2018 (9) TMI 91 - AT - Service Tax

Commercial or Industrial Construction Service - Construction services or not? - embedding of interlocking bricks at the site of the customers for laying of internal roads and approach roads to the compound of the building on labour basis as per Section 65(105)(zzq) - Department alleged that the appellants are providing construction services during the period September 2004 to November 2005 - CBEC vide Circular No.B1/6/2005-TRU dated 27.2.2005 - Held that - Construction of roads if undertaken as a part of contract for construction of a commercial complex or industrial building, is taxable. In the instant case, the appellants have not undertaken any such activity and their contract with their buyers was limited to laying of interlocking paver blocks and the approach roads. Therefore, the findings of the impugned order appear to be beyond the scope of provisions of law and the Circular issued. The Tribunal in the case of Shilpa Construction Pvt. Ltd. 2010 (6) TMI 175 - CESTAT, AHMEDABAD has held that If the contract recognizes the two activities as separate activities, even though the construction of the road is in connection with the commercial complex, the benefit has to be allowed. As such the fact whether the road is being constructed for public utility purpose or as a part of a commercial complex is not relevant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Allegation of providing construction services by the appellants during a specific period.
2. Confirmation of demand by the Assistant Commissioner and subsequent orders by the Commissioner.
3. Appeals filed by the appellants challenging the decisions on various grounds.
4. Interpretation of the activity undertaken by the appellants in relation to service tax liability.
5. Application of Circular No.B1/6/2005-TRU in determining service tax liability.
6. Comparison with previous tribunal cases to support the appellant's argument.

Analysis:
1. The case involved an allegation against the appellants for providing construction services during a specified period, leading to a show-cause notice and subsequent orders confirming the demand by the Assistant Commissioner and the Commissioner. The appellants, engaged in manufacturing interlocking concrete bricks, were also embedding these bricks at customer sites for road construction, raising the question of service tax liability.

2. The appellants filed appeals challenging the decisions on various grounds, including the Commissioner's acceptance of legal positions and the classification of their activity as completion and finishing services. The Commissioner's failure to consider the specific requirements for service tax liability in relation to new buildings or civil structures was also contested by the appellants.

3. The appellants argued that the activity of laying internal roads was a separate and exclusive activity, not part of the construction contract, thus falling under the exclusive clause of 'Commercial or Industrial Construction Service.' They relied on Circular No.B1/6/2005-TRU, which clarified that if construction is a single contract, road construction is not considered a separate activity for service tax purposes.

4. The Circular specified that if road construction is part of a commercial or industrial building contract, it is taxable. However, in this case, the appellants' contract was limited to laying interlocking paver blocks and approach roads, not a commercial complex or industrial building, as per the findings of the impugned order. Previous tribunal cases supported the appellants' argument by emphasizing the segregation of activities in determining service tax liability.

5. The Tribunal, considering the Circular and precedents, concluded that the appellants' activity did not fall within the taxable category of construction services for commercial or industrial buildings. Therefore, the appeals filed by the appellants were allowed based on the lack of alignment between the impugned order's findings and the provisions of the law and Circular.

6. The judgment, delivered by the Tribunal on 31.08.2018, highlighted the importance of segregating activities in construction contracts to determine service tax liability accurately, in line with Circular No.B1/6/2005-TRU and previous tribunal decisions supporting the appellants' position.