Whether construction of toll plaza along road is exempt from service tax?

PJ/Case Law/2020-2021/3636

GMR PROJECT PVT. LTD. VERSUS C.C.E., BANGALORE
Issue:-Whether construction of toll plaza along road is exempt from service tax?
Brief facts:-The issue involved in this appeal, on facts that the appellants as concessionaire, who have been granted on Build, Operate and Transfer(BOT) basis, construction, maintenance on cost recovery basis, being work of road by National Highways Authorities of India (NHAI), whether the construction of associated facilities like toll plaza, cattle and pedestrian crossing facilities, parking bays for buses/trucks and rest room for staff, etc. and common people. Whether these are part of the road (exempt) or are liable to service tax under the head works contract service.The audit for the period 01/04/2006 to 30/09/2010 had been carried by Service Tax Audit Wing and it was pointed out that appellant is liable to pay service tax amounting to Rs. 6,65,41,264/- under works Contract Service u/s 65(105)(zzzza) of the Act, in respect of construction of Toll Plaza, Administrative Building, Highway Traffic Management System and allied Miscellaneous Work. The department based on the Audit Report issued SCN dated 07.09.2011 invoking extended period of limitation, and raised the demand which was subsequently confirmed by impugned Order in Original, apart from levy of Tax with interest, also imposed the penalties including under Section 78 of the Finance Act, 1994 equivalent to the amount of tax determined. The appellant is in appeal before the Tribunal.

Appellant’s contentions:- The learned advocate appearing for theappellant has contended that appellant had been granted concessionaire agreement on Trunkey basis, on BOT model and the Commissioner did not take into consideration the reply of the appellant to the audit, and in adjudication, in which the appellant stated that the activities do not attract service tax, being part of road. In this regard the judgment of Oudh Sugar Mills Ltd. Vs UOI 1978 (2) ELT J172 (S.C) andGian Mahtani v State of Maharashtra 1999 (110) ELT 400 (S.C)are relied by the appellant in support of the argument that assumptions and presumptions are bad in law and cannot be sustained in law.
The essence of Turnkey projects has not been considered. The definition of the Turnkey project is relevant and relied by the appellant.Various clauses of the agreements have been ignored by the Commissioner which is relevant for the purpose of understanding the concession granted.
Construction of Toll Plaza does not amount to construction for commercial concern. The same is in furtherance of the agreement to build and manage roads as granted by the NHAI on Turnkey basis on BOT model, which is necessary for the recovery of the costs incurred by the appellant-concessionaire. The Construction of Toll Plaza is not an isolated project activity to attract tax. The appellant/concessionaire is not rendering any service to itself, when it built the Toll Plaza, etc. on or along with road, for recovery of its costs, etc.,
The Commissioner have wrongly interpreted the Board circular no. 80/10/2004 ST dated 17/09/2004 by ignoring the very fact that it is the use of the building or civil structure, which would determine the nature of service to be classified under commercial or Industrial Construction service.
The arguments of the appellant are further fortified relying on the judgment of Archi-structural Constructions India P. Ltd., Vs. C.C.E. Coimbatore 2011 (22) S.T.R. 663 (Tri-Chennai) in which the Air Catering unit constructed in the vicinity of the Airport, has been considered as part of the Airport. Further, the Delhi Bench of this Tribunal in the Case of DIAL Vs. Commissioner of Service Tax, Delhi has held, the Advance Development Fee received by it from lessees in the Aero City area, Delhi Airport, for providing and constructing common area & facility had been held to be non-taxable, and the order of the Commissioner set aside, thereby holding that the activities are within the Airport. Similarly, the construction of Toll Plaza etc., is directly connected and attached to the service of construction of roads which is exempt under Section 97 read with Section 65(105) (zzzza) of the Finance Act, 1994.
Appellant have also urged that the show-cause notice is bad for invocation of extended period of limitation as admittedly, the appellant/assessee is registered with the Service Tax Department have filed their returns regularly along with other compliances and have maintained proper books of accounts. Thus, the show- cause notice issued pursuant to audit, is by way of change of opinion and accordingly not maintainable.
Respondent’s contentions:-Learned AR for the Revenue has relied upon the impugned order and further urges that NHAI have entered into the concessionaire agreement with the appellant/concessionaire for execution of highway projects envisaging design, construction, development, finance, operation and maintenance on BOT basis. The concessionaire, in turn, sub-contracted the said projects by entering into an EPC contract with the appellants. The case of Department is that exclusion from service tax is primarily for the work of laying of road and not for allied works undertaken with regard to the said activity and hence the allied activities are taxable under the Works Contract Service. Further extended period of limitation is invokable as the appellant has suppressed the facts of providing taxable services. In the case of CST, Ahmedabad Vs. Shilpa Constructions [2010- TIOL-1132-CESTAT-AHM], another coordinate Bench of this Tribunal, with regard to construction of driveway in the petrol pump, have held that when a contract recognizes the two activities i.e. the construction of petrol pump and the road within the pump, as separate activities, still the benefit/exemption for road is available.

Reasoning of judgment:-After considering the submissions made by both the sidesand after perusal of record of the appeal, it was held that construction like toll plaza, cattle/pedestrian crossing facilities, parking bay for buses/trucks, rest room for staff and common public at large, etc. are also part of the road, as these are meant for exclusive use by the highway staff and the people using these roads. Further, as per several judgments of the Tribunal, even greenery done in the middle of the road, by way of divider or on the side of the roads, as well as crash barriers erected on the side of the roads all form part of the road and not exigible to service tax. Reliance was also placed on the decision of the Delhi Bench of this Tribunal in the case of Jagdish Prasad Agarwal Vs. CCE, Jaipur-I [2017(3) GSL 455 (Tri. Del.)]. Accordingly, it was held that the appellant is entitled for the exemption under Section 65(105) (zzzza). It was also held that the show-cause notice is bad for invocation of extended period of limitation as the same is issued merely on change of opinion on the part of the revenue. Accordingly, appeal is allowed.

DECISION:-Appeal allowed.
Comment:-This judgment interprets the benefit of exemption in true sense as it seeks to extend exemption to ancillary activities undertaken with construction of road such as construction of toll plaza. It is very commonly observed that the revenue objects availment of exemption on ancillary activities undertaken such as construction of dividers, signboards etc. which are part and parcel of the overall activity of construction of road. However, the Hon’ble Tribunal has held that all such activities including construction of toll plaza building is part and parcel of activity of construction of roads and hence exempt from levy of service tax. It can be said that the concept of “bundled services” has been applied in the present case wherein the principal activity of construction of road is to be considered for taxability of the overall transaction.
Prepared by- CA Neetu Sukhwani

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PJ/Case Law/2020-2021/3636

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