2010 (8) TMI 54 - AT - Service Tax

Commercial or Industrial Construction Service - laying of long distance pipe lines for transfer of water - commercial or industrial construction purpose - Held that - The perusal of the duties and functions of the Board clearly show that sale of water is not the primary function of the Board. It is also clear that the water purchased by the Board is being distributed to rural and urban areas for the purpose of irrigation and drinking at different rates which are subsidized and even the operating cost also does not stand recovered by them. To setup an establishment for water supply is a part of the duties and functions of the State to provide its citizens with a better living. In these circumstances it cannot be held that laying of pipelines for the Board is for the purpose of undertaking any commercial activities by the Board and the appellant would be covered by said services by making him liable to payment of service tax - not liable to service tax - decided in favor of assessee

Summary

Issues Involved:
1. Liability of service tax on the construction of pipelines for water transfer.
2. Classification of services under "Commercial or Industrial Construction Service."
3. Determination of whether GWSSB's activities are commercial.
4. Invocation of extended period of limitation for tax demand.
5. Applicability of penalties under Sections 76 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability of Service Tax on the Construction of Pipelines for Water Transfer:
The Commissioner of Central Excise Ahmedabad confirmed a service tax demand of Rs. 1,58,82,314/- against the appellant, along with interest and penalties under Sections 76 and 78 of the Finance Act, 1994. The issue arose from the appellant's activities of laying long-distance pipelines for water transfer, which the Revenue categorized under "Commercial or Industrial Construction Service."

2. Classification of Services under "Commercial or Industrial Construction Service":
The definition of "Commercial or Industrial Construction Service" under Section 65 (25b) of the Finance Act, 2005 includes the construction of pipelines or conduits. For the service to be taxable, the pipelines must be used primarily for commerce or industry, and the service provider must be a commercial concern. The Commissioner found that the appellant, a commercial entity, constructed pipelines used by GWSSB, which the Revenue argued were for commercial purposes.

3. Determination of Whether GWSSB's Activities Are Commercial:
The Commissioner concluded that GWSSB is a commercial concern based on its activities of purchasing water and selling it to local bodies at various rates. The Commissioner referenced the Industrial Disputes Act, 1947, to classify GWSSB as an industry engaged in the business of water trading. However, the Tribunal examined the Gujarat Act No. 18 of 1979, which established GWSSB for the rapid development and regulation of water supply and sewerage services. The Tribunal noted that GWSSB's primary function was not the sale of water but the provision of water supply and sewerage services at subsidized rates, indicating a non-commercial purpose.

4. Invocation of Extended Period of Limitation for Tax Demand:
The Commissioner invoked the extended period of limitation, citing mens rea on the part of the appellant, who was already registered for service tax under a different category. The Tribunal did not address this issue separately, as it decided in favor of the appellant on merits.

5. Applicability of Penalties under Sections 76 and 78 of the Finance Act, 1994:
Penalties were imposed under Sections 76 and 78 of the Finance Act, 1994. However, the Tribunal's decision to allow the appeal on merits negated the need to address the penalties separately.

Conclusion:
The Tribunal concluded that the services provided by the appellant did not fall under the "Commercial or Industrial Construction Service" category. The primary function of GWSSB was to provide water supply and sewerage services, not commercial activities. Consequently, the appellant was not liable to pay service tax on the construction of pipelines for GWSSB. The appeal was allowed with consequential relief, and no separate order on the plea of limitation was passed.