2020 (10) TMI 380 - AT - Service Tax

Works contract service - scope of the term Railways - stand of the tax authorities that the admitted exception of railways was restricted to activities engaged in connection with railway undertakings of the Government is according to him erroneous - N/N. 9/2016-ST dated 1st March 2016 - HELD THAT - The decision of the Hon ble Supreme Court in Commissioner of COMMISSIONER CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT was not available to the adjudicating authority and the finding therein that all the component activities of works contract service to the extent taxable under separate entries prior to the new taxable service were intended to cover service simpliciter. Consequently the claim of the appellant to be provider of works contract service cannot but be accepted. The exclusion whether under the separate entry or within the umbrella of the new taxable service of railways continued unabated. It would appear that the adjudicating authority was particularly impressed by the activity brought within the tax net to be ascertained on the basis of commerciality to bring it in conformity with the description of the taxable activity. Hence according to him the operation of the two recipients of service being evidently commercial did not merit the exclusion contained therein - adjudicating authority is far from correct in assuming that the dutiability devolving under Customs Act 1962 and Central Excise Act 1944 on governmental transactions by specific inclusion in the statutes is similarly present in Finance Act 1994. Nor does the reason ascribed by him as the prompting for such inclusion in the commodity tax statutes find resonance in any decision circular or elucidation. Furthermore to the extent of our understanding the operations or its popular designation as Indian Railways of government-run Railways is not stripped of its commercial mantle. A stray reference to the statute governing railway operations does not establish the postulate of such definition to be applicable in every special dispensation. In the absence of any qualification for the railway incorporated in the exclusion component of the taxable service any railway irrespective of ownership is covered. Within the scheme of negative list there is a specific exemption for metro or monorail within the broader exclusion available to Railways. The exclusion of metro or monorail has occurred only after the period of dispute and therefore does not concern us. The exemption afforded by notification no. 25/2012-ST dated 20th June 2012 extends to all activities that have been filtered through the statutory hierarchy referred to supra to remain taxable but for exercise of powers under section 93 of Finance Act 1994. Therein the specific escapement afforded for services rendered in connection with construction of railways is. by inclusion extended to construction of monorail and metro - there are no incongruity here. Under the Railways Act 1989 the monopoly of establishing the rail networks vests with the Indian Railways and any other operator functions within a policy pertaining to outsourcing of such activities save where the law for particular objectives makes an exception. One such is the metro operations for which specific enactments enable other operators without derogating from the status of being railway and more often than not by enterprises that are jointly owned by the Central and State Governments. Even where the ownership does not vest in the government the operation of such railways is under special enactment which are not excluded from the sphere of the expression railways . Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Tax liability under sections 73, 75, 77 of Finance Act, 1994 imposed on M/s Hindustan Construction Company Ltd.
2. Dispute over classification as provider of 'works contract service' under section 65(105)(zzzza) or 'commercial or industrial construction service' under section 65(105)(zzzh).
3. Interpretation of exemption notifications and amendments post the introduction of 'negative list' regime in Finance Act, 1994.
4. Exclusion of 'railways' from taxability and its application to projects involving railways.
5. Applicability of judgments in similar cases and legal definitions to the present dispute.

Analysis:
1. The judgment dealt with the tax liability imposed on M/s Hindustan Construction Company Ltd under sections 73, 75, 77 of the Finance Act, 1994. The company was held liable for a significant amount along with penalties for alleged non-payment of tax on services provided to M/s Mumbai Metro One Pvt Ltd and M/s Delhi Metro Rail Corporation Limited during specific years.
2. The primary issue revolved around the classification of the company's services as either 'works contract service' or 'commercial or industrial construction service'. The appellant consistently claimed to fall under 'works contract service', while the authorities disagreed. The judgment referred to the decision in Commissioner of Central Excise v. Larsen and Toubro Ltd, which supported the appellant's claim as a provider of 'works contract service'.
3. The interpretation of exemption notifications and amendments post the 'negative list' regime was crucial. The appellant argued for exemption based on specific notifications, emphasizing the inclusion of railways, monorail, and metro projects. The judgment analyzed these provisions and amendments to determine the applicability to the disputed projects.
4. The exclusion of 'railways' from taxability was a significant aspect of the case. The judgment delved into the definition and scope of 'railways' within the tax framework, highlighting the adjudicating authority's misinterpretation and the correct application of such exclusions.
5. Various judgments, including the Tribunal's decision in Afcons Infrastructure Ltd v. Commissioner of Central Excise, Mumbai-II, were referenced to support arguments regarding the legal definitions of 'railways' and the applicability of exemptions. The judgment scrutinized these precedents to establish the correct legal position in the present case, ultimately setting aside the impugned order in favor of the appellant.