2017 (2) TMI 64 - AT - Service Tax

Construction contract - laying down long distance pipelines for transfer of drinking water in the State of Gujarat to a contract awarded to them by M/s Gujarat Water Supply and Sewerage Board (GWSSB) - whether taxable under the category of Commercial or Industrial Construction Services or not? - Held that - this Tribunal in the cases of Larsen & Toubro Ltd. 2011 (1) TMI 188 - CESTAT, AHMEDABAD , and Dinesh Chandra Agarwal Infracon P. Ltd 2010 (8) TMI 54 - CESTAT, AHMEDABAD , considering the fact of lying down long distance pipelines for transfer drinking water in the State of Gujarat has held that services provided to M/s GWSSB, in lying down pipelines for supply of drinking water is not leviable to service tax under the said category of Commercial or Industrial Construction Service - appeal allowed - decided in favor of appellant.

Summary

Issues: Appeal against service tax demand on laying down pipelines for drinking water supply categorized under Commercial or Industrial Construction Services.

Analysis:
1. Background: The appeal challenged a demand notice for service tax amounting to ?80,45,420 along with penalties under the Finance Act, 1994, for laying down long distance pipelines for drinking water transfer in Gujarat.

2. Appellant's Argument: The appellant contended that the service tax levy on pipeline construction was applicable from 16.06.2005 and argued that the pipelines were laid solely for supplying drinking water in Gujarat. Referring to previous Tribunal cases, the appellant highlighted that services to M/s GWSSB for laying pipelines for drinking water supply were not subject to service tax under Commercial or Industrial Construction Services.

3. Revenue's Argument: The Revenue argued that M/s GWSSB supplied water not only to remote areas but also to industrial concerns on a commercial basis. Hence, the services provided in laying down pipelines met the amended definition of Commercial or Industrial Construction Service effective from 16.06.2005.

4. Tribunal's Decision: The Tribunal reviewed precedents involving similar cases and emphasized that the status of GWSSB as an industry was irrelevant. It was noted that the primary purpose of laying down pipelines was for supplying water, not for commercial or industrial activities. The Tribunal concluded that the services were not primarily for commerce or industry, as the main objective was to provide water to citizens, making the purchase and sale of water incidental.

5. Outcome: Relying on the established precedents and the purpose of the pipeline project, the Tribunal set aside the impugned order, allowing the appeal with consequential relief. The decision highlighted that the service was not liable to service tax under Commercial or Industrial Construction Services, and hence, penalties and other issues raised were not considered.

6. Conclusion: The judgment clarified that the purpose of laying down pipelines for drinking water supply was not primarily for commercial or industrial activities, leading to the appeal being allowed based on the established legal principles and precedents.