2008 (10) TMI 176 - AT - Service Tax

Case of the revenue is that while constructing a reservoir and raising the height of other reservoir, the applicant provided the service of commercial or industrial construction - adjudication order admitted that reservoir is a water body - Section 65(97) specifically excludes drilling, digging, repairing, renovation and storing of water sources or water bodies even from the service of site formation and clearance service - contention that as the reservoir is a water body so the construction of water body is not liable for service tax, merit acceptance - stay granted

Summary

Issues:
1. Whether the construction of a ground water reservoir and raising the height of an existing reservoir constitutes "commercial or industrial construction service" liable for service tax.
2. Whether the construction of a water body, such as a reservoir, falls under the exclusion provided in Section 65(97a) of the Finance Act, thereby not liable for service tax.
3. Whether the construction of jetty, offices, and staff quarters alongside the reservoir constitutes civil construction activity subject to service tax.

Analysis:
1. The applicant sought waiver of pre-deposit of service tax and penalty amounting to Rs. 73,26,742 based on the revenue's claim that the construction of a ground water reservoir and raising the height of an existing reservoir falls under "commercial or industrial construction service." The revenue contended that such activities constitute civil construction, making them liable for service tax. However, the applicant argued that the construction of a water body like a reservoir should be excluded from service tax under Section 65(97a) of the Finance Act. The adjudicating authority acknowledged that the reservoir is indeed a water body, leading the Tribunal to find merit in the applicant's contention. Consequently, the Tribunal waived the pre-deposit of service tax and penalties, allowing the stay petition.

2. The crux of the issue lies in determining whether the construction of a water body, specifically a reservoir, should be classified as commercial or industrial construction service subject to service tax. The applicant emphasized that the exclusion clause in Section 65(97a) of the Finance Act exempts activities related to repairing, renovating, or restoring water sources or bodies from service tax. Given that the adjudicating authority recognized the reservoir as a water body and the contract primarily involved constructing and raising reservoirs, the Tribunal found prima facie merit in the applicant's argument. Consequently, the Tribunal granted the waiver of pre-deposit and penalties, allowing the stay petition.

3. Additionally, the revenue contended that the applicant's activities also involved constructing a jetty, offices, and staff quarters, which they argued constituted civil construction subject to service tax. Despite this assertion, the Tribunal's analysis primarily focused on the nature of the main construction activity involving the reservoirs. Since the Tribunal found that the construction primarily pertained to water bodies, falling within the exclusion under Section 65(97a) of the Finance Act, the waiver of pre-deposit and penalties was granted, ultimately allowing the stay petition to proceed.