Custom, Excise & Service Tax Tribunal
Steel City Enterprises vs Visakhapatnam-Ii on 8 April, 2026
1 Appeal No. ST/1889/2012
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
REGIONAL BENCH - COURT NO. - I
Service Tax Appeal No. 1889 of 2012
(Arising out of Order-in-Original No.VIZ-STX-001-COM-040-12 dated 07.03.2012 passed
by Commissioner of Central Excise, Customs & Service Tax, Visakhapatnam)
M/s Steel City Enterprises .. APPELLANT
26-3-4,
Municipal Stadium Road,
Old Bus Stand,
Visakhapatnam,
Andhra Pradesh - 530 001.
VERSUS
Commissioner of Central Excise .. RESPONDENT
and Service Tax Visakhapatnam - I New Central Excise Building, Port Area, Visakhapatnam, Andhra Pradesh - 530 035.
APPEARANCE:
Shri V. Ravindranath, Advocate for the Appellant. Shri A. Rangadham, Authorized Representative for the Respondent. CORAM: HON'BLE Mr. A.K. JYOTISHI, MEMBER (TECHNICAL) HON'BLE Mr. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER No. A/30195/2026 Date of Hearing: 11.12.2025 Date of Decision: 08.04.2026 [ORDER PER: A.K. JYOTISHI] M/s Steel City Enterprises (hereinafter referred to as appellant) are in appeal against the Order-in-Original dated 07.03.2012, whereby, demand of service tax under the category of Management Maintenance or Repair Services (MMRS), Works Contract Service (WCS) and Technical Testing and Analysis Services (TTAS) was confirmed and penalty was also imposed under Section 76, 77 and 78.
2. The issue, in brief, is that the appellants are engaged in providing certain taxable services to Naval Ships and other naval projects such as 2 Appeal No. ST/1889/2012 dockyards etc. The Department based on verification noticed that the appellants were, inter alia, attending to the maintenance or repair works to Naval ships and equipments and have also attended to work related to supply, fabrication, erection, testing and commissioning of Berthing Pontoons, Dock Blocks, Wedge Blocks, Gangways etc., at Naval Dockyard, Visakhapatnam in terms of work order dated 03.05.2007. They were also engaged in the work relating to "Load testing of Transborder System of 600- T slipway of dry docks and slipway department at Naval Dockyard". The Adjudicating Authority based on the copies of the work order came to conclusion that all the repair works such as repair of conduiting and clamping, welding of high pressure air and hydraulic pipes, SS pipes etc., carried out onboard Naval ships, repair of Blanking off plate SDD Industrial pumps and maintenance works relating to maintenance of "Transborder system and allied equipment" located at Naval Dockyard under Annual Maintenance Contract entered with entire dockyard were covered under the purview of MMRS. Similarly, based on the appreciation of facts in respect of certain work orders, Adjudicating Authority felt that they have provided certain services to the entire dockyard, which also involved supply of equipment or goods and therefore held that such works were composite work relating to supply, fabrication, erection, testing and commissioning of equipment/goods holding that the said service would fall under WCS and also offering them an option for Composition Scheme. The Adjudicating Authority also in respect of work order no. YSMC/3548 dated 03.05.2007 held that they were carrying out load testing of transborder system and therefore it was covered under TTA. The plea against invocation of extended period was also denied on the grounds that the appellant had not taken the service tax registration and nor paid any service tax and only on gathering intelligence about such non-payment it came to the notice of the 3 Appeal No. ST/1889/2012 Department. Similarly, the penalty was also considered appropriate under Section 78 in the facts of the case.
3. Learned Advocate for the appellant has mainly contested the demand on the grounds that the entire provision of services were to the Naval Authorities and were performed inside Naval Docks, therefore, the supply to the Government, which is not engaged in any commercial activity. For the sake of convenience, his grounds against the confirmation of demand under different heads are summarised as under:
a) Management & Maintenance Repair Services (MMRS): His main submission is that after the introduction of Port service encompassing all different services provided within Port area and in order to mitigate certain unintended levy of service tax, Government had issued Notification No. 31/2010-ST dated 22.06.2010, wherein, there is a specific mention of repair of ships, boards, vessels belonging to navy, coast-guard and custom being exempted from service tax liability when undertaken in a port. Therefore, it is clear that there was no intention of Government to levy any tax on repair of ships belonging to Government of India or Navy and on this ground itself, apart from the specific exemptions, the extended period could not have been invoked. In so far as fabrication and periodic maintenance of Transborder system is concerned, his submission is that it is an integral part of vessel to be moved for dry docking and therefore without its support the repair and maintenance cannot be carried out and hence cannot be subjected to service tax.
b) Works Contract Services (WCS): In so far as demand confirmed for the period 2007-08 to 2009-10 on the grounds that the work involved transfer of property in goods and is a turnkey project/EPC contract, his 4 Appeal No. ST/1889/2012 submissions is that for the earlier period the demands raised for the said fabrication and supply of pontoons under the category of WCS was dropped by the Department on the grounds that the said fabricated structures are movable and there is no erection, installation or commissioning involved.
Similarly, in respect of supply of four climate control devices for LP Air Compressors Monitoring room in the Naval Dockyard pursuant to issuance of and purchase order, it was obvious that the transaction primarily involved supply of materials and therefore a purchase order was issued and not a work order therefore it is in the nature of sale of goods.
c) Technical Testing and Analysis Services (TTAS): In so far as, work of Load testing of transborder system at 600-T slipway of dry docks and slipway department the Naval Dockyard, his main submissions is that the appellants are not Technical Testing or Analysis Agency. He further submits that though they were rectifying some defects, however, he categorically stated that they had not issued any "certificate" certifying the condition of the Drugs Buyer System, hence not classifiable under the said heading. Moreover, this inspection was a joint inspection of Naval Authorities and other technical experts.
4. In so far as, invocation of extended period is concerned, his main submission is that the appellants have undertaken work only for naval yard which is under the Military Engineering Service (MES)/Ministry of Defence. It was also pointed out that MES have awarded several contracts for undertaking various works including civil construction and repair and maintenance etc., and when the issue of payment of service tax on such works undertaken for MES was taken up, the matter was referred to Ministry of Defence and subsequently, the registered contractors were informed that as the works undertaken were not for any commercial activities, service tax 5 Appeal No. ST/1889/2012 is not leviable. In view of the said position, the appellants were having bonafide belief that they had undertaken the work exclusively for MES/Naval Dockyard and hence not required to pay any service tax. They have relied on the judgment of the Co-ordinate Bench in the case of Indus Engineering and Construction Co. Vs CCE, Nagpur [2015 (40) STR 731 (Tri-Mumbai)] and Jai Bhawani Enterprises Vs CCE, Pune-I [2016 (46) STR 494 (Tri-Mum)]. He is also requesting for waiver of penalty in terms of Section 80.
5. Learned AR reiterates the findings of the Adjudicating Authority.
6. Heard both the sides and perused the records.
7. We find that in this case, it is to be decided whether the appellants were required to pay any service tax when they provided certain services to the Naval Authorities at Naval Dockyard or onboard Navy Vessels in relation to repair and maintenance etc., of the navy vessels. It is an admitted fact that the entire category of services proposed in the show cause notice were provided only to the Naval Authorities and were provided at Naval Dockyard. We find that different services being provided inside the port were brought under a comprehensive heading "Port Services" with effect from 01.07.2010. In order to avoid any unintended levy of service tax on certain activities, the Ministry clarified that various measures have been taken to mitigate any unintended effect of such change including issuance of notification and certain clarifications. We have perused Notification No. 31/2010-ST which examined certain services when provided within a port or an airport. This included, inter alia, repair of ships or boats or vessels belonging to the Government of India including Navy, but not belonging to Government under Public Sector Undertaking. If the Board's clarification dated 01.07.2010 is read in tandem with Notification No. 31/2010-ST, supra, it would be obvious 6 Appeal No. ST/1889/2012 that such repairs of ships or boats or vessels belonging to Navy, which were earlier exempted cannot be again brought under the tax net by virtue of amendment with effect from 01.07.2010. It would mean that such repairs were exempted prior to 01.07.2010 and also post 01.07.2010. We find that any repair, maintenance services which are not used for commercial activities such services cannot be taxable. The Naval Authority and Naval Dockyards are not engaged in any commercial activity. A fine distinction being made that Naval Dockyard is different than Port service is not proper as even the Naval Dockyard is very much part of Port and in any case, it would have no meaning as the intention of the Government was to provide exemption only to Naval ships which can be repaired in Port and not at Naval Docks then only such a view can be formed. We do not find that is the intention and the fine distinction between Naval Dock and Port for the purpose applying the Notification No. 31/2010-ST would not be appropriate. Therefore, when they are providing certain services to the Naval Dockyard which involves certain turn-key contracts for designing, supplying, installing and even commissioning, it would still be in relation to Naval Authorities. Therefore, all these services cannot be subjected to service tax. Therefore, on merit, the demand cannot sustain.
8. We note that appellants have taken the argument that they were primarily engaged in repair and maintenance pertaining to repair of Indian Naval Ships, as would be evident from various work orders. Therefore, having regards to the nature of the work these activities cannot be, on its own, construed as maintenance or repair service. In so far as, demand under the category of EIC service they had essentially undertaken the work in the premises of Naval Dockyard which involves certain fabrication and supply of pre-fabricated steel Pontoons which were placed by the Jetty/Berth and 7 Appeal No. ST/1889/2012 hence it cannot be construed as EIC activity. In so far as deduction under WCS they were primarily engaged in the work in the premises of Naval Dockyard. This activity was provision of two berthing pontoons for SPV at Naval Dockyard and the show cause notice has not clarified under which category or sub-clause under Section 65(105)(zzzzza) the demand was made. It was an act of mere placing a pontoon by the side of dock to prevent the damage to the ship and therefore such activity cannot be brought under the category of WCS. So far as TTA service, it was primarily undertaken in the premises of Naval Dockyard and they were not doing any separate service or inspection and it was the expert from the Naval Dockyard who was doing the same and their work was limited to provide certain weight at various points on the Transborder System. Thus, such activity cannot be brought under TTA.
9. There is another line of argument that it is an admitted position that they have also supplied material while performing said activity and therefore the same has to be classified as work contract service as there is a transfer of material involved and hence no service tax can be levied for the period prior to 10.06.2007. They have relied on a letter issued by the Military Engineering Services dated 20.02.2008, wherein, inter alia, it was clarified that the basic principle to be followed with regard to leviability of service tax is whether the building/civil structure is used or to be used for commerce or industry and therefore if the repair and maintenance services are linked with a building/civil structure which are not used for commercial activities such services cannot be taxable. In this regard, he relies on the decision of the Co-ordinate Bench in the case of National Refrigeration & Air Conditioning Engg Vs CCE, Ludhiana [2011 (23) STR 247 (Tri-Del)] para 12 is reproduced below for ready reference:
8 Appeal No. ST/1889/2012
12. We take note of the submissions made by the learned Advocate and examined the work orders. We have seen the one of the work order No. CEWAC-38/2002-
2003 wherein at Serial No. 1 to serial No. 26 there is mention of descriptions of items which have to be supplied by the appellant but serial No. 27 of the work order, it is clearly specified the labor charges for erection, commissioning and testing of the, the amount payable on this account is 5% of amount of the whole of the work order. This fact has not been examined by the adjudicating authority. We find that the appellants have placed on record the letter issued by the Military Engineering Services dated 20-2-2008 wherein paras 2 & 3, it has been clarified as under:
"2. Some of the formations intimated that Service Tax Deptt. in their area is insisting for the service tax on the service contracted by the MES for management, maintenance, repairs, erection and installation services. The matter was referred to the Ministry of Defense for the clarification, MOD has clarified the issue as under:
"As per the clarification given by MOF, the basic principle to be followed with regard to the leviability of service tax is whether the building/civil structure is used or to be used for commerce or industry. Therefore if the repair and maintenance services are linked with a building/civil structures which are not used for commercial activities, such service may not be taxable."
3. As per the clarification issued above if the repairs and maintenance services are linked with a building/structure which are not used for commercial activities such service may not be taxable. Formation concerned may apprise the Service Tax Deptt."
Similarly, in the case of Indus Engineering and Construction Co. Vs CCE, Nagpur, supra, it was held that repair work of shop floor in the Ordinance factory owned and controlled by the Government of India or Ministry of Defence, does not qualified under the category of 'commerce or industrial construction service' and accordingly no service tax is payable under the category of commercial or industrial construction services.
10. We also find force in the submission that the extended period cannot be invoked in the facts of the case as they had a bonafide belief that they were supplying goods, as also providing services to the Government/Navy and hence no service tax was payable. Therefore, we find that in the facts of 9 Appeal No. ST/1889/2012 the case, no deliberate or intentional evasion can be attributed to the appellant especially when there is no other cogent and substantive evidence on record to the effect that they have deliberately decided not to discharge service tax on such activities. Therefore, in the facts of the case, we find that extended period is not applicable. Therefore, demand beyond normal period is also not sustainable on this ground. We also find that in the facts of the case, penalty under Section 78 cannot be invoked as the norms required for imposing penalty under Section 78 is not available. Moreover, we find that the failure to pay service tax during the material time by the appellants was based on their bonafide belief and therefore there is a reasonable cause for non-payment of service tax and related non-compliance as alleged in the show cause notice. In view of the same, the provisions under Section 80 of the Finance Act can be applied for waiving penalty under Section 76 ,77 and
78.
11. Therefore, to sum up:
a) Since all services provided to Naval Authorities in relation to Naval Dockyard are in relation to Naval Vessels and Navy and therefore they cannot subjected to service tax as such Authorities are not engaged in any commercial or industrial activity. Reliance is also placed on the clarification dated 01.07.2010 and Notification No. 31/2010-ST.
b) The demand is also hit by time bar as clearly there was a bonafide belief regarding non-levy of service tax on such activity and there could not be any intent or deliberate attempt on their part to evade service tax.10 Appeal No. ST/1889/2012
c) Notwithstanding the above, the penalties are also not impossible under Section 76, 77 and 78 in terms of Section 80 of Finance Act 1994 in the given factual matrix.
12. Appeal allowed.
(Pronounced in the open court on 08.04.2026 ) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Jaya