Construction of pipeline works for government not leviable to service tax.

PJ/CASE LAW/2014-15/2540

Case:-BHOORATHNOM CONSTRUCTION CO PVT LTD VS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, HYDERABAD

Citation:-2015-TIOL-61-CESTAT-BANG

Brief Facts:-The appellant is engaged in the business of construction or execution of infrastructure projects exclusively for various State Governments and related Government departments. After investigation and search proceedings, proceedings were initiated which has resulted in the impugned order that confirmed demand for service tax of Rs. 29,79,61,129/- with interest on the ground that appellant has provided works contract service and the same is liable to tax. Besides this an amount of Rs. 34,63,237/- has also been demanded under GTA Service as a receiver of services for the period from January 2006 to December 2010 and penalties also have been imposed.

Appellant’s Contention:-Learned counsel for the appellants submitted that appellants have engaged in construction of pipeline works for irrigation for the State Government departments and in all these cases where pipelines and canals or conduits have been constructed, the Tribunal has been taking a view that the same is not liable to service tax. He also submits that as regards certain other work undertaken, they are civil construction work and civil construction work when it is not meant for commerce or industry is not liable to service tax. As regards GTA service, he submits that appellants have deposited an amount of Rs. 30,00,000/- and in view of the fact that appellants have a strong case on merits as regards limitation, the requirement of pre-deposit of balance dues can be waived in this case. Overall he submits that the requirement of pre-deposit may be waived.

Respondent’s Contention:-Learned AR opposes the submission and submits that in the case of Ramky Infrastructure Ltd. Vs. CST, Hyderabad [2013 (29) S.T.R. 33 (Tri.-Bang.) = 2012-TIOL-613-CESTAT-BANG], this Tribunal has taken a view that service tax is liable in the case of EPC/Turnkey projects and whether the construction is of a pipeline or canal or civil construction does not make any difference if the project is executed on Turnkey/EPC basis tax is payable.

Reasoning of Judgment:-We have considered the submissions made by both the sides. No doubt in the case of Ramky Infrastructure Ltd. such a view was taken. However the learned counsel relied upon the decisions in the case of Megha Engineering & Infrastructure Ltd. dated 31.12.2013 vide Miscellaneous Order Nos. 2830828311/ 2013 = 2014-TIOL-134-CESTAT-BANG and Koya & Company Construction Ltd. Vs. CCE, Hyderabad-I [2014 (34) S.T.R. 780 (Tri.-Bang.). In both these cases the Tribunal took the view that when a pipeline or a canal is constructed, the same is not liable to tax if it is not meant for commerce or industry. In the case of Megha Engineering & Infrastructure Ltd., the Tribunal had observed that construction of pipeline primarily for the purpose of commerce or industry falls within the definition and the services provided by the petitioner in that case under several agreements with the State Government were for irrigation or drinking water supply purposes and therefore were excluded. We have a similar situation here. Moreover in most of these cases the appellants have undertaken only work relating to part of the pipeline and therefore it is difficult to call them Turnkey or EPC projects. Moreover it is also not clearly coming out that the design and engineering part of the project was completely executed by the appellant especially in view of the fact that only part of the pipeline was constructed by them. As regards civil construction work also, the contention of the appellant that just because a contract is termed as EPC or Turnkey project, the same cannot be held conclusively against the appellant. The contract has to be examined to see whether it is in reality an EPC project or not. We find some substance in this argument since Hon'ble Supreme Court also has taken a similar view that terms used in the contract should not be looked at in isolation or interpreted literally. If the contract is accepted literally and no examination is done in a holistic manner, it is quite possible that contracts can be termed in such a manner so as to ensure that appropriate terms are used so that tax liability is avoided. In view of the fact that two decisions of the Tribunal prima facie have taken a view in favour of the assessees referred to by the learned counsel, we consider it appropriate that the same should be followed in this case also. As regards GTA service the appellants have deposited an amount of Rs. 30,00,000/- but we feel that this would not be sufficient for hearing the appeal.

Appellant is directed to deposit an amount of Rs. 5,00,000/( Rupees Five lakhs only) within 8 weeks and report compliance on 2.12.2014. Subject to compliance with the above requirement, the requirement of pre-deposit of balance dues is waived and stay against recovery is granted.

Decision:-Stay partly granted.

Comment:-The essence of the case is that just because a contract is termed as EPC or turnkey project, it cannot be held conclusively against the appellant and the terms and conditions of the contract are to be examined in detail. In the present case, as the appellant had only executed construction of part of pipeline for state government department, it cannot be considered as EPC or turnkey project so as to levy service tax. Moreover, there were number of decisions given by the Tribunal wherein it was concluded that construction of pipeline for irrigation systems meant for government departments could not be considered as commercial in nature so as to levy service tax on
the same. Consequently, stay was granted with respect to service tax demand on construction of pipeline.

Prepared By:- Somya Jain

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PJ/CASE LAW/2014-15/2540

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