2017 (10) TMI 969 - AT - Service Tax

Classification of services - laying of Optical fibre cables for BSNL and for others - whether the service would be classifiable under Site formation services or not? - Held that - the activity is not classifiable under Section 65(105)(zzza) read with section 65(97a) under the classification site formation and clearance, excavation and demolition etc. - the appellant is not liable to pay service tax for the period prior to 01 July, 2012 - penalties also set aside. Demand for the period subsequent to 30 June, 2012 - assessee claims that the activity will be taxable under the classification of works contract wherein they will be entitled to deduction for the material component or in the alternative entitled to compounding of the tax as per the scheme of the Act and the Rules - Held that - the demand for the period subsequent to 30 June, 2012 set aside by way of remand to the Adjudicating Authority with direction to re-determine the tax in accordance with law - penalties set aside. Appeal allowed in part and part matter on remand.

Issues:
1. Liability to pay service tax on the activity of 'laying of Optical fibre cables'
2. Classification of the activity under 'site formation service'
3. Applicability of penalties under Sections 76, 77 & 78 of the Act
4. Pre-deposit requirement for appeal

Analysis:
1. The primary issue in the appeals was the liability to pay service tax on the activity of 'laying of Optical fibre cables.' The Adjudicating Authority classified this activity under 'site formation service' as defined under Section 65(105)(zzza) of the Act. The issue revolved around whether this activity falls under the definition of 'taxable service' provided to any person by another person in relation to site formation, clearance, excavation, earthmoving, and demolition. The appellant contested this classification, citing a CBEC Circular that clarified the non-taxability of laying cables under or along roads. The Tribunal, after considering the arguments, held that the activity was not classifiable under the mentioned sections and that the appellant was not liable to pay service tax for the period before July 1, 2012. The penalties imposed were also set aside based on the settled issue and the appellant's reasonable belief regarding the tax liability.

2. The next issue related to the classification of the activity under 'site formation and clearance, excavation, and demolition.' The appellant argued that the activity should be considered a works contract after July 1, 2012, entitling them to deductions for the material component or compounding of tax as per the Act and Rules. The Tribunal remanded the issue of tax liability for the period after June 30, 2012, to the Adjudicating Authority for redetermination in accordance with the law. The penalties for this period were also set aside, and the appellant was directed to file necessary representations and supportings.

3. Another aspect of the case involved the applicability of penalties under Sections 76, 77 & 78 of the Act. The Tribunal set aside the penalties imposed on the appellant for the period before and after July 1, 2012, based on the clarification provided by the CBEC Circular and the appellant's reasonable belief regarding the tax liability. The penalties were deemed not tenable in light of the settled issue and the legal interpretation of the activity of laying optical fibre cables.

4. Lastly, in the appeal by another appellant, the issue of pre-deposit for appeal before the Tribunal was raised. The Commissioner (Appeals) had dismissed the appeal due to alleged non-compliance with the statutory pre-deposit requirements under Section 35(f) of the Act. However, the Tribunal found the objection raised by the Commissioner to be untenable, as the appellant had made the requisite pre-deposit for the appeal. The Tribunal allowed the appeal, setting aside the demand up to June 30, 2012, and all penalties imposed, similar to the decision in the previous appeal.

In conclusion, the Tribunal addressed the issues of tax liability, classification, penalties, and pre-deposit requirements comprehensively, providing detailed reasoning and legal interpretations for each aspect of the judgment.

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