2023 (2) TMI 1175 - AT - Service Tax

Demand of service tax on advances received - contract for construction and commissioning of railway sliding and signaling telecommunication systems including associated electrical and mechanical instruments for facilitating handling of coal at the Kudgi and Gadarwara super thermal power projects - benefit of N/N. 25/2012-ST dated 28th June 2012 - HELD THAT - Entitlement of every sort of railways to the exemption provided, either by exclusion from the definition of taxable service in the pre-negative list regime or by specific exemption in the negative list regime has been dealt with in several decisions of the Tribunal. While addressing the issue of commercial consideration being the bench mark for determining eligibility for exclusion/exemption, the Tribunal, in HINDUSTAN CONSTRUCTION COMPANY LTD VERSUS COMMISSIONER OF SERVICE TAX MUMBAI VII 2020 (10) TMI 380 - CESTAT MUMBAI held that Under the Railways Act, 1989, the monopoly of establishing the rail networks vests with the Indian Railways and any other operator functions within a policy pertaining to outsourcing of such activities save where the law, for particular objectives, makes an exception. One such is the metro operations for which specific enactments enable other operators without derogating from the status of being railway and, more often than not, by enterprises that are jointly owned by the Central and State Governments. Even where the ownership does not vest in the government, the operation of such railways is under special enactment which are not excluded from the sphere of the expression railways . It is, thus, clear that the proposition of strict construction of intent of exemption notification must also go hand in hand with strict construction of every word/phrase therein. The exemption from tax is available to railways , excluding mono rail or metro, by notification no. 25/2012-ST dated 20th June 2012 after 1st July 2012 and, as conceded by the adjudicating authority, there being no definition of railway , either therein or in Finance Act, 1994, the distinction between railway for private purpose and railway for public service cannot be artificially contrived to suit tax administration; neither can the definition in another statute be drawn upon for the purported purpose of illumination. The Railways Act, 1989 was enacted to authorize Government of India to operate the railway network of the country; it also affords a framework for administration of the railway services and jurisdictional monopoly - The statute, too, did not consider it necessary to fall back on the definition of railways in another statute for determination of taxability and it is not open to the adjudicating authority to arrogate that privilege in an executive capacity. The intent of exclusion prior to 1st July 2012, and exemption for the period, thereafter, is abundantly clear. Following the decisions of the Tribunal that have consistently interpreted the legislative intent of the exemption, the impugned order is set aside - appeal allowed.

Summary

Issues:
1. Tax liability under section 73 of Finance Act, 1994
2. Applicability of exemption for construction works related to railways
3. Interpretation of the term "railways" in the context of service tax

Analysis:
1. The appeal challenged an order imposing tax liability of Rs. 15,27,59,160 under section 73 of the Finance Act, 1994, along with interest and penalty. The demand was based on advance payments received by the appellant for construction works related to railway projects. The adjudicating authority rejected the appellant's claim of exemption under notification no. 25/2012-ST, leading to the computation of tax liability on 40% of the received amount.

2. The appellant argued that previous Tribunal decisions, such as Afcons Infrastructure Ltd and SMS Infrastructure Ltd, supported their claim for exemption from tax liability on construction works related to railways. They contended that the projects undertaken fell within the exclusionary portion of section 65(25a) and were outside the scope of taxation under the Finance Act, 1994.

3. The Tribunal examined various precedents and interpretations regarding the term "railways" in the context of service tax. It was highlighted that the intent of the exemption notification must align with a strict construction of the legislative language. The Tribunal emphasized that the exemption for railways, excluding monorail and metro, was clear and did not differentiate based on ownership, thereby allowing private railways to benefit from the exemption.

4. Ultimately, the Tribunal, following consistent interpretations of the legislative intent of the exemption, set aside the impugned order and allowed the appeal. The decision underscored the need for a precise understanding of statutory provisions and the importance of aligning tax administration with legislative intent to ensure fair treatment across all service providers.

This detailed analysis of the judgment showcases the intricate legal arguments and interpretations surrounding the tax liability and exemption provisions related to construction works concerning railways under the Finance Act, 1994.