2018 (8) TMI 1398 - AT - Service Tax

Works contract service - commercial or industrial construction - sub-contract - construction of roads - construction activities undertaken on behalf of M/s Larsen & Toubro - whether the demand of service tax under the head Works contract service and commercial or industrial construction service justified? Held that - It can be seen that the construction of road and activities in relation to construction of road are exempted from the scope of levy of service tax - the activities of the appellant which are in relation to construction of road and highway projects are beyond the scope of levy of service tax by the virtue of exclusions added in the definition of both the service tax categories namely commercial or industrial construction as well as the work contract service. This Tribunal in its judgment in the case of Ideal Road Builders Pvt. Ltd. vs. CST, Mumbai 2013 (1) TMI 522 - CESTAT MUMBAI has held that construction of roads has specifically been excluded from the scope of the service tax levy both under commercial or industrial construction service and work contract service. Further repairs and maintenance of roads have also been exempted from service tax retrospectively thus the intention of the Government is to keep out road construction activity from the purview of service tax. The exclusion clause for activities regarding construction in relation to road also covers the type of the activities undertaken by the appellant - the service tax is not leviable on the sub-contractor activities undertaken by the appellant for construction of roads - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on services related to road construction.
3. Invocation of extended period of demand and imposition of penalties.

Issue-Wise Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant worked as a sub-contractor for various construction companies, including Larsen & Toubro Ltd., primarily involved in road and highway projects. The Department classified the appellant's services under "commercial or industrial construction services" and "work contract services" as per Sections 65(105)(zzq) and 65(105)(zzzza) of the Finance Act, 1994, respectively. The appellant argued that their services, being related to road construction, fall under the exemption provided in the definitions of both service categories. The contracts included activities like embankment and subgrade excavation, transportation of materials, earthwork, and construction of subgrade and earthen shoulders, which are related to road construction.

2. Applicability of Service Tax on Services Related to Road Construction:
The appellant contended that the services provided were exempt from service tax under both "commercial or industrial construction services" and "work contract services" due to the exclusion clauses in the definitions. The Finance Act, 1994, explicitly excludes services related to roads, airports, railways, transport terminals, bridges, tunnels, and dams from these categories. Additionally, CBEC's Circular No. F.No. B1/6/2005-TRU dated 27/07/2005 and Notification No. 17/2005-ST dated 07/06/2005 clarified that construction of roads is not liable to service tax. The Tribunal agreed with the appellant's argument, citing the Hon'ble Karnataka High Court's judgment in BMR Construction Ltd. vs. Ministry of Finance and the Tribunal's judgment in Ideal Road Builders Pvt. Ltd. vs. CST, Mumbai, which held that road construction activities are outside the scope of service tax.

3. Invocation of Extended Period of Demand and Imposition of Penalties:
The appellant challenged the invocation of the extended period of demand and the imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The Tribunal, agreeing with the appellant's arguments and the legal precedents cited, found that the activities related to road construction were exempt from service tax. Consequently, the Tribunal held that the demand for service tax and the penalties imposed were not justified.

Conclusion:
The Tribunal concluded that the appellant's activities related to road construction were exempt from service tax under both "commercial or industrial construction services" and "work contract services" due to the exclusion clauses in the definitions. The Tribunal set aside the order-in-original, allowing the appeal with all consequential benefits, and ruled that service tax was not leviable on the appellant's sub-contractor activities for road construction.