2017 (2) TMI 624 - AT - Service Tax

Sub-contract - denial of exemption available to the construction of dam only on the ground that the dam is part of the Hydroelectric Power Project - Held that - The statutory definition did not define the scope of the term dam or its ultimate use. It is common knowledge that in many cases, the dams are for multi-purpose like, irrigation, power generation, flood control, etc. The Exclusion Clause did not put any condition that the dams for particular purpose only will be excluded from tax liability - there is no justification to give a restrictive meaning to the term dam to the effect that the exemption will be available only when it is not part of any bigger project - exemption allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against order of Commissioner of Central Excise for non-payment of service tax
- Contesting tax liability with reference to construction of Kol Dam Project as a sub-contractor
- Denial of benefit of Exclusion Clause for "Commercial or Industrial Construction Service"
- Interpretation of Exclusion Clause regarding construction of dams in relation to Hydroelectric Power Projects

Analysis:
The case involved an appeal against an order of the Commissioner of Central Excise regarding non-payment of service tax by the appellants engaged in providing "Construction Services" and "Consulting Engineering Services." The investigation revealed non-payment of service tax during a specific period, resulting in a confirmed service tax demand of ?83,45,342 along with penalties imposed on the appellants. In the appeal, the appellants contested only their tax liability concerning the construction of the Kol Dam Project as a sub-contractor, focusing solely on this issue.

The appellants argued that they were sub-contractors for the construction of the Kol Dam in the Hydroelectric Power Project contracted by NTPC to M/s. Italian Thai Development Company Ltd. The impugned order acknowledged that the work executed by the appellants was for the construction of the dam, which is a part of the Hydroelectric Power Project. The Adjudicating Authority denied the benefit of the Exclusion Clause available for "Commercial or Industrial Construction Service" based on the interpretation that the dam being part of the Hydroelectric Power Project did not qualify for exemption.

Upon hearing both parties, the Tribunal noted that the denial of the Exclusion Clause was based on the premise that the dam being part of the Hydroelectric Power Project would incur tax liability. However, the Tribunal found this interpretation fallacious and unsustainable. It emphasized that the statutory definition did not restrict the use of the term "dam" to specific purposes and that dams serve various functions like irrigation, power generation, and flood control. The Exclusion Clause did not impose conditions on the purpose of the dam to be excluded from tax liability, leading the Tribunal to conclude that the interpretation by the Original Authority was unjustified.

As a result, the Tribunal held that the impugned order was not legally sustainable and set it aside, allowing the appeal in favor of the appellants.