undertaken for M/s Gujarat Industrial Development Corporation. - Bonafide belief - extended period of limitation - Held that - it is absolutely clear that the GIDC has been set up to establish and organize industry in industrial areas and industrial estates and for establishing commercial centres. In other words, the activity undertaken by the GIDC relates to commerce or industry. The laying of pipelines undertaken by the appellant for M/s GIDC comes squarely and clearly within the definition of Commercial or Industrial Construction service as defined under Section 65(25b) of the Finance Act, 1994, and, therefore, the appellants are liable to discharge Service Tax liability on the consideration received in respect of such activities. Hon ble High Court of Delhi in the case of G.D.Builders & Ors. vs. Union of India 2013 (11) TMI 1004 - DELHI HIGH COURT has been held that a composite contract can be vivisected and service portion of composite contracts can be subjected to levy of Service tax. Extended period of limitation - Held that - In none of the Returns filed by them, they have indicated that they are rendering the services to GIDC or the amount of consideration received for such services. Therefore, it has to be concluded that the appellant had suppressed the fact of rendering services to GIDC and receiving consideration for the same. Therefore, invocation of extended period of time is clearly justified. Waiver of penalty u/s 80 - Held that - appellant has not shown any reasonable cause for failure to discharge of Service Tax liability. The appellant was well aware of the provisions of law inasmuch as they were discharging the Service tax liability in respect of the very same activity undertaken for other entities. - Demand and penalty confirmed - Decided against the assessee.

Summary

Issues Involved:
1. Classification of services under "Commercial or Industrial Construction Service."
2. Liability of Service Tax on the appellant for services rendered to Gujarat Industrial Development Corporation (GIDC).
3. Applicability of extended period for demand.
4. Waiver of penalty under Section 80 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services under "Commercial or Industrial Construction Service":

The appellant, M/s Graphite India Ltd., was engaged in activities including the lowering, laying, joining, and testing of GRP pipes for various clients, leading to the construction of long-distance pipelines. The adjudicating authority classified these activities under "Commercial or Industrial Construction Service" as per Section 65(25b) of the Finance Act, 1994, which includes the construction of pipelines primarily for commerce or industry. The appellant argued that GIDC, being a government undertaking, was involved in infrastructure creation, not commercial or industrial activities. However, the Tribunal noted that GIDC's functions, as defined under the Gujarat Industrial Development Act, 1962, were to establish and organize industries and commercial centers, which clearly relate to commerce or industry. Therefore, the Tribunal upheld the classification of the services under "Commercial or Industrial Construction Service."

2. Liability of Service Tax on the Appellant for Services Rendered to GIDC:

The appellant contended that the activities for GIDC were for water supply, which should not be considered commercial or industrial. They cited circulars from the CBE & C and previous Tribunal decisions to support their claim. However, the Tribunal found that the circulars and cited cases did not apply to the present situation as GIDC's activities were commercial or industrial in nature. The Tribunal concluded that the laying of pipelines for GIDC fell within the definition of "Commercial or Industrial Construction Service," making the appellant liable for the Service Tax.

3. Applicability of Extended Period for Demand:

The appellant argued that the extended period for demand should not be invoked as the department was aware of their activities since January 2005. The Tribunal rejected this argument, noting that the letter from January 2005 pertained to a different service (Testing and Analysis) and was before the levy on pipeline construction came into force on 16.06.2005. The Tribunal also observed that the appellant did not disclose the services rendered to GIDC in their ST-3 returns, constituting suppression of facts. Therefore, the invocation of the extended period was justified.

4. Waiver of Penalty under Section 80 of the Finance Act, 1994:

The appellant sought waiver of the penalty, claiming a bona fide belief that the services were not taxable. The Tribunal dismissed this plea, stating that the appellant was aware of the tax provisions as they had been discharging Service Tax for similar activities for other clients. The Tribunal found no reasonable cause for the appellant's failure to pay the Service Tax and upheld the imposition of the penalty.

Conclusion:

The Tribunal dismissed the appeal, affirming the Service Tax demand, interest, and penalties imposed on the appellant. The Tribunal found that the services provided to GIDC fell under the "Commercial or Industrial Construction Service" category, the extended period for demand was applicable due to suppression of facts, and there was no reasonable cause to waive the penalty under Section 80.