2019 (2) TMI 679 - AT - Service Tax

Classification of services - Works contract service or not - activity of construction of drinking water bore well and tank, for Public Health Department for Govt. of Rajasthan, on turnkey basis - Held that - Admittedly, the appellant have done the work not in the nature of commerce or industry and is exempt from the levy of service tax both under CICS and under works contract service as held by Larger Bench of this Tribunal in Lanco Infratech Ltd. Vs. CC, CE ST, Hyderabad 2015 (5) TMI 37 - CESTAT BANGALORE (LB) - demand set aside. Classification of services - management maintenance and repair service or not - activity of operation and maintenance of Electro Chlorinator plant of PHED, Govt. of Rajasthan - Held that - The primary activity between the parties is of operation of chlorination plant. The maintenance of the said plant is incidental and linked to the main activity of operation of chlorination plant - the said activity of maintenance cannot be classified under the head maintenance management and repair service as defined under clause 65(64) of the Finance Act. The said activity also cannot be classified under the BAS, as the same is not related to business activity or commerce - demand set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Taxability of construction of drinking water bore well and tank under works contract service.
2. Taxability of operation and maintenance of Electro Chlorinator plant under management maintenance and repair service.

Analysis:
1. The appeal dealt with the taxability of construction of drinking water bore well and tank for the Public Health Department of the Government of Rajasthan under works contract service. The appellant was also involved in the operation and maintenance of an Electro Chlorinator plant for water purification. The Revenue contended that both activities were taxable. A show cause notice was issued demanding service tax, penalties were imposed, and the Commissioner confirmed the demand. The appellant challenged this before the Tribunal.

2. Regarding the first issue, the Tribunal held that the construction of drinking water bore well and tank did not fall under the levy of service tax as it was not in the nature of commerce or industry. Citing the case of Lanco Infratech Ltd. Vs. CC, CE & ST, Hyderabad, the Tribunal determined that the activity was exempt from service tax under both CICS and works contract service.

3. Concerning the second issue of the taxability of the operation and maintenance of the chlorination plant, the Tribunal observed that the primary activity was the operation of the plant, with maintenance being incidental and linked to the main operation. The Tribunal concluded that the activity of maintenance could not be classified under management maintenance and repair service as defined under the Finance Act. Additionally, it was noted that the activity did not fall under BAS as it was not related to business activity or commerce. Consequently, the Tribunal allowed the appeal, set aside the impugned order, and granted the appellant any consequential benefits.

In conclusion, the Tribunal ruled in favor of the appellant, determining that the construction of drinking water bore well and tank was not taxable under works contract service and that the operation and maintenance of the chlorination plant did not fall under management maintenance and repair service, providing relief to the appellant from the tax liabilities and penalties imposed by the Revenue department.