Telangana High Court
The Commissioner Of Customs Central ... vs M/S Nagarjuna Consltruciton Co. Lt D., ... on 12 November, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
CENTRAL EXCISE APPEAL NO.04 OF 2011
JUDGMENT:(per Hon'ble Sri Justice Narsing Rao Nandikonda) This appeal is filed by the appellant-respondent under Section 35G of the Central Excise Act, 1944 (for short, 'the Act, 1944') against the Final Order No.819 of 2010, dated 17.05.2010 passed in Appeal No.AT/73/2008 by the learned Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, FKCCI-WTC Building, K.G. Road, Bangalore (for short, 'CESTAT').
2. Heard Sri A.Rama Krishna Reddy, learned Senior Standing Counsel for Central Excise, appearing for the appellant and Sri Vedula Srinivas, learned Senior Counsel representing Smt.Chitralekha, learned counsel appearing for the respondent.
3. The brief facts of the case are that M/s. Nagarjuna Construction Company Limited is having its Registered Office at Nagarjuna Hills, Hyderabad, (for short, 'NCCL') and obtained Centralized Registration with Hyderabad-II Commissionerate, Customs, Central Excise & 2 PSK,J&NNR,J cea_04_2011 Service Tax, for the purpose of discharging its service tax liability for certain taxable services under the Finance Act, 1994 (for short, the Act, 1994') provided at various places all over India under Service Tax Registration No.AAACP4709NST001.
4. It is stated that NCCL is registered with the department as provider of taxable service falling under the category 'Commercial or Industrial Construction Services', 'Consulting Engineers Services', 'Erection, Commissioning or Installation Services' etc. The NCCL was awarded contract for laying of long distance pipelines in the State of Gujarat under a contract awarded to them by M/s. Gujarat Water Supply and Sewerage Board (GWSSB). Basing on the Intelligence gathered by the Directorate General of Central Excise Intelligence (DGCEI), Ahmedabad Zonal Unit, Ahmedabad, it was found that the respondent was not paying appropriate Service Tax on the said Taxable Services and an inquiry was initiated and investigation was conducted by the DGCEI, Ahmedabad Zonal Unit.
5. It is further stated that basing on the said findings of the inquiry, a Demand-cum-show cause notice in 3 PSK,J&NNR,J cea_04_2011 F.No. DGCEI /AZU /12(4)27/ 2005- Nagarjuna, dated 30.07.2007 was issued by the Additional Director General, DGCEI, Ahmedabad Zonal Unit to the assessee, proposing total demand of Rs.7,15,36,082/- towards the Service Tax payable by the assessee. But, the same was not paid by the assessee on the said Taxable Service of CICS during the period 16.06.2005 to 31.03.2007 under Section 73 of the Act, 1994 by invoking the extended period of five years as per proviso to sub section (1) of Section 73 of the Act, 1994. A show cause notice was issued proposing charging of interest on the said tax amount in terms of Section 75 of the Act, 1994 and also penalty under Sections 76 and 78 of the Act, 1994.
6. It is stated that the said show cause notice was answerable to the Commissioner, Customs, Central Excise & Service Tax, Hyderabad-II Commissionerate, being the Jurisdictional Adjudicating authority. It is further averred that the Commissioner, Customs, Central Excise and Service Tax, Hyderabad-II Commissionerate, Hyderabad vide Order-
in-Original No.19/2008-ST, dated 31.10.2008 confirmed the demand of Service Tax of Rs.7,15,36,082/- under Section 4 PSK,J&NNR,J cea_04_2011 73(2) of the Act, 1994 along with interest under Section 75 of the Act, 1994 and imposed penalties (i) at the rate of two percent per month on the service tax amount, starting with the first day after due date till the date of actual payment, however not exceeding the service tax payable, in terms of Section 76 of the Act, 1994 and (ii) Rs.8 crores penalty under Section 78 of the Act, 1994, however, the same being subject to the relief of reduction to 25% of the Service Tax so determined as provided in terms of the first proviso to Section 78 of the Act, 1994.
7. Aggrieved by the Order-in-original, the assesse filed an appeal in Appeal No.ST/731/2008 before the CESTAT, South Zonal Bench, Bangalore. The learned Tribunal vide Final Order No.819/2010, dated 17.05.2010 set aside the impugned order and allowed the assessee's appeal. The Tribunal, further held that the services provided by NCCL in relation to the above contract with GWSSB were not chargeable to Service Tax under Commercial or Industrial Construction Service on the grounds, inter alia, contending that the activities of GWSSB would not come within the expression 'Industry' and 5 PSK,J&NNR,J cea_04_2011 that the pipelines in question were not laid to facilitate any commercial or industrial activity. Aggrieved by the same, the present appeal was filed by the Authority amongst others on the following grounds:
(i) The learned CESTAT has erred in holding that construction of pipelines for M/s. GWSSB by the assessee i.e. M/s. RCCL would not fall within the scope of the Taxable Services of Commercial or Industrial Construction Service (CICS) and not chargeable to Service Tax on the ground that M/s.
GWSSB is providing drinking water to the people within its jurisdiction and the same is not Commercial or Industrial Activities.
(ii) It is also stated that as per documentary evidence at paragraph No.4.2 of the show cause notice, 'the pipelines got constructed by M/s.GWSSB were used for transportation of water from Narmada Dam and its Canals. The water was purchased from M./s. Sardar Sarovar Narmada Nigam Ltd., (M/s.SSNNL) as well as from M/s.Gujarat Water Infrastructure Ltd, (M/s.GWIL) and sold to the Industries, Private institutes, Municipal Corporations, Municipalities and Gram Panchayats. The M/s.GWSSB had used the pipeline 'for Commercial or industrial purposes' and it was also recorded at paragraph No.4.6 of the notice and referred at paragraph No.16 of the Order-in-Original that GWSSB are purchasing water from M/s. SSNNL and M/s.GWIL at cheaper rate viz., Rs.1/- per KL (Kilo litre) and selling the same at the rate of Rs.15/- per Kilo litre to 6 PSK,J&NNR,J cea_04_2011 industries, Rs.12/- per Kilo litre to private institutions, Rs.6/- per Kilo litre to Corporations, Rs.4/- per Kilo litre to municipalities and Rs.2/- per Kilo litre to Gram Panchayas and the said factual position is not denied or disputed by either of the parties.
(iii) It is further case of the appellant that 4.6 of the show cause notice also describes the fact that M/s. GWSSB are in an industry doing systematic activity of purchase and distribution of goods/services (water). It has also been delineated that the work relating to actual supply of water to the households is handled by Gram Panchayats, Nagar Palikas and Urban Local Bodies and not by GWSSB are actually using the pipelines constructed by NCC for transporting the water purchased from SSNNL and GWIL and selling the same to the gram panchayats, Nagarpalikas and urban local bodies.
(iv) It is further stated that the water purchased by them is sold at much higher rate to the industries and private institutes and therefore, the service provided by them is Commercial or Industrial in nature.
(v) It is also further averred that as per Webster's ninth new Collegiate Dictionary, a commercial activity is 'exchange or buying and selling of commodities on a large scale involving transportation from place to place.' Further, in the instant case, it is neither un-deniable nor disputed that the water purchased and sold by M/s.GWSSB is transferred from one place to another through the pipelines. As such, pipelines 7 PSK,J&NNR,J cea_04_2011 constructed by M/s.NCCL for M/s.GWSSB are clearly identifiable as being used, occupied or engaged for the purposes of commerce or industry.
(vi) It is further averred that the Tribunal except came to the conclusion that M/s.GWSSB activities are not for commerce or commercial, failed to give reason as to how the activity of 'commerce' or in what manner or form, the said activity is distinguishable from a commercial activity. It is further stated that the as the Tribunal order is based on unsupported conclusions and unreasoned findings, the same is bad in law.
(vii) It is further stated that the Tribunal failed to appreciate, rather totally disregarded the very relevant facts before it, showing without any dispute or denial whatsoever that M/s. GWSSB;s activity is clearly within the definition of 'Industry' as per the Industrial Disputes Act, 1947 but in fact M/s. GWSSB was registered under the Act in view of its activity being covered therein, were not covered within 'sovereign functions' of the State and hence, they come within definition of industry pas per the Industrial Disputes Act, 1947, and accordingly, the pipelines constructed by the assesse for GWSSB are identifiable as those used occupied or engaged in industry and hence, services provided in relation to such construction fall within the definition of 'Commercial or Industrial Construction Service.
(viii) The Tribunal had held that 'production of drinking water to the community in Gram Panchayas and Nagar Panchayats in the State on recovery of user charges at a highly subsidized rate does not come 8 PSK,J&NNR,J cea_04_2011 within the expression 'industry' used in the definition of the Taxable Entry in question'. It is stated that the finding of the Tribunal is ambiguous, unreasoned and without any basis whatsoever and on one hand it also appears to be a unilateral assumption and application of inapplicable meaning to words in the statute which is not legally permissible.
(ix) Further, the Tribunal relied on the decisions in Indian Hume Pipe Co. Ltd. v. CCE, Trichy 1 and Lanco Infratech Ltd., v. CST, Hyderabad 2 and both the decisions are in applicable to the facts of present case.
(x) Further, the Tribunal also relied on the decision in Diebold Systems and held that in the instant case, a composite contract has been vivisected and part of it rendered liable to service tax, contrary to the ratio of the said decision. It is also stated that first of all the provisions of Act, 1994 read with Notifications provide exemption by way of 'abatement' to a notional portion excluding material cost, do not bar vivisected of composite contracts and charging them to service tax and therefore, the decision of Diebold System is no longer res integra in view of Tribunal's larger Bench decision in Alstom Projects's case by way of abatement do not bar vivisected of composite contracts.
12008 (12) STR. 363 (Tri-Chennai) 2 2009-TIOL-2139-CESTAT-Bang 9 PSK,J&NNR,J cea_04_2011
8. In view of the above grounds and facts & circumstances of the case, the substantial questions of law that arise for consideration in this appeal are as follows:
"(1) Whether the activities of M/s.GWSSB and its status as an 'Industry' under Industrial Disputes Act, 1947 falls within the meaning of 'Industry' or 'Industrial Activity' as defined under 'Commercial or Industrial Construction Service' in Section 65 (25b) of Chapter V of the Finance Act, 1994? (2) Whether the usage of pipelines laid/constructed by M/s. Nagarjuna Construction Co. Ltd., by M/s. GWSSB for transporting the traded water, falls within the scope of the expressions 'used, occupied, or engaged, primarily in commerce of industry or work intended for commerce or industry' as specified in the above mentioned definition of Commercial or Industrial Construction Service? (3) Whether CESTAT was justified in treating the activities of GWSSB as not being commercial or industrial activities or that the usage of Pipelines laid by M/s.NCCL were not for use in commerce or industry?"
9. The main grievance of the appellant i.e., Revenue before this Court is that the learned Tribunal having considered that there was a contract awarded to NCCL in respect of laying of long distance pipelines in the State of Gujarat. It is stated that GWSSB was in the business of purchase and sale of water and the same did not constitute a social service. It is also further submitted that the subject activity may be covered under works contract service w.e.f.
10PSK,J&NNR,J cea_04_2011 01.06.2007, however, during the material period, the same was covered under 'Commercial or Industrial Construction Service' under Section 65 (25b) of the Act, 1994, which reads as follows:
"Commercial or industrial construction service" manes-
(a) Construction of a new building or a civil structure or a part thereof; or
(b) Construction of pipeline or conduit; or
(c) Completion and finishing services such as glazing, plastering, painting, floor and wall tilling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure' or
(d) Repair, alteration, renovation or restoration or, or similar services in relation to, building or civil structure, pipeline or conduit; which is -
(i) Used , or to be used, primarily for; or
(ii) Occupied, or to be occupied, primarily with; or
(iii) Engaged, or to be engaged, primarily in, commerce or
industry, or work intended for commerce or industry, but does not conclude such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;]
10. It is an admitted fact that contract was awarded to NCCL by GWSSB or its Board for the purpose of laying of long distance pipelines in the State of Gujarat for the purpose of drinking water supply by GWSSB which purchased water from M/s. Sardar Sarovar Narmada Nigam Limited (for short, 'SSNNL' as well as from M/s. Gujarat 11 PSK,J&NNR,J cea_04_2011 Water Infrastructure Limited (for short, 'GWIL') through pipelines which are got constructed by them. It is also an admitted fact that GWSSB has been using the said pipelines for drawing water supplied by SSNNL and GWIL purchased by GWSSB at the rate of Rs.1/- per 1000 Kilo litres. It is also an admitted fact that GWSSB used to supply the said water to households, which is handled by Gram Panchayats, Nagar Panchayats, Local Bodies and so also to the Industries, private institutions, Municipalities and Municipal Corporations, for higher rates i.e., Rs.6/- per 1000 liters to Municipalities Rs.4/- per 1000 litres to other institutions, at the rate of Rs.12/- per 1000 litres and to industrial customers at the rate of Rs.151/- per 1000 liters. The same is not disputed by GWSSB or NCCL.
11. The present dispute which arose was in respect of non-payment of Service Tax by NCCL on the ground that the said service tax and Education Cess payable by them works out to Rs.7,15,36,082/- and NCCL did not pay any service tax on the said services. Thus the net payable Service Tax and Education Cess amounting to Rs.7,15,36,082/- is recoverable from NCCL under Section 73 of the Act, 1994, 12 PSK,J&NNR,J cea_04_2011 which lead to giving of show-cause notice proposing demand of Rs.7,15,36,082/- along with interest under Sections 76 and 78 of the Act, 1994. Section 73 of the Act, 1994 reads as follows:
"73. Value of taxable services escaping assessmen:- If--
(a) The Central Excise Officer has reason to believe that by reason of omission or failure on the part of the assessee to make a return under Section 70 for any quarter or to disclose wholly and truly all material facts necessary for his assessment for any quarter, the value of taxable service for that quarter has escaped assessment or has been under assessed, or
(b) Notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Central Excise Officer has, in consequence of information in his possession, reason to believe that the value of any taxable service assessable in any quarter has escaped assessment or has been under-assessed. he may, in cases falling under clause (a), at any time within five years, and in cases falling, under clause (b), at any time within six months from the date for filing the return, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 70 and may proceed to assess or re-assess the value of taxable service, and the provisions of this Chapter shall, so far as may be, apply, as if the notice were a notice issued under that sub-section"
The said assessment order was confirmed by the Commissioner, Customs, Central Excise & Service Tax, Hyderabad, which action assailed by the assessee before the Tribunal wherein the Tribunal held that the services provided by NCCL is in relation to the above contract with 13 PSK,J&NNR,J cea_04_2011 GWSSB and were not chargeable to Service Tax under Commercial or Industrial Construction Service on the said ground, inter-alia and that the pipelines in question were not laid to facilitate any commercial or industrial activity.
12. As seen from the backgrounds and on perusal of the facts, now it is necessary to further go into the aspects whether the said activity of GWSSB would come within the definition of 'Industry' or 'social service'. The said supply of water to GWSSB through the pipelines laid down by NCCL.
Though admittedly, the said water was purchased by GWSSB and being sold at different rates which also includes Gram Panchayats and also Nagar Panchayats by selling the same to various farmers, the question is "whether the NCCL is liable to pay Service Tax and Education Cess as per provisions of Section 73 of the Act, 1994?"
13. Learned counsel for the appellant and the learned counsel for respondent have pointed out various aspects.
Admittedly, the very construction of pipelines and conduits was introduced with effect from 16.06.2005. The Commercial or Industrial Construction Service is defined under Section 65 (25b) of the Finance Act, 2005.
14PSK,J&NNR,J cea_04_2011 a. "Service tax on the services relating to " Construction of pipelines and conduits" was introduced with effect from 16.06.2005. The "Commercial or Industrial Construction Service" is defined under Section 65 (25b) of the Finance Act, 2005 as under:
b. 'Commercial or Industrial Construction Service' means:
Construction of a new building or a civil structure or a part thereof ; or
2. Construction of pipeline or conduit;
3. Completion or finishing services such s glazing, plastering, painting, floor and wall tilling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
4. Repair, alteration, renovation of or similar services in relation to building or civil structure, pipeline or conduit, which is :
5. Used, or to be used, primarily for; or
6. Occupied, or to be occupied, primarily with; or
7. Engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminal, bridges, tunnels, and dams."
14. It is evident from the said definition that construction of pipelines is Taxable Service. Admittedly, under the normal circumstances construction of pipelines by service provider would fall definitely under Commercial concern. There cannot be any dispute regarding the same.
Construction of pipeline would come well within the 15 PSK,J&NNR,J cea_04_2011 definition of 'Commercial Industrial Construction Service.' However, what needs to be appreciated is whether the services which are rendered by the assessee to GWSSB would come within the said definition or not.
15. It is contended by learned counsel for the respondent that though the same is taxable subject to condition that the said service provider to whom said pipelines were laid must be a 'Commercial Construction.' If the GWSSB is Commercial concern, NCCL is bound to pay the Service Tax as the same is taxable, the only exemption is that if the same is not a commercial establishment, the question of payment of the service tax by the NCCL does not cover the payment of tax by the NCCL. The question which arises under the present case is whether the said service rendered by GWSSB would come within the meaning of 'Industry' or 'social service'. If it is held that the said service is social service or sovereign service, obviously no service tax is claimed by the Department from GWSSB. Once, GWSSB is not being charged with service tax, the question of payment of tax by NCCL does not arise.
16PSK,J&NNR,J cea_04_2011
16. In view of said submissions made by respondents, it has to be seen that whether GWSSB is covered by definition of 'Industry' under Industrial Disputes Act, 1947?
(1) Whether the pipelines constructed by NCCL for GWSSB were used for commercial or industrial purposes or for part of soverign function?
(2) Whether the activities of GWSSB involve purchasing water from other entities and selling it to various consumers, including industries and municipalities at different rates amounts to commercial activities?
(3) There was also no material to show whether the Department had taxed the GWSSB rather as per information they don't tax GWSSB, and if that be so now can the respondent be taxed?
17. Admittedly, GWSSB is not supplying water to the household alone rather after purchasing water from SSNNL GWIL are selling the same to the Industries, private industries, municipal corporations, municipalities, Gram Panchayats etc also.
18. The functions of supply of the water by the water and sewerage board as per the Hon'ble Supreme Court which recognises the water as a part of the right to life under Article 21 of the Constitution of India. It is a constitutional obligation of the Government or the State to provide water to 17 PSK,J&NNR,J cea_04_2011 its citizens. Since the same is for the use of human life, which takes precedence over all the other uses, thus is called as sovereign function. Whereas when it comes to the Boards which have a regulatory role in controlling and managing water resources, promoting conservation and protecting sources which are essential functions of the said boards. Generally, for purpose of maintenance and Recovery of cost of infrastructure, therefore, they are performing sovereign functions.
19. The water boards generally charge tariffs and fees and which is also called as cost recovery mechanism including the charges for use and consumption and in providing the connections. The board often charges different rates as stated above for domestic, commercial and industrial uses, basing on the type of the consumer and its commercial activity. It also enters into the contractual agreements for large scale and non-domestic supplies and also enters into the formal agreements with the board pursuant to their regulatory operational function.
20. Though the boards perform the part of the sovereign function as provided under Article 21 of the 18 PSK,J&NNR,J cea_04_2011 Constitution of India that it is the Fundamental Constitutional Obligation on the part of the State to provide the pure drinking water to all the citizens. Taking it from the perception of the same, the functions of the board in respect of supply of the said water to its citizens would take the nature of the sovereign function.
21. In the judgment of the Hon'ble Supreme Court in Bangalore water supply and sewerage board v. A. Rajappa's case where the water sewerage board was considered as an 'industry' under the definition of Industrial Disputes Act while dealing with the relationship with that of the employees and in respect of the jurisdiction of the labour Court. Taking into the aspect of the judgment of the larger bench of the Hon'ble Supreme Court wherein the Hon'ble Supreme Court rendered the judgment in 5 : 2 ratio and held that the Bangalore sewerage water board would come within the definition of 'industry'. Besides that as there is a commercial aspect involved in performance of the sovereign function of providing the water as provided under the constitution. Even though the judgment of the Gujarat High Court in Gujarat water supply sewerage board has held that 19 PSK,J&NNR,J cea_04_2011 the Gujarat's sewerage board would come within the definition of an 'Industry' in the context of applicability of Industrial Act and maintainability of matter before the Labour Court.
22. In Gujarat Water Supply and Sewerage Board v.
Pagi Malabhai Andarbhai, it was held as follows:
7. In the matter of Bangalore Water Supply and Sewerage Board v. A. Rajappa and Others, the Constitution Bench of the Apex Court has held that the Bangalore Water Supply and Sewerage Board is an industry within the meaning of Section 2 (j) of the ID Act, 1947. In case of COIR BOARD ERNAKULAM KERALA STATE AND ANOTHER v. INDIRA DEVAI P.S. AND OTHERS, in [2000 SCC 120], larger bench of the Apex Court has considered whether reconsideration of the decision in Bangalore Water Supply and Sewerage Board (supra) would require reconsideration or not and ultimately request for reconsideration of the said decision was rejected. Therefore, in view of the decision given by the Apex Court in the matter of Bangalore Water Supply and Sewerage Board Vs. A. Rajappa and Others, , the petitioner GUJARAT WATER SUPPLY AND SEWERAGE BOARD is also an industry within the meaning of section 2(j) of the Industrial Disputes Act, 1947. The decision of the apex court in the matter of Bangalore Water Supply and Sewerage Board Vs. A. Rajappa and Others, is conclusive and binding to the petitioner.
8. Earlier, in the matter of GUJARAT WATER SUPPLY AND SEWERAGE BOARD versus HIRABHAI BHURABHAI, reported in 2002 (2) GLH 717, this court had an occasion to consider the question as to whether the petitioner GUJARAT WATER SUPPLY AND SEWERAGE BOARD is an industry or not. This Court, after considering the decision of the Constitution Bench of the apex court in the matter of Bangalore Water Supply and Sewerage Board Vs. A. Rajappa and Others, and also after considering the activities carried out by the petitioner, has held that the petitioner is an industry within the meaning of section 2(j) of the ID Act, 1947. The Board is not having power to function any sovereign function. The powers to function any 20 PSK,J&NNR,J cea_04_2011 sovereign function are enjoyed only by the State of Gujarat. No other body or person or corporate body are having such powers. The scarcity work wherein the State of Gujarat has declared any project or work of relief with a view to help the affected citizens, then only in such cases where the State has performed the work during the scarcity has been considered to be the sovereign function and not covered by the provisions of the ID Act, 1947 which is not so in this case. In this case, first of all, the petitioner has not raised such plea before the labour court. Even if it is believed that such plea has been raised by the petitioner before the labour court, considering the activities of the board, the petitioner board is having their own systematic activities organized by the cooperation between the employer and the employee for the production and/or distribution of the goods and services calculated to satisfy the human wants and wishes. Therefore, prima facie, there is an industry in that enterprise. The apex court has observed as under in the matter of Bangalore Water Supply and Sewerage Board Vs. A. Rajappa and Others, in para 161 of the said judgment:
"161. ''Industry'', as defined in Sec, 2 (j) and explained hi 1. ''Industry'', as defined in Sec, 2 (j) and explained hi Banerji, has a wide import.
(a) Where (i) systematic activity, (ii) organized by cooperation between employer and employee, (the direct and substantial element is chimerical) (iii) for the production and/or distribution of goods and services calculated to satisfy human wants and wishes (not spiritual or religious but inclusive of material things or services geared to, celestial bliss e.g. making, on a large scale, prasad or food), prima facie, there is an ''industry'' in that enterprise.
(b) Absence of profit motive or gainful objective is irrelevant, be the venture in the public, joint private or other sector.
(c) The true focus is functional and the decisive test is the nature of the activity with special emphasis on the employer-employee relations.
(d) If the Organisation is a trade or business, it does not cease to, be one because of philanthropy animating the undertaking.
III. Application of these guidelines should not stop short of their logical reach by invocation of creeds, cults or inner sense of incongruity or other sense of motivation for or resultant of the economic operations. The ideology of the Act being industrial peace, regulation and resolution of industrial disputes between employer and workmen, the range of this statutory ideology must inform the reach of the statutory definition. Nothing less, nothing mom.
(a) The consequences are (i) professions, (ii) Clubs (iii) educational institutions (iiia) co-operatives, (iv) research institutes (v) charitable projects and (vi) other kindred adventures, if they fulfil the triple tests listed in I (supra), cannot be exempted from the scope of sec. 2(j).
21PSK,J&NNR,J cea_04_2011
(b) A restricted category of professions, clubs, cooperatives and even Gurukulas and little research labs, may qualify for exemption if in simple ventures substantially and going by the dominant nature criterion substantively, in single simple ventures, no employees are entertained but in minimal matters, marginal employees are hired without destroying the nonemployee character of the unit.
(c) If in a pious or altruistic mission many employ themselves, free or for small honoraria, or likely return mainly by sharing in the purpose or cause, such as lawyers volunteering to run a free legal services clinic or doctors serving in their spare hours in a free medical centre or ashramites working at the bidding of the holiness, divinity or like central personality and the services are supplied free or at nominal cost and those who serve are not engaged for remuneration or on the basis of master and servant, relationship, then, the institution is not an industry even if stray servants, manual or technical, are hired. Such eleemosynary or like undertakings alone are exempt-not other generosity, compassion, developmental passion or project.
9. Relying upon the decision of the apex court in the matter of Bangalore Water Supply and Sewerage Board Vs. A. Rajappa and Others, , this court has held as under in para 5 of the judgment in the matter of GUJARAT WATER SUPPLY AND SEWERAGE BOARD versus HIRABHAI BHURABHAI, reported in 2002 (2) GLH 717:
"I have considered the submissions of the learned advocates for the parties. No doubt in written statement, the petitioner board has raised contention that the petitioner board is not an industry within the meaning of section 2(j) of the Industrial Disputes Ac,1947.NO oral evidence has been led by the petitioner board to justify this contention before the labour court. However, the apex court has considered this question in case of Bangalore Water Supply and Sewerage Board v. A. Rajappa & Ors. , reported in AIR 1978 548. The decision, referred above is in respect of Bangalore Water Supply and Sewarage Board, whereas, the present petition is filed by the Gujarat Water Supply and Sewerage Board. The names of these two authorities itself suggests that activities of these two corporate authorities can be almost similar and, therefore, the ratio laid down by the Apex Court in case of Bangalore Water Supply Case reported in AIR 1978 548 is certainly applicable to the facts of this case also. The decision of the Apex Court in case of Coir Board, Ernakulam, Cochin and Another Vs. Indira Devi P.S. and Others, to the Hon''ble the Chief Justice of the Supreme Court of India in case of Coir Board Ernakulam Kerala State and another v. Indiradevi PS and Others which is reported in 2000 SC 120. Relevant observations made in paras 1 and 2 are as under:
"1. We have considered the order made in Civil Appeals Nos. 1720-21 of 1990. The judgment in Bangalore Water Supply & Sewerage Board V/s. A. Rajappa was delivered almost two decades ago and the law has since been amended pursuant to that judgment though the date of enforcement of the amendment has not been notified.
2. The judgment delivered by seven learned Judges of this Court in Bangalore Water Supply Case does not, in our opinion, require any 22 PSK,J&NNR,J cea_04_2011 reconsideration on a reference being made by a two-Judge Bench of this Court, which is bound by the judgment of the larger Bench."
In view of the decision as referred above, the apex court has come to the conclusion that said decision of the Bangalore Water Supply and Sewerage Board does not require reconsideration on Reference being made by the two Judge of the Apex Court which is bound by the judgment of the Larger Bench. Therefore, in above view of the matter, the issue is well settled that Water Supply and Sewerage Board - petitioner herein is termed as an industry within meaning of Section 2(j) of the I.D. Act, 1947."
10. Considering the aforesaid decision, the petitioner is an industry within the meaning of section 2(j) of the ID Act, 1947. In the aforesaid decision, plea was raised by the petitioner therein that it is not an industry before the labour court but the plea was not substantiated by it by producing necessary evidence to that effect whereas in this case, no such plea has been raised by the petitioner before the labour court and it has been raised by it for the first time before this Court that the activities carried out by it are the sovereign function and, therefore, ID Act, 1947 would not apply to it. However, considering the ratio of the supreme court judgment in the matter of Bangalore Water Supply and Sewerage Board (supra) and also considering the aforesaid decision of this court itself in the matter of the present petitioner itself, and also considering the activities carried out by the petitioner board which are satisfying the tests and requirements as laid down by the apex court in the matter of Bangalore Water Supply and Sewerage Board (supra), according to my opinion, the petitioner board is squarely covered by the ratio of the said decisions and is an industry within the meaning of section 2(j) of the ID Act, 1947 and, therefore, the provisions of the Industrial Disputes Act, 1947 would apply to it. Naturally, therefore, it is necessary for the petitioner board to comply with the mandatory provisions of the ID Act compliance of which is necessary before retrenching or terminating the services of any workman and the non compliance of which would render such retrenchment or termination void ab initio.
11. It is also necessary to be noted that in entire written statement filed by the petitioner board before the labour court in reply to the statement of claim of the workman, the petitioner board has not raised any contention that it is not an industry within the meaning of section 2(j) of the ID Act, 1947; the ID Act, 1947 is not applicable to it. Not only that, the petitioner has also not raised a contention before the labour court that the scarcity work done by the petitioner board is a sovereign function and, therefore, the provisions of the ID Act, 1947 would not be applicable to it. The petitioner is raising such contention before this Court for the first time. Mere mention of the scarcity work wherein the workman worked would not convert the scarcity work into the sovereign function of the State, performed by the petitioner. The petitioner board is not a State of Gujarat to perform the sovereign function of the State within the jurisdiction of the State and that is not the function of the petitioner board. It makes lot of difference to perform sovereign function by any other authority which is otherwise not empowered for the same in law. In written statement, except the 23 PSK,J&NNR,J cea_04_2011 reference of the appointment of the workman in scarcity work, no such contention has been raised by the petitioner that the provisions of the ID Act, 1947 are not applicable and that the scarcity work is not covered by the definition of the term industry within the meaning of section 2(j) of the ID Act, 1947; that the scarcity work performed by the petitioner is the sovereign function. No such contentions were raised by the petitioner before the labour court in its written statement. Not only that, during the course of hearing before the labour court, no such submission has been made by the advocate for the petitioner first party before the labour court. Bare perusal of the award in question makes it clear that no such submission has been made by the petitioner before the labour court at the time of hearing. Bare perusal of the written statement filed by it before the labour court makes it clear that no such contention has been raised by the petitioner before the labour court in its written statement and, therefore, the labour court was not able to deal with and decide such contention. Therefore, in absence of such contentions and submissions, the labour court has dealt with the question that the workman has completed more than two years'' continuous service which is not in dispute and before terminating the services of the workmen, legal and mandatory provisions of the Industrial Disputes Act, 1947 were not complied with by the petitioner and that is how the termination was found to be bad in law by the labour court. Now the question is that once when no such contentions were raised by the petitioner before the labour court, whether the petitioner is entitled to raise such contentions before this Court for the first time ? This aspect has been examined by the apex court in the matter of Krishi Utpadan Mandi Samiti v. Arvind Chaubey, (2002) 9 SCC 549 . In the said matter, the plea that the employer is not an industry was not taken before the tribunal. It was held by the apex court that it could not be canvassed higher up. In para 2 of the said judgment it has been observed by the apex court as under:
"2. Learned senior counsel for the appellant contended that the appellant Mandli Samiti is not an ''industry'' governed by the provisions of the UP Industrial Disputes Act, 1947. The High Court has held against the appellant on the ground that such a contention was not canvassed before the Industrial Tribunal and also following an earlier decision of another Bench, the High Court dismissed the writ petition. Once the appellant did not raise such a contention before the Industrial Tribunal, it was not available to be canvassed higher up."
12. Therefore, following the decision of the apex court in the matter of Krishi Utpadan Mandi Samiti v. Arvind Chaubey, (2002) 9 SCC 549 and considering the facts of the present case, considering the fact that the petitioner has not raised such contentions that it is not an industry or that the provisions of the ID Act, 1947 are not applicable to it or that the work of scarcity done by it is the sovereign function, the petitioner cannot be permitted to raise such contentions now for the first time before this court. I am, therefore, not considering the contentions raised by the petitioner in the memo of petition in that regard as well as the submissions made by the learned advocate Mr. Chauhan in that regard during the course of hearing. If this matter is considered from the another angle that the plea which was not raised 24 PSK,J&NNR,J cea_04_2011 before the labour court and raised before this court for the first time, the, this court cannot test the legality, validity and propriety of the award in respect of the new plea as it was not examined by the labour court as it was having no occasion to consider such plea. Therefore, in respect of new plea, as there was no finding given by the labour court in that regard, this court cannot consider that the award is bad because such plea was not examined by the labour court while passing the award in question. Therefore, both these grounds, the contention raised by the learned advocate Mr. Chauhan as the petitioner was performing scarcity work which is considered to be the sovereign function by the Division Bench as well as the Full Bench of this Court and, therefore, ID Act is not applicable to the petitioner, cannot be accepted on one ground that it was not raised before the labour court. Such contention cannot be accepted also on the ground that the decision of the Constitution Bench of the apex court in the matter of Bangalore Water Supply and Sewerage Board (supra) is conclusive, squarely covering the case of the petitioner wherein it has been held that the Bangalore Water Supply and Sewerage Board is an industry within the meaning of section 2(j) of the ID Act, 1947. In view of the above, the petitioner is an industry covered by the definition of the term ''industry'' as well as the decision of the apex court in the matter of Bangalore Water Supply and Sewerage Board (supra).
13. Two decisions were cited by the learned advocate Mr. Chauhan for the petitioner. One is the decision of the division bench of this court in the matter of J.J. Shrimali Vs. District Development Officer, Mehsana and Others, and the another one is the decision of the full bench of this court in the matter of HK Makwana versus State of Gujarat & Ors., reported in 1994 (2) GLH 213 wherein the decision of the division bench of this court in the matter of J.J. Shrimali Vs. District Development Officer, Mehsana and Others, was approved by the Full Bench of this Court. I have considered the said two decisions cited by the learned advocate Mr. Chauhan. In the said two decisions, the petitioner was not the GUJARAT WATER SUPPLY AND SEWERAGE BOARD. In the said matter, work of particular project and relief as managed by the State of Gujarat has been considered to be the sovereign function. It was not the decision in the said matter that any industry, if it is performing any type of work in scarcity has to be considered as the sovereign function. That is not the ratio of the said decisions. I am, therefore, of the opinion that both the said decisions are relating to the sovereign functions of the state and not in respect of any industry. Therefore, both the said decisions are not applicable to the facts of the present case. The facts of the present case and the facts of the said decisions are altogether different and there is no slightest similarity as regards the factual aspects of the matter and, therefore, said two decisions are not helpful to the petitioner in any manner whatsoever.
IV The dominant nature test :
(a) where a complex of activities, some of which qualify for exemption others not, involves employees on the total undertaking, some of whom are not ''workmen'' as in the University of Delhi Case or some departments are not productive of goods and services if isolated, even 25 PSK,J&NNR,J cea_04_2011 then, the predominant nature of the services and the integrated nature of the departments as explained in the Corporation of Nagpur, will be true test. The whole, undertaking will be ''industry'' although those who are not ''workmen'' by definition may not benefit by the status.
(b) Notwithstanding the previous clauses, sovereign functions, strictly understood, alone qualify for exemption, not the welfare activities or economic adventures undertaken by government or statutory bodies.
(c) Even in departments discharging sovereign functions, if there are units which are industries and they are Substantially severable, then they can be considered to come within sec. 2(j).
(d) Constitutional and competently enacted legislative provisions may well remove from the scope of the Act categories which otherwise may be covered thereby.
23. In view of the Judgment cited and the law laid down, as GWSSB was considered as an 'Industry' under the Industrial Disputes Act, 1947. NCCL was awarded contract by M/s. GWSSB for laying long-distance pipelines in Gujarat for drinking water supply. The Directorate General of Central Excise Intelligence (DGCEI) investigated and found that NCCL had not paid Service Tax on the construction services provided to GWSSB. Payment of tax by NCCL s depends upon the usage of pipelines laid by the GWSSB and also payment of tax by the GWSSB.
24. Further, it would emphasize that the commercial aspect of GWSSB's activities highlighting that the Board's operations involve systematic activities organized for 26 PSK,J&NNR,J cea_04_2011 production and distribution of goods (water) and services, which would classify it as sovereign function. Therefore, this Court does not find any error committed by learned Customs, Excise & Service Tax Appellate Tribunal in passing the impugned order warranting interference of this Court.
25. Accordingly, the Central Excise Appeal is dismissed confirming the Final Order No.819 of 2010, dated 17.05.2010 passed in Appeal No. AT/73/2008 by the learned Customs, Excise & Service Tax Appellate Tribunal, Bangalore. There shall be no order as to costs.
Miscellaneous petitions, if any, pending shall stand closed.
____________________________ JUSTICE P.SAM KOSHY ___________________________________________ JUSTICE NARSING RAO NANDIKONDA Date: 12.11.2025 YVL