SITE FORMATION, CLEARANCE, EXCAVATION AND EARTHMOVING AND DEMOLITION SERVICES

[Mr. M. GOVINDARAJAN]

Definition

Section 65 (97a) defines the terms ‘Site Formation, clearance, excavation and earthmoving and demolition services.   There is no direct definition for the said service.  The definition includes-

• drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or
• soil stabilization; or
• horizontal drilling for the passage of cables or drain pipes; or
•  land reclamation work; or
•  contaminated top soil stripping work; or
• demolition and wrecking of building, structure or road.

The definition contains exclusive clause also.  The definition does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies.

The said service was brought into the service tax net vide Finance Act, 2005 with effect from 16.06.2005.

Section 65 (105) (zzza) defines the taxable service as any service provided or to be provided by one person to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities;

Exemption

Notification No. 17/2005-ST, dated 07.06.2005 gave exemption to the site formation and clearance, excavation and earthmoving and demolition and such other similar activities, referred to in sub-clause (zzza) of clause (105) of section 65 of the Finance Act, provided to any person by any other person in the course of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams, ports or other ports, from the whole of service tax leviable thereon under section 66 of the said Finance Act.  However this Notification was rescinded by Notification No. 34/20/12-ST, dated 20.06.2012.

Clarifications

Circular No. B1/6/2005-TRU, dated 27.07.2005 gives the scope of this service.  In this circular it is indicated that the definition is an inclusive definition and the activities specifically mentioned are indicative and not exhaustive.  Prior to construction of buildings, factory or any civil structure, activity of mining or laying of cables or pipes, preparation services of site formation and clearance, excavation and earthmoving or leveling are normally undertaken for a consideration to make the land suitable for such activities. Such services include blasting and rock removal work, clearance of undergrowth, drilling and boring, overburden removal and other development and preparation services of mineral properties and sites, and other similar excavating and earthmoving services. Demolition of structures, buildings, streets or highways is also undertaken for a consideration as a preparatory activity for subsequent construction activity or for clearing the site for any other purpose. All such activities fall within the scope of this service.

Circular No. 123/5/2010-TRU, dated 24.05.2010 clarified that this service attracted only if the service providers provide these services independently and not as part of a complete work such as laying or cable under the road.  The Board clarified that the following are not taxable-

• Railway electrification, electrification along with the railway tracks;
• shifting of over head cables for any reasons such as widening/renovations of roads;
• laying of cable under or alongside roads;
• laying of electric cables between grids/sub stations/transformer stations on road;
• laying of electric cables up to distribution point of residential or commercial locality/complexes.

Case laws

In ‘R. Balarami Reddy & Co., V. Commissioner of Central Excise, Hyderabad’ – 2014 (1) TMI 308 - CESTAT BANGALORE  the Tribunal found that the activities of construction of Ash Dyke cannot be treated as falling under the ‘site formation’ but the said services will fall under ‘Commercial/Industrial construction service’.                 

In ‘Vasu Construction V. Commissioner of Central Excise, Daman’ – 2012 (6) TMI 213 - CESTAT, AHMEDABAD the Tribunal found that the contract between the appellant and M/s Idea Cellular Co., Limited is primarily and basically for construction of towers.   The various other works referred to by Commissioner (Appeals) like cleaning site of bushes and shrubs before commencement of work, de-watering from pits using pumps, filling of sand in plinth, disposal of non usable materials etc., are in the nature of incidental and ancillary to the construction of towers.   Admittedly, no construction can be effected without first cleaning land from unwanted material and preparing the same for construction.   The efforts of the lower authority to de-link the above activity from main activity of construction and to hold that will same falls under the category of site formation and clearance, excavation and earthmoving and demolition services does not appear to be in accordance with the law.

In ‘Commissioner of Central Excise, Hyderabad V. Vijay Leasing Company’ – 2010 (12) TMI 782 - CESTAT, BANGALORE  the Tribunal held that the activity of the respondents during the relevant period viz., ‘Site formation and clearance, excavation, earthmoving and demolition services’ are incidental to the contract of the mining of the iron ore undertaken by the respondents.   In view of that, factually, the activity of the respondents during the relevant period when they paid the service tax was not taxable under the category of ‘Site formation and clearance, excavation, earthmoving and demolition’ service.

In ‘M. Ramakrishna Reddy V. Commissioner of Central Excise, Tirupati’ – 2008 (10) TMI 115 - CESTAT, BANGALORE the Tribunal found that it is very clear that the salient feature of the services rendered by the appellant is mining.   The appellant is expected not only to remove the overburden but also to excavate the Barytes ore.   It cannot be said that the appellant is not undertaking site formation work, but site formation work undertaken by the appellant is incidental to the mining activity.   The main work of the appellant is mining or winning of minerals.  According to Section 65A (2) the services rendered would amount to only mining services.  As the contract is a comprehensive one for mining, it cannot be vivisected for levying service tax on that portion of the activity relating to site formation.

In ‘ABC Engineering Works V. Commissioner of Central Excise, Guntur’ – 2010 (5) TMI 268 - CESTAT, BANGALORE the appellants had rendered taxable services under ‘Site formation, clearance, excavation and earthmoving and demolition’ service during the material period without following statutory formalities such as taking registration with the department,  making payment of service tax and filing of ST-3 returns as prescribed.   Though the appellants had entered into contract for rendering services prior to 16.6.2005, when the impugned activity became taxable the appellant had failed to register itself with the department or to pay the service tax due.   The appellants took registration on 03.03.2006 following the communication from the department on 25.03.2006 and paid Rs.65587206/- before issuance of show cause notice on 30.08.2006 and paid the balance tax of Rs.64,89,403/- subsequently before adjudication.   The appellants paid interest due on 07.01.2008 i.e., before adjudication.   However the Commissioner recorded that the appellants had not horned the promise to pay the interest before adjudication.   The Tribunal held that the Commissioner would have considered waiver of penalty invoked under the provisions of Section 80 of the Act.   The tribunal remanded the matter to the Commissioner.

In ‘Essar Construction (India) Limited V. Commissioner of Central Excise, Vishakapatnam’ – 2009 (8) TMI 745 - CESTAT, BANGALORE the work undertaken by the appellants is construction of tailing dam and connected work under a contract entered into by the appellants.   The work undertaken by the appellant is construction of a dam.   Notification No. 17/2005-ST, dated 07.06.2005 exempts activities rendered in the course of construction of airports, roads, bridges etc., from service tax under the head ‘Site formation, clearance, excavation  etc.,   The Tribunal held that construction of a dam cannot be subjected to tax classifying it as ‘site formation, clearance, excavation and earthmoving and demolition service’.

After introduction of negative list regime there is no specific provision to this service.   This can be inferred that this service is taxable.

Discussions to this article

[Gautham Nayak]

Great article sir. Would be grateful if a case law is quoted wherein a contract consisting of Site Formation and Road Construction was considered as Construction Contract and not as Site Formation.

Regards

[MARIAPPAN GOVINDARAJAN]

Dear Sir,

I will go through various decisions in this regard and would inform you .

Regards,

Dr. M. Govindarajan

[Mangesh khedkar]

Which service category applicable for soil excavation work