2023 (2) TMI 665 - AT - Service Tax

Taxability of services provided by the respondent in relation to Hydro Electric Projects - services were provided to dams, which are exempted - non-inclusion of the material received free of cost in the assessable value and simultaneous availment of abatement - liability to discharge the service tax liability as a sub-contractor where the service tax has already been paid by the main contractor - period involved is April, 2005 to September, 2011. HELD THAT - The works executed for a hydro electric project would be excluded from the taxable service of works contract or commercial or industrial construction if the services are provided in respect of tunnels and dams. The Commissioner has held that the exclusion of the dams and tunnels would cover all the works of hydro mechanical nature, including civil construction of dams and tunnels for the reason that a dam or a tunnel would not be complete without hydro mechanical works. The Commissioner, therefore, concluded that the civil works forming part of dams and tunnels would not be exigible to service tax under the Finance Act as they would fall within the exclusion clause - there is no error in the finding recorded by the Commissioner and indeed it finds support from various decisions of the Tribunal. In PES ENGINEERS PVT. LTD VERSUS CCE ST, HYDERABAD-I AND (VICE-VERSA) 2017 (7) TMI 687 - CESTAT HYDERABAD , a Division Bench of the Tribunal while examining a matter where the assessee was engaged in large construction of projects relating to hydro electric projects observed that the activity undertaken for installation and commissioning of pressure shaft liners also called steel liners/penstocks would fall within the exclusion clause of the taxable service of works contract - In M/S. MCM SERVICES PVT. LTD. VERSUS CST, DELHI 2017 (2) TMI 624 - CESTAT NEW DELHI , a Division Bench of the Tribunal examined whether the nature of work executed by the appellant therein relating to construction of dam, which would be a part of the hydro electric project, would fall within the exclusion clause of the taxable service of works contract . Thus, it has to be held that the Commissioner committed no illegality in holding that the works undertaken by the appellant would fall within the exclusion clause of the definition of construction and industrial construction service and the taxable works contract service. Material supplied free of cost - HELD THAT - The issue as to whether service tax can be levied on the cost of materials supplied free of cost has now been settled by the Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT It has been held that service tax cannot be levied on the amount of material supplied free of cost. Thus, as the Supreme Court has held that the value of goods which are provided by the service recipient free of charge cannot be included in the gross amount charged by the service provider, the finding recorded by the Commissioner does not suffer from any error. Whether a sub-contractor is required to discharge the service tax liability, even if the service tax liability has been discharged by the main contractor? - HELD THAT - The service tax liability would not leviable on the works involved in this appeal, it would not be necessary to decide this issue, though a Larger Bench of the Tribunal in COMMISSIONER OF SERVICE TAX VERSUS MELANGE DEVELOPERS PVT. LTD. 2019 (6) TMI 518 - CESTAT NEW DELHI has held that a sub-contractor would have to discharge the service tax liability even if the main contractor has discharged service tax liability on the activity undertaken by the sub-contractor in pursuance to the contract. There is no merit in this appeal - Appeal dismissed.

Summary

Issues Involved:
1. Taxability of services provided in relation to Hydro Electric Projects.
2. Inclusion of free-of-cost materials in the assessable value for service tax.
3. Service tax liability of a sub-contractor when the main contractor has already discharged the tax.

Issue-wise
Detailed Analysis:

A. Services in Relation to Hydro Electric Projects
The primary issue is whether the services provided by the respondent in relation to Hydro Electric Projects are non-taxable because they were provided to dams, which are exempted. The Commissioner held that the construction and civil works for dams and tunnels undertaken by the respondent are not exigible to service tax as they fall within the exclusion clauses of 'commercial or industrial construction service' and 'works contract service.' The Commissioner emphasized that dams and tunnels are integral parts of Hydro Electric Projects (HEP) and cannot be visualized in isolation. The exclusion for dams and tunnels covers all works of a hydro-mechanical nature, including civil construction, as these structures are incomplete without such works.

The Tribunal upheld the Commissioner's decision, noting that the works executed for a hydroelectric project would be excluded from the taxable service of 'works contract' or 'commercial or industrial construction' if the services are provided in respect of tunnels and dams. This finding is supported by various decisions of the Tribunal, including PES Engineers Pvt. Ltd. vs. Commissioner of Central Excise & Service Tax, Hyderabad-II and MCM Services Pvt. Ltd. vs. Commissioner of Service Tax, Delhi, which confirmed that activities related to hydroelectric projects fall within the exclusion clauses.

B. Material Supplied Free of Cost
The second issue concerns whether the respondent appropriately discharged service tax liability without including the value of materials received free of cost in the assessable value. The Commissioner did not address this issue in detail, but the Tribunal referenced the Supreme Court decision in Commissioner of Service Tax vs. Bhayana Builders Pvt. Ltd., which held that service tax cannot be levied on the value of materials supplied free of cost by the service recipient. The Tribunal concluded that the Commissioner's finding did not suffer from any error as the value of goods provided free of charge cannot be included in the gross amount charged by the service provider.

C. Service Tax Liability of Sub-Contractor
The third issue is whether the respondent is liable to discharge the service tax liability as a sub-contractor when the main contractor has already paid the service tax. Although the Tribunal noted that a Larger Bench in Commissioner of Service Tax, New Delhi vs. Melange Developers Pvt Ltd. held that a sub-contractor must discharge the service tax liability even if the main contractor has already done so, it deemed it unnecessary to decide this issue on merits. This is because it was already established that the services involved in this appeal were not taxable.

Conclusion
The Tribunal dismissed the Department's appeal, affirming the Commissioner's order that the services provided in relation to Hydro Electric Projects are non-taxable, the value of free-of-cost materials cannot be included in the assessable value for service tax, and it was unnecessary to address the sub-contractor's tax liability issue due to the non-taxability of the services involved.