Activity of road work - whether classifiable under 'Management, maintenance or repair service'

PJ/Case Law/2011-12/1143

Case: Karnataka Rural Infrastructure Dev. Ltd v/s CST, Bangalore

Citation:2011 (22) STR 22 (Tri-Bang)

Issue: - Whether activity of road works fall under ‘management, maintenance or repair’ of immovable property or construction service – Board Circular clarifying the issue not before the Adjudicating Authority – aspect of construction and supply of material not considered – matter remanded for fresh adjudication.

Brief Facts: -Appellant is Govt of Karnataka undertaking and is engaged in the construction of building, roads, and other civil works for Govt of Karnataka. They are registered under service tax for providing Consulting Engineer Service. Appellant were also engaged in the activity of maintenance of roads, construction of drainage, Upgradation of sidewalks, asphalting of roads etc as per agreement with various Govt agencies.

Revenue officers sought verification of records and after verification, they noticed that for the period 15.10.2005 to 30.11.2006 and 01.12.2006 to 31.03.2008, appellant had executed various contracts to complete the work of Upgradation of side-walks, asphalting of roads and strengthening of footpaths and re-surfacing of the various roads for various State Government agencies including municipalities and municipal corporations.

Revenue alleged that appellant was required to pay service on these services under the category of ‘management, maintenance or repair’ of immovable property service and issued show cause notices. The Demand of service tax with interest was confirmed and penalty was also imposed under Section 76 & 77 but no penalty was imposed under Section 78.

Appellant is in appeal against the impugned orders.

Appellant’s Contention: - Appellant contended that their activity did not fall under the category of ‘management, maintenance or repair’ of immovable property as roads were not immovable property but they were public property and fell within the jurisprudence of eminent domain/sovereign domain and therefore excludable from the category of immovable property. It was submitted that the activity was done of public property and could not be held liable to service tax as the said activity has been specifically excluded from statutory definitions.

Alternatively, it was submitted that the activity done by them would more appropriately fall under commercial or industrial services and under the same, there is specific exclusion for the activity undertaken in or in relation to roads. It was submitted that the definition of ‘work contract’ would also exclude the activity done in respect of roads etc. It was submitted that the activity undertaken by them could not be taxed under some other category when it is specifically mentioned in specific heading. As per the principles of classification, specific head would exclude the general heading.

It was also submitted that the Adjudicating Authority had held that there is no need for invocation of extended period but had confirmed the entire demand for entire period. It was further submitted that the contracts entered by the appellants with various authorities were of composite nature and hence the entire activity could not he categorized under head ‘management, maintenance or repair’ of immovable property.

Respondent’s contention:- Revenue contended that public road although fell under sovereign domain but was an immovable property also. Reliance was placed on Board Circular F. No. B-1/6/2005-TRU, dt. 27.7.2005 and it was submitted that this activity is covered under the category of ‘management, maintenance or repair’ of immovable property.

Reasoning of Judgment: - The Tribunal held that from the record it appears that there is categorical mention of “construction of drains, providing drain covers, providing cement concrete and cobble stone for footpath, providing cement concrete kerbs, asphalting of roads and various other activities”. It was noticed that there could be a construction activity and also there could be supply of materials. The Adjudicating Authorities have not considered the factual position regarding construction activity and supplies aspect. It was found by the Tribunal that the Board in Circular No. 110/4/2009-ST dated 23.02.2009 has given a clarification regarding the levy of service tax on repair/renovation/widening of roads. It has been specifically provided therein that which activity will fall under ‘management, maintenance or repair’ of immovable property and which will fall under the category of construction activity.

Thus, the Tribunal held that the issue requires re-examination as the Board Circular dated 23.02.2009 was not available to the Adjudicating Authority at the time of adjudication. Impugned orders set aside and matter remitted back to the Adjudicating Authority to re-consider the issue afresh.

Decision:- Matter remanded for fresh adjudication.

Comment:- This is old issue of litigation and is still going on. It has not settled even after issue of Board circular. Now the Board has given exemption to repairing of Roads.

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PJ/Case Law/2011-12/1143

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