Activity of construction of tunnels or conduits for transportation of water

PJ/Case Laws/2011-12/1287

Activity of construction of tunnels or conduits for transportation of water - classification of

Case: M/s PES Engineering Pvt. Ltd. Vs Commissioner of Customs, Central Excise & Service Tax, Hyderabad

Citation: 2011-TIOL-964-CESTAT-BANG

Issue:- Whether construction of tunnels or conduits called as “penstocks” will be classifiable under “erection, commissioning & installation service” or under “commercial or industrial construction service”?

Brief Facts:- Appellant are in construction of tunnels or conduit, which is called as Penstocks for the river valley projects. The activity as undertaken by the appellant is to drill tunnel and reinforce the tunnel and make the entire tunnel as a conduit for transportation of water to the turbines in the major power projects undertaken by the main contractor. Department contended that the service provided by them fell under the category of ‘Erection, commissioning & Installation’ service and the appellant were liable to pay service tax on the same.

The matter is before the Tribunal. And application for stay and waiver of pre-deposit has been filed.

Appellant’s Contention:- Appellant contended that they are engaged in construction of tunnels or conduit, which is called as Penstocks for the river valley projects .It was further submitted that the activity as undertaken by the appellant is nothing but to drill tunnel and reinforce the tunnel and make the entire tunnel as a conduit for transportation of water to the turbines in the major power projects undertaken by the main contractor.

It was submitted that the activity undertaken by them would fall under the services of "Commercial and Industrial Construction Services" and would be excluded by virtue of the very same definition and that the Revenue's effort to put their services under the category of "Erection, Commissioning or Installation" services would be improper, as the heading which is more specific has to be considered.

Appellant also relied upon the decision of this Bench in the case of BBR (India) Limited Vs. CCE, Bangalore-III [2006 (4) STR 269 (Tri.-Bang.)].

Respondent’s Contention:- Respondent submitted that as per amended definition of “Erection, Commissioning or Installation" it is clearly indicated that installation of plumbing, drain laying or other installations for transport of fluids would get covered under this heading as the appellant is creating a closed conduit, which is an indispensable installation for transportation of water.

It was further submitted that this transportation of water through tunnels is nothing but erection, commissioning and installation of a power project and has to be read harmoniously and also relied upon the definition of penstock, as given under the "Glossary of Terms relating to River Valley Projects" published by the Bureau of Indian Standards would be applicable in this case.

Reasoning of the Judgment:- The Tribunal noted that it is not in dispute that the appellant is providing a closed conduit for supply of water under pressure to the various mega power projects executed by various contractors.

It was held that from the definition of “Commercial or industrial construction” it is clear that the construction of pipeline or conduit has been specifically mentioned in the definition. The appellant herein is a sub-contractor engaged for construction of such pipeline or conduit. The said activity would have been taxable but for the exclusion given by the very same definition which is in respect of bridges, tunnels and dams. It is a common knowledge that the mega power projects which are installed at the end of the dam in order to generate power by optimally using the water stored in the dams. In view of the Tribunal, the appellant has made out a prima facie case for the waiver of pre-deposit of the amounts involved.

Decision:- Stay application allowed.

Comment:- This dispute was going on for a long time but is finally decided by tribunal in favour of assessee but it is to be seen whether the department will accept the same or take it to Courts. Let us wait and watch.

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PJ/Case Laws/2011-12/1287

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