ROAD REPAIR IS NOT LIABLE TO SERVICE TAX

[Mr. M. GOVINDARAJAN]

            In Re 'G.R. Constructions' - 2009 (15) STR 133 (Commr. Appeals), the Commissioner (Appeals) held that road repair is not liable to service tax. The facts of the case run as follows:

            The appellant M/s G.R. Constructions are contractors engaged in the activity of construction and laying of roads. The Officers of the Head Quarters, Anti Evasion, Vishakapatnam - I Commissionerate on the information received that the appellant evaded payment of service tax caused investigation. During the course of investigation, the appellant agreed with his liability to pay the service tax on the commercial construction carried out and paid the services tax. The appellant has not agreed with the view of the Department that the activity carried out by him in respect of roads fall under management, maintenance or repair of immoveable property but contended that the same fall under commercial or industrial construction service a evidence by the letters issued by the authorities who have awarded the contacts and the same is exempted from service tax in the Act itself. The appellant also contended that inasmuch as the activity of laying road itself is exempted the activity of repairs to roads cannot be subjected to levy.

            The Department issued a notice to the appellant. The Adjudicating Authority has confirmed the demand in respect of both the service services and also imposed penalties under various provisions of the Finance Act, 1994. 

            The Adjudicating Authority has confirmed the demand under management, maintenance or repair service on the ground that the activity carried by them does not amount to construction of a road as the same involves-

Stripping of the top soil within the road reserve;

Removal of in-situ ground using a heavy motorized grader to a specified level (Road-bed level);

Compacting the roadbed level using a heavy vibratory road roller (to the required density) after which the pavement layers can be imposed;

Importing of the first pavement layer a selected sub-grade (SSG) - which is usually a gravel type material;

Leveling off the placed material by a grader and compacting to a required density using a road roller;

Importing of the next layer - a sub base (higher quality than the selected sub-grade) - which is usually a gravel type material having higher California Bearing Ratio (CBR);

Working the material of the sub-base by a grader and simultaneously mixing with water to aid compaction;

Importing of the final layer, the base course consisting of gravel or crushed stone;

Leveling and compacting of the base course; and

Placing of a surface course on the top of the base course, consisting of asphalt concrete or a seal consisting of a mixture of similar sized small stones, bitumen and Portland cement.

The Adjudicating Authority, based on the above process, concluded that though the authorities issued letters indicating the activity carried out y the appellant is not repairs since they have not carried out the processes enumerated above, the same does not fall under commercial or industrial construction services.

            The appellant contended that -

The activity carried out by them amounts to laying of roads;

The same is exempted from service tax vide Section 65 (25b) of the Finance Act, 1994;

When the main activity of laying road is not liable to tax the activity of repaid to roads does not attract tax;

Non payment of tax on their part is due to bona fide error of interpretation of statute.

The Commissioner (Appeals) after went through the entire case records and the contentions put forth by the appellant, found that the appellant has not disputed his liability to pay tax on the construction service carried out by him but restricted the penalties imposed under various provisions of the Finance Act, 1994. The dispute is with regard to demand of tax under the head management, maintenance or repair service on the activities carried out by them in respect of roads.            The Commissioner (Appeals) analyzed the provisions of Section 65(25b) of the Finance Act, 1994 which defines the terms 'Commercial or industrial construction service'. According to the definition the 'Commercial or industrial construction service means-

(a)    construction of a new building or a civil structure or a part thereof; or

(b)   construction of pipeline or conduit; or

(c)    completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d)   repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit which is -

       (i)                  used, or to be used, primarily for; or

      (ii)                occupied, or to be occupied, primarily with; or

      (iii)               engaged, or to be engaged, primarily in

commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

            The Commissioner (Appeals) found that the definition itself excludes such services provided in respect of roads, airports, railways, transport terminal, bridges, tunnels and dams.  It is also evident that not only construction services but also repair services provided in respect of roads are exempted from tax.  The Commissioner (Appeals) held that though the same may also fall under management, maintenance or repair service in terms of Section 65(64) of the Finance Act, in view of specific exclusion of repair services provided in respect of roads under Section 65(25b) of the Finance Act, 1994 the same cannot be subjected to any tax. If the intention of the government is to subject the repair services provided to roads to tax, then the definition given under 'Commercial or Industrial Construction Service' should have been suitably amended by omitting the words 'does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

            Reading the definitions of Commercial or Industrial Construction Service and management, maintenance or repair services together gives a meaning that repair of roads, airports, railways, transport terminals, bridges, tunnels and dams are excluded from service tax liability in view of the specific exclusion provided in Section 65 (25b) of the Finance Act, 1994 and also implies that the management or maintenance of all immovable properties including roads, airports, railways, transport terminals, bridges, tunnels and dams are liable to tax but not repairs in view of specific exemption provided vide Section 65 (25b) of the Finance Act, 1994.

            The purchase order dated 15.9.2005 make a mention that the contract value is exclusive of cenvatable service tax and that cenvatable service tax shall be reimbursed at actual against documentary evidence. From this it is evident that the appellant has not collected any service tax from M/s HPCL as the same will be reimbursed. The Commissioner (Appeals) found that there was no intention on the part of the appellant to evade payment of service tax. It also held that the appellant is not liable for tax on the activity of repairs carried out on roads and consequently the demands confirmed are set aside and also the penalties. 

            The Central Government by Notification cleared that repair of roads is not liable to service tax.  Vide Notification No. 24/2009-Service Tax, dated 27.7.2009 the Central Government, on being satisfied that it is necessary in the public interest so to do, exempts the taxable service referred to in sub clause (zzg) of clause (105) of Section 65 of the Finance Act, 1994 provided to any person by any other person in relation to management, maintenance or repair of roads from the whole of the service tax leviable thereon under Section 66 of the said Finance Act.