2023 (11) TMI 819 - AT - Service Tax

Short payment of service tax - Works Contract Service - contract with Tamilnadu Water and Drainage Board (TWAD) which was a turnkey / composite contract for supply of PSC pipes, for laying of the pipes as well as for executing other installations for the transportation of water as per terms of the contract of water project formulated by TWAD Board - HELD THAT - The appellant has been given a contract by TWAD Board for laying pipelines for drinking water supply project. In page 36 of the appeal paper book the appellant has enclosed letter dt. 17.09.2008 issued by the TWAD with regard to the contract. From perusal of same, it cannot be said that appellant is a sub-contractor for providing the services - On perusal of the definition of Works Contract Service, it can be seen that the sub-clause (b) of the definition provides that the laying of pipeline for non-commercial or non-industrial purposes would not attract levy of service tax. In the present case, the activity of laying of pipelines is done by the appellant for TWAD Board which is for the Government and included for supply of drinking water project. The very same issue was considered by the Larger Bench of the Tribunal in the case of M/S. LANCO INFRATECH LTD. AND OTHERS VERSUS VERSUS CC, CE ST, HYDERABAD 2015 (5) TMI 37 - CESTAT BANGALORE (LB) where it was held that Construction of canals for irrigation or water supply; construction or laying of pipelines/ conduits for lift irrigation conceived and integrated into a dam project, must be classified as works contract in respect of dam and is thus excluded from the scope of Works Contract Service defined in Section 65(105)(zzzza) of the Act, in view of the exclusionary clause in the provision. The decision of the Larger bench was followed recently by the Hyderabad Bench of the Tribunal in the case of PROGRESSIVE CONSTRUCTIONS LTD. VERSUS COMMISSIONER OF SERVICE TAX HYDERABAD SERVICE TAX 2023 (4) TMI 1132 - CESTAT HYDERABAD to hold that demand cannot sustain - This Bench also in the case of M/S. SHRIRAM EPC LTD. VERSUS COMMISSIONER OF GST CENTRAL EXCISE CHENNAI 2018 (11) TMI 1083 - CESTAT CHENNAI had considered similar issue and held that demand of service tax on the activity of laying of pipelines for drinking water supply cannot sustain. The impugned order is set aside. Appeal is allowed.

Summary

Issues Involved:
1. Classification of the activity under "Works Contracts Services."
2. Exemption from service tax for non-commercial or non-industrial purposes.
3. Status of the appellant as a sub-contractor.
4. Precedents and relevant judgments.

Summary:

1. Classification of the activity under "Works Contracts Services":
The appellant engaged in laying pipelines for the Tamilnadu Water and Drainage Board (TWAD) was classified under "Works Contracts Services" (WCS) as per sub-clause (zzzza) of clause (105) of Section 65 of the Finance Act, 1994. The department issued a show cause notice for non-payment of service tax on the consideration received for such contracts, covering the period from 04.06.2009 to 12.01.2010.

2. Exemption from service tax for non-commercial or non-industrial purposes:
The appellant argued that the activity of laying pipelines falls under sub-clause (b) of the WCS definition, which is exempt from service tax as it is not for commercial or industrial purposes but for drinking water supply by TWAD. The Tribunal agreed, referencing the Larger Bench decision in Lanco Infratech Ltd. Vs CC, CE & ST, Hyderabad, which held that laying pipelines for government projects is exempt from service tax.

3. Status of the appellant as a sub-contractor:
The department contended that the appellant was a sub-contractor and thus not entitled to exemption. However, the Tribunal found that the appellant was directly engaged by TWAD, a government entity, and not as a sub-contractor. This conclusion was supported by a letter dated 17.09.2008 from TWAD to the appellant, confirming the direct contract.

4. Precedents and relevant judgments:
The Tribunal referenced several judgments, including:
- Lanco Infratech Ltd. Vs CC, CE & ST, Hyderabad, which established that laying pipelines for government projects is non-commercial and exempt from service tax.
- Progressive Constructions Ltd. Vs CST Hyderabad and Shriram EPC Ltd. Vs CGST & Central Excise, Chennai, which reinforced the exemption for similar activities.

Conclusion:
The Tribunal concluded that the demand for service tax could not be sustained, setting aside the impugned order and allowing the appeal with consequential reliefs. The decision was based on the classification of the activity, exemption criteria, and relevant judicial precedents.