Custom, Excise & Service Tax Tribunal
Hindustan Construction Company Ltd vs Commr Service Tax- Vii Mumbai on 11 September, 2020
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
SERVICE TAX APPEAL NO: 85553 of 2017
[Arising out of Order-in-Original No. 69/ST-VII/CD/2016 dated 28th December
2016 of Commissioner of Service Tax-VII, Mumbai.]
Hindustan Construction Company Ltd,
Hincon House, LBS Marg, Vikhroli (West)
Mumbai - 400 083 ...Appellant
versus
Commissioner of Service Tax
Mumbai - VII
16th Floor, Satara Plaza, Palm Beach Road, Vashi
Sector 19D, Navi Mumbai - 400 705 ...Respondent
APPEARANCE:
Shri Bharat Raichandani with Ms Tejal Patil, Advocates for the appellant Shri Bidhan Chandra, Additional Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE DR SUVENDU KUMAR PATI, MEMBER (JUDICIAL) FINAL ORDER NO: A/85815 / 2020 DATE OF HEARING: 28/08/2019 DATE OF DECISION: 11/09/2020 PER: C J MATHEW The appellant, M/s Hindustan Construction Company Ltd, were fastened with tax liability of ₹22,09,20,812 under section 73 of Finance ST/85553/2017 2 Act, 1994, along with applicable interest under section 75 of Finance Act, 1994, while subjected to penalty of like amount under section 78 of Finance Act, 1994 besides penalty of ₹ 10,000 under section 77 of Finance Act, 1994. The proceedings, culminating in order in-original no. 69/ST-VII/CD/2016 dated 28th December 2016 of Commissioner of Service Tax-VII, Mumbai, were initiated for alleged non-payment of tax liability on work undertaken for M/s Mumbai Metro One Pvt Ltd and M/s Delhi Metro Rail Corporation Limited during 2011-12 and 2012-13 as provider of 'commercial or industrial construction service', incorporated for tax by section 65(105)(zzzh) of Finance Act, 1994.
2. Learned Counsel for the appellant submits that their consistent claim of being provider of 'works contract service', taxable under section 65(105)(zzzza) of Finance Act, 1994. as the said transactions involved contractual supply of material along with service, were, with like consistency, discarded by the investigators and by the adjudicating authority. The stand of the tax authorities that the admitted exception of 'railways' was restricted to activities engaged in connection with railway undertakings of the Government is, according to him, erroneous. Likewise, he contends that, after 1st July 2012 and the introduction of 'negative list' regime in Finance Act, 1994, 'works contract service' has been accorded a special acknowledgement with special provision for valuation of taxable service. Furthermore, he argues that notification no. 25/2012-ST dated 20 June 2012 (generally ST/85553/2017 3 known as 'mega exemption') provides for exemption of '14. Services by way of construction, erection, commissioning or installation of original works pertaining to,-
(a) an airport, port or railways, including monorail or metro; .......' which, in the absence of any restrictive qualification thereof, entitles the impugned projects to the benefit arising therefrom. It was also pointed out that the said exemption, modified by the amendment effected through notification no. 9/2016-ST dated 1st March 2016 to '14......
(a) railways, excluding monorail and the metro;
Explanation-The services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro, where contracts were entered into before 1 March 2016, on which appropriate stamp duty, was paid, shall remain exempt.', would remain altered insofar as the impugned contracts are concerned.
3. We have also heard Learned Authorized Representative at length.
4. The decision of the Hon'ble Supreme Court in Commissioner of Central Excise, Kerala v. Larsen and Toubro Ltd [2015 (39) STR 913 (SC)] was not available to the adjudicating authority and the finding therein that all the component activities of 'works contract service', to ST/85553/2017 4 the extent taxable under separate entries prior to the new taxable service, were intended to cover service simpliciter. Consequently, the claim of the appellant to be provider of 'works contract service' cannot but be accepted.
5. The exclusion, whether under the separate entry or within the umbrella of the new taxable service, of 'railways' continued unabated. It would appear that the adjudicating authority was particularly impressed by the activity brought within the tax net to be ascertained on the basis of commerciality to bring it in conformity with the description of the taxable activity. Hence, according to him, the operation of the two recipients of service, being evidently commercial, did not merit the exclusion contained therein. For a better appreciation of the arguments, we deem it appropriate to record the particular finding the adjudicating authority that '3.7 The Term "Railways" mentioned in Section 65 (25b) for the purpose of exclusion from the scope of levy of Service Tax needs to be understood in the appropriate context and especially the scheme of taxation of services under the Finance Act, 1994. The objective to levy Service Tax under Section 65(105)(zzzp) read with Section 65 (25b) is clearly to levy Service Tax on Commercial or Industrial construction service. However, Commercial or Industrial construction of building or structure in respect of "railways" is excluded from the scope of the levy.
3.8...... It is the general principle followed in the levy of Service Tax that when Government undertakes commercial or ST/85553/2017 5 business activity, then they should be treated on par with similar activity undertaken by non-governmental bodies or any other persons for the purpose of taxation. This is essential to avoid competitive disadvantage to other similar non- governmental service providers and to ensure level playing field to all similar service providers.
3.9 Indian Railways under the Ministry of Railways is part of the Government of India and not on commercial basis. Therefore, Indian Railways cannot be compared or equated with MMO/DMRC, a Company formed under the Companies Act and is committed to run purely on commercial lines even if it is fully owned by the Government...." Railway" in the Indian Context is popularly known as "Indian Railways" and is more appropriately understood as Railways operated under the Indian Railways Act especially for the purpose of any special dispensations such as tax exemptions.'
6. We find no authority for these sweeping statements on the intent of Finance Act, 1994, the scope of the taxable service under which the levy has been confirmed or the status of railway operations in the country. In the context of the claim of the appellants, limited to the exclusion from the taxability otherwise attached to 'commercial or industrial construction service', we are not required to define the scope of the taxable service; the test of commercial imperative of the impugned activity is not in dispute. All that we are required to ascertain is the conformity of the operation of the recipients of the service to the excluded aspect of the taxable service. The adjudicating authority is far from correct in assuming that the dutiability devolving, under Customs Act, 1962 and Central Excise Act, 1944, on governmental transactions ST/85553/2017 6 by specific inclusion in the statutes is, similarly, present in Finance Act, 1994. Nor does the reason ascribed by him as the prompting for such inclusion in the commodity tax statutes find resonance in any decision, circular or elucidation. Furthermore, to the extent of our understanding, the operations, or its popular designation as 'Indian Railways', of government-run Railways is not stripped of its commercial mantle. A stray reference to the statute governing railway operations does not establish the postulate of such definition to be applicable in every special dispensation.
7. The definitions in the statute governing Railways is intended for fencing in the operational component to such objects as are included in that law. It is not appropriate to place reliance on such definitions save under the express authority of Finance Act, 1994. It is also not correct to contend that the coverage of the statute governing Railways is limited to government Railways; no such distinction is drawn except for the purposes of jurisdiction of the railway authorities specified therein for the governance of the Railways belonging to the government.
8. In the absence of any qualification for the 'railway' incorporated in the exclusion component of the taxable service, any railway, irrespective of ownership, is covered. Within the scheme of 'negative list', there is a specific exemption for metro or monorail within the broader exclusion available to Railways. The exclusion of 'metro' or 'monorail' has occurred only after the period of dispute and therefore ST/85553/2017 7 does not concern us.
9. The decision of the Tribunal in Afcons Infrastructure Ltd v. Commissioner of Central Excise, Mumbai-II [2015 (38) STR 194 (Tri- Mumbai)] holding that '3.3 ...... From the above decision of the Hon'ble Delhi High Court, it is clear that DMRC is a "railway"' as defined in section 2 (31) of the Railways Act, 1989 and, therefore, the ratio of the above judgement will apply equally in case of service tax liability also. Consequently, the finding that '3.4.....From this also, it is clear that DMRC is a 'railway' as defined under the Railways Act, 1989 and, therefore, the conclusion drawn by the adjudicating authority that they are a different entity and Railways as defined under Section 65 (25b) read with Section 65 (105) (zzzp) of the Finance Act, 1994 is not a legally acceptable proposition.
xxxx
7. It is also a well-known fact that the Indian Railway itself is an organisation, which is meant to run on commercial basis. Recognising these facts, there is a provision for a separate Railway-Budget to be presented before the Parliament and wherever there is a surplus, the Railways declared a dividend and pass it on to the Consolidated Fund of India. Therefore, the argument that only DMRC is run on commercial basis and not Indian Railway, is not an acceptable proposition. In view of the specific exclusion of 'railways' from commercial and industrial construction service, the question of imposing any ST/85553/2017 8 Service Tax on the Railways run by the DMRC does not arise at all.' may be usefully referred to in the context of eligibility for exclusion of services rendered to DMRC and Mumbai Metro One.
10. In relation to the taxability after 1st July 2012, it is the contention of Learned Authorized Representative that the entries pertaining to 'railways' and to 'metro, monorail or tramway' are distinct in section 66D (o) of Finance Act, 1994 implying that reference to 'railways' did not include the latter in the exclusion provisions. We are not entirely convinced by this proposition. The transformed scheme of taxation under the 'negative list' regime envisaged a hierarchy that extends from absence of coverage under Finance Act, 1994, through the exclusion from taxable service in section 65B of Finance Act, 1994 and inclusion in section 66D of Finance Act, 1994 to exemption by notification under section 93 of Finance Act, 1994 and each of these is mutually exclusive with its own built-in imperviousness to cross-overs. The provisions referred to by Learned Authorized Representative pertain to services extended by the different forms of rail transport; the present dispute pertains to the taxability of services rendered to operators of such different forms of rail transport. We are not convinced that the alternative proposition is relevant.
11. The exemption afforded by notification no. 25/2012-ST dated 20th June 2012 extends to all activities that have been filtered through ST/85553/2017 9 the statutory hierarchy referred to supra to remain taxable but for exercise of powers under section 93 of Finance Act, 1994. Therein, the specific escapement afforded for services rendered in connection with construction of railways is. by inclusion, extended to construction of monorail and metro. We find no incongruity here. Under the Railways Act, 1989, the monopoly of establishing the rail networks vests with the 'Indian Railways' and any other operator functions within a policy pertaining to outsourcing of such activities save where the law, for particular objectives, makes an exception. One such is the metro operations for which specific enactments enable other operators without derogating from the status of being 'railway' and, more often than not, by enterprises that are jointly owned by the Central and State Governments. Even where the ownership does not vest in the government, the operation of such railways is under special enactment which are not excluded from the sphere of the expression 'railways'.
12. In view of the above, we find that the impugned order has erred on facts, inferences and findings. Accordingly, we set that aside to allow the appeal.
(Order pronounced in the open court on 11/09/2020) (Dr. Suvendu Kumar Pati) (C J Mathew) Member (Judicial) Member (Technical) */as