Classification of activity under

PJ/Case Laws/2011-12/1329

Case: M/s ITD CEMENTATION INDIA LTD v/s COMMISSIONER OF SERVICE TAX, MUMBAI

Citation: 2008-TIOL-1402-CESTAT-MUM

Issue:- Construction work of "Diaphragm wall and anchor slab" at river water front – whether taxable under the category of “Site Formation and Clearance, Excavation and Earth moving Demolition Services" or fall under exclusion clause – pre-deposit ordered.

Brief Facts:- Appellant has constructed "Diaphragm wall and anchor slab with special fill" on the banks of the river Sabarmati under a contract from Sabarmati River Front Development Corporation Ltd. (SRFDCL). Allegation in show cause notice was that the applicant has provided services of "Site Formation and Clearance, Excavation and Earth moving Demolition Services" without getting themselves registered with Service Tax Department and have not paid service tax for providing the said service.

The Adjudicating Authority confirmed the demand of service tax with interest and imposed penalties on the appellant by holding that the service provided by them fell under the services of "Site Formation and Clearance, Excavation and Earth moving Demolition Services".

Aggrieved by the said order, appellant filed appeal before the Tribunal. Application for stay of order and for waiver of pre-deposit is filed.

Appellant’s Contention:- Appellant contended that the agreement executed with SRFDCL is only for the purpose of construction of "Diaphragm wall and anchor slab", which are constructed by the applicant and are in respect of water front and for the purpose of proper management of water resources. Reference was made to project report submitted by SRFDCL and to the fact that this project is for the purpose of proper use of water and water resources, which otherwise would have been wasted. It was submitted that the entire project is envisaged by SRFDCL is in fact of the Ahmedabad Municipal Corporation, in principal approved by the Central and State Governments. Reference was also made to letter dated 10.2.2006 written by the Municipal Corporation of Ahmedabad regarding the service tax liability. It was further said that the contract is for construction of diaphragm wall and anchor slab and the diaphragm wall is constructed for the purpose of regulating the flow of river which is for flood control, as well as recharging of ground water level. The construction of anchor slab is for support of diaphragm wall. The construction of anchor slab is used as walkways roads. It was said that according to the definition of services under which Revenue has confirmed service tax liability i.e. "Site formation and clearance, excavation and earth moving Demolition services". It was submitted that the activity done by them will be in exclusion clause as given in the definition.

It is also further submitted that the calculation arrived at for the purpose of demand of service tax is erroneous and has included the entire cost of materials, which goes into the construction of diaphragm wall and anchor slab. It was submitted that the entire demand is barred by limitation and the activity of construction and activity undertaken by SRFDCL was known to public at large. Appellant submitted that they may be granted unconditional waiver of pre-deposit of the amount involved in this case.

Respondent’s Contention:- Revenue argued that SRFDCL has clearly indicated in their Memorandum and Articles of Association that the project is perceived by the authorities, not for the purpose of any optimum use of water resources but for the purpose of reclamation of the land along the bank and to use the space for the purpose of recreation parks and gardens, promenades, informal market, commercial areas etc. It was further submitted that the services provided by the applicant were not for the purpose of renovating or restoring the water resources and the contract, which is awarded to the applicant, is entire project of SRFDCL.

Further Revenue submitted that the construction of diaphragm wall and anchor slab is in relation to the water body. That unless these diaphragm wall and anchor slab are constructed, the further activity would not take place as to but other scope of work is limited in connection with water body.

Reasoning of Judgment:- The Tribunal held that the entire project report of SRFDCL and the said SRFDCL project was envisaged for embankment and reclamation works, construction of major Level-one roads, installation of infrastructure (water, sewer, storm drainage) networks and construction of relatively sophisticated promenades and garden etc. The agreement entered by the SRFDCL with the current applicant is for diaphragm wall and anchor slab. It is alleged that the said activity of special fill will fall under the definition of services as provided under the "Site Formation and Clearance, Excavation and Earth Moving Demolition Services".

Further the Tribunal found that the appellant is relying upon the exclusion clause under the definition. Whether the services rendered by the applicant would get covered under the exclusion clause or not, and as to whether activity undertaken by the applicant is for renovating or restoring the water resources of water bodies needs to be gone into detail as also the issue regarding the question of limitation and wrong calculation of duty, which can be done so only at the time of final hearing as the issue is a arguable one. The Tribunal further held that the applicant has not made out a prima facie case for complete waiver of the amount of service tax confirmed.

Decision:- Pre-deposit ordered.

Comment:- This is not final decision but decision of stay application. But it gives the idea about the dispute between the party and the department. Whether it will fall under “Site formation and clearance, Excavation and Earth moving Demolition service” or under “Commercial construction service”? Whether it will be covered under the exclusion clause or it will be taxable? The time will tell.

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PJ/Case Laws/2011-12/1329

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