2017 (11) TMI 1263 - AT - Service Tax

Site Formation and Clearance - Excavation and Earthmoving and Demolition service involving horizontal drilling for passage of cables without the use of machines - demand of service tax - Held that - As there are contrary views and difference of opinion between the Members, therefore, the matter be placed before the Hon ble President to appoint the Third Member for resolving the following issues - (a) Whether the Member (Judicial) is correct in holding that there is an evidence to the effect that the respondent has executed the work without HDD machines, therefore, the demand of service tax is not sustainable except in the case of M/s. Tata Tele Services or not?, (b) Whether Member (Judicial) is correct in holding that the activity is not preparatory in nature for construction of building and other contractors or not?, (c) Whether the learned Member (Technical) is correct in holding that the activity of the respondent is clearly covered under Sr.No.(iii) of the definition of service under Section 65 (97a). The definition in no way and nowhere implies that only such horizontal drilling is covered thereunder which is done using drilling machines or not? - matter referred to Third Member to be appointed by Hon ble President.

Summary

Issues:
- Appeal against dropped demand in service tax for site formation, excavation, and drilling services.
- Interpretation of the definition of taxable service under "site formation and clearance, excavation and earthmoving and demolition."
- Dispute regarding the use of Horizontal Directional Drilling (HDD) machines for cable laying services.

Analysis:
1. Appeal against Dropped Demand:
The Revenue appealed against the dropped demand of service tax by the Ld. Commissioner (A) for site formation, excavation, and drilling services provided by the respondent. The Ld. AR argued that the agreements with BSNL required the use of machines and tools for the work, contradicting the Ld. Commissioner's decision.

2. Interpretation of Taxable Service Definition:
The Ld. Commissioner (A) examined the nature of services provided by the respondent to various clients. It was observed that except for Tata Tele Services, the work involved manual digging, cable laying, and backfilling without the use of HDD machines. The Ld. Commissioner concluded that these activities did not fall under the taxable service definition as they were not preparatory in nature for construction, as clarified in the Board's circular.

3. Dispute Over HDD Machines Usage:
The disagreement revolved around whether the use of HDD machines was essential for horizontal drilling for cable passage. The respondent argued that the work done manually without HDD machines did not qualify as taxable services. The Ld. Commissioner (A) and one Member (Judicial) agreed that the absence of HDD machines made the service tax demand unsustainable, except for Tata Tele Services. However, the other Member (Technical) opined that the respondent's activities fell under the definition of taxable service, regardless of the use of HDD machines.

4. Contrary Views and Third Member Involvement:
Due to the conflicting opinions, the matter was referred to the Hon'ble President to appoint a Third Member for resolution. The differences included whether the work without HDD machines was taxable, whether the activity was preparatory for construction, and the interpretation of horizontal drilling under the taxable service definition.

In conclusion, the judgment upheld the dropped demand of service tax for most services provided by the respondent, except for Tata Tele Services, based on the absence of HDD machines. The conflicting views on the interpretation of the taxable service definition necessitated the involvement of a Third Member for resolution.