2017 (9) TMI 1381 - AT - Service Tax

Sub-contract - Classification of services - dredging service - work of drilling and blasting at Mithi River - whether the service of drilling and blasting is a dredging service in terms of Section 65(36a), and whether the appellant being sub-contractor is liable to pay service tax in the event that the main contractor RMJV is discharging the service tax on the composite service provided to MMRDA? Held that - the clearing of river bed by scooping or dragging is a service of dredging. In the present case, the activity is admittedly not similar to scooping or dragging of silt, mud etc. but it is limited to drilling and blasting. The subsequent service i.e. removal of silt, mud, rock etc. is carried out by M/s. S.K. Construction - The classification of service in the hands of the individual service provider to be decided on the basis of that activity alone carried out by the individual service provider and same cannot be linked with the subsequent service provided - In the present case the service provided by M/s. S.K. Construction and RMJV. The service of drilling and blasting alone does not fall under the dredging service. The service of drilling and blasting provided by the appellant is not classifiable as dredging service - appeal allowed - decided in favor of appellant.

Summary

Issues:
Classification of service as dredging service under Section 65(36a) for drilling and blasting activity by a sub-contractor. Liability of the sub-contractor for service tax payment. Application of penalty under Section 78 of the Finance Act 1994. Interpretation of the definition of dredging service.

Analysis:
The case involved a sub-contractor engaged in drilling and blasting at Mithi River under a contract awarded by Mumbai Metropolitan Regional Development Authority (MMRDA) to Reliance Michigan JV (RMJV) for widening and desilting the river. The demand of service tax on the appellant's activity was confirmed as dredging service under Section 65(36a) which is taxable as per Section 65(105)(zzzb). The Commissioner (Appeals) upheld the demand, interest, and penalty under Section 78. The appellant contended that their activity did not fall under dredging service as they only provided drilling and blasting services, while the removal of silt and rock was done by another sub-contractor. They argued that the service tax liability should lie with the main contractor. The appellant also claimed that the demand was time-barred and penalty was not sustainable.

The appellant's representative argued that the definition of dredging service under Section 65(36a) did not encompass their drilling and blasting activity, which was distinct from the removal of material like silt and rocks. They referenced a CBEC circular and a master circular on service tax to support their position that the service tax liability should rest with the main service provider. The appellant highlighted a previous tribunal order regarding the public nature of the contract, asserting that any misinterpretation did not amount to suppression of facts. They also cited a Supreme Court ruling to challenge the penalty under Section 78.

The revenue's representative contended that the drilling and blasting activity fell within the wide scope of dredging service as it contributed to the removal of silt, sediment, rocks, and sand. Both lower authorities had classified the service correctly under dredging service.

The Tribunal analyzed the definition of dredging service under Section 65(36a) and the Oxford dictionary meaning of "dredging" to determine the classification. They concluded that the appellant's drilling and blasting activity did not align with the activities specified in the inclusion clause of dredging service. The subsequent removal of materials was carried out by another sub-contractor, indicating that the appellant's service alone did not constitute dredging. Therefore, the Tribunal held that the drilling and blasting service provided by the appellant was not classifiable as dredging service, rendering the demand unsustainable.

Given the merit-based decision, the Tribunal did not address other issues such as the liability of the sub-contractor or the applicability of penalty. The impugned order was set aside, and the appeal was allowed.