2008 (8) TMI 221 - AT - Service Tax

Construction for railways - revenue s contention that applicants are processing the goods on behalf of railways are liable for service tax under head business auxiliary service, have no force - as per contract applicants are jointing existing rails by way of thermite welding and the rails are fixed to earth. In view of the fact that service of civil construction for railways is exempted from payment of service tax, the applicants have a strong case in their favour stay granted

Summary

Issues:
1. Whether the applicants providing business auxiliary service by processing goods on behalf of railways?
2. Whether the activity of thermite welding undertaken by the applicants falls under business auxiliary service?
3. Whether the service provided by the applicants for repair of civil structure for railways is liable for service tax?

Analysis:
1. The applicants filed an application for waiver of pre-deposit of service tax amount and penalty. The demand was confirmed based on the ground that the applicants were providing business auxiliary service by processing goods on behalf of railways.

2. The contention of the applicants was that they were awarded a contract by the railway to carry out welding of rail joints using alumini thermit welding. They argued that the process of thermite welding for existing rails did not involve processing of goods as the rails were fixed to earth. They referred to the Glossary of Building and Civil Engineering Terms to support their claim that their activity did not fall under business auxiliary service.

3. On the other hand, the Revenue contended that the applicants were jointing rails through welding as per the railway's requirement. They argued that since the rails could be removed and were marketable, the applicants were processing goods on behalf of railways and thus liable for service tax.

4. The tribunal found that the applicants were indeed jointing existing rails through thermite welding, and these rails were fixed to earth. Considering that civil construction for railways is exempt from service tax and that the applicants were involved in repair of civil structures for railways, the tribunal ruled in favor of the applicants. Consequently, the pre-deposit of duty and penalty was waived, and the stay application was allowed.

This judgment highlights the importance of analyzing the nature of services provided in the context of taxation laws and contractual obligations to determine the applicability of service tax exemptions.