Custom, Excise & Service Tax Tribunal
Commissioner, Service Tax-Delhi I vs C P Systems Pvt Ltd on 1 February, 2023
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS EXCISE & SERVICE TAX APPLELLATE
TRIBUNAL
NEW DELHI
PRINCIPAL BENCH, COURT NO. 1
SERVICE TAX APPEAL NO. 50787 OF 2014
[Arising out of Order-in-Original No. DEL-SVTAX-000-COM-135-136-
13-14 dated 27.09.2013 passed by the Commissioner of Service
Tax, New Delhi]
COMMISSIONER, SERVICE TAX-DELHI APPELLANT
Vs.
M/S C P SYSTEMS PVT LTD, RESPONDENT
nd 201, 2 Floor, Kailash Bhawan, Commercial Complex, 35, Wazirpur Industrial Area, Ashok Vihar, New Delhi-110052 Appearance:
Present for the Appellant: Shri Harshvardhan, Authorised Representative Present for the Respondent: Shri Prakash Sinha, Shri Kartik Garg and Shri Ajay Kumar, Advocates CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) FINAL ORDER NO. 50109 /2023 DATE OF HEARING/DECISION: 01/02/2023 JUSTICE DILIP GUPTA:
1. This appeal has been filed by the Department to assail that part of the order passed by the Commissioner which drops the demand of Rs. 41,94,49,758/- while adjudicating the two show cause notices dated 13.12.2011 and 23.04.2012 for the period April, 2005 to March, 2010 and April, 2010 to 2 ST/50787/2014 September, 2011 respectively. It needs to be noted that demand raised in the first show cause notice was to the extent of Rs. 25.21 crores while demand raised in the second show cause notice was to the extent of Rs. 21.82 crores. The Commissioner confirmed the demand of Rs. 3.55 crores in respect of first show cause notice and the demand of Rs. 1.36 crores in respect of the second show cause notice.
2. The three issues which arise for consideration in this appeal are as follows:
(a) Whether the Commissioner is correct in holding that the services provided by the respondent in relation to Hydro Electric Projects are non-
taxable for the reason that these services were provided to dams, which are exempted?
(b) Whether the Commissioner is correct in holding that the respondent has appropriately discharged service tax liability without taking cognizance of the allegations made in the show cause notice with respect to non-inclusion of the material received free of cost in the assessable value and simultaneous availment of abatement?
(c) Whether the Commissioner is correct in holding that the respondent is not liable to discharge 3 ST/50787/2014 the service tax liability as a sub-contractor where the service tax has already been paid by the main contractor?
3. We have heard Shri Harshvardhan, learned authorised representative appearing for the Department and Shri Prakash Sinha, learned counsel for the Respondent assisted by Shri Kartik Garg.
4. These three issues shall be taken up separately. A. Services in relation to Hydro Electric Projects.
5. The findings recorded by the Commissioner, in regard to this issue, are contained in paragraphs 52, 53 and 54 of the order and they are reproduced:
"52. It is important to realise that in any water harnessing system (such as a hydal based HEP, irrigation system, navigation system) the dams and the tunnels are never an end to themselves but in association of other structure provide a system that serves certain intended purposes. On its own, a dam or the channel system would be quite useless and nobody would construct a dam or tunnel system without making certain other structures that gives it one or many uses. Thus, to state that a dam or tunnel envisaged in the relevant entry in the Act, refers only when dams or channels are built in isolation, is irrational and illogical. Such structures have to be part of a system and this fact does not take away the exclusion provided to them. Dam and channels are sub-sets of a HEP but that does not alter the fact that a civil structure constructed is a dam and channel on its own.
53. Under the said contracts, the Noticee has undertaken the civil construction of dams and tunnels in the nature of corrosion protection, epoxy coating, painting, polyurethane injection for grouting and blasting etc. for shaft spillways and tunnels (parts of dam) which are part and parcel of such dams and tunnels. Thus, it can be seen that the 4 ST/50787/2014 exclusion under dams and tunnels would cover all the works in the nature of civil construction of the dam or tunnel. Such a dam or tunnel would not be complete without the above said services provided by the noticee and which are part and parcel of the dam or tunnel. Therefore, the construction or civil works for dams as also of the tunnels undertaken by the Noticee are not exigible to service tax under the Act as they fall within the exclusion clause of the definition of „commercial or industrial construction service‟ or 'Works Contract Service‟. The corrosion protection, epoxy coating, painting, polyurethane injection for grouting and blasting etc. for shaft spillways and tunnels (parts of dam) on being incorporated into the dam structure / tunnel become part of the dam / tunnel and partake the character of the dam structure/ tunnel itself. The hydro- mechanical fixtures get affixed to the dam or tunnel. In fact without these fixtures the dam or the tunnel system is not complete. Hence such works are also in the nature of dam/ tunnel and fall outside the scope of „works contract service' as well under 'commercial or industrial construction service' by way of the specific exclusion provided for dams under the Act. The SCN has tried to differentiate between a HEP and dam and tunnel. The discussions above would clearly show that Dam and Tunnel are integral part of HEP, and HEP cannot be visualised in isolation from Dam and Tunnels. The logic of SCN would lead to an absurd situation where construction services of dam and tunnel under separate contracts would not attract service tax, while the same activity in the form of an integrated contract of HEP would attract service tax.
54. Therefore, the demand of Service Tax to the extent it relates to hydroelectric projects cannot sustain in respect of all works executed before 1.06.07 under the taxable head of CICS and in respect of work executed after 1.06.07 under the taxable head of work contract services, in as much as the same are outside the purview of service tax in view of discussion above and accordingly merits to be dropped."
(emphasis supplied)
6. The Commissioner held that the work undertaken by the appellant would not be subjected to levy of service tax as they are excluded from „works contract‟ or contracts relating to „commercial or industrial construction‟. 5
ST/50787/2014
7. In order to appreciate this contention, it would be useful to refer to the provisions contained in the Finance Act, 19941.
8. Sections 65(25b) of the Finance Act defines „commercial or industrial construction‟ and it is reproduced below:
"Commercial or industrial construction" means-
(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 tiling, 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 of, 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 and industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport, terminals, bridges, tunnels and dams;"
(emphasis supplied)
9. Section 65 (105) (zzzza), which makes the activity in relation to execution of „works contract‟ a taxable activity is reproduced below:
1 the Finance Act 6 ST/50787/2014 "65 (105) (zzzza) to any person, by any other person in relation to the execution of a works contracts, excluding works contract in respect of roads, airports, railways, transport, terminals, bridges, tunnels and dams.
xxxxx
10. The Department has assailed the aforesaid finding and the relevant grounds contained in paragraph 5.9 of the Memo of Appeal are as follows:
"5.9. The Adjudicating authority has failed to appreciate that there appears to be no legislative intention to exempt 'Hydroelectric Projects'. Had that been the intention, the entry under the Act should have been 'Hydroelectric Projects' instead of „tunnels & dams‟. Moreover, the construction of other electricity generating modes like thermal power station etc is subject to levy of service tax, if the other conditionality's of the Finance Act are fulfilled. Therefore, interpretation of the Adjudicating Authority that 'Hydroelectric Projects' are covered under the entry „tunnels or dams' is grossly mistaken. The Adjudicating authority stressed on the issue that DAM constitutes a necessary and very important element of a Hydro Electric Project and the former is pre- requisite for latter and that "Hydro Electric power plant was a public utility project thus "Hydro Electric power plant was not liable to tax. The adjudicating authority has failed to appreciate the intent of the law that exemption was available to Dams only, not to "Hydro Electric power plants which are constructed for an underlying commercial interest only. Hydro Electric plant can be compared with thermal power plant. Law has already taxed thermal power plant then there remains no ambiguity that Hydro Electric power plant are taxable or not.
Therefore, the Adjudicating authority has grossly erred in holding the construction services rendered to Hydro Electric power plant non taxable on the pretext that the services have been rendered to DAM not to Hydro Electric power plant. The adjudicating authority has failed to appreciate that he himself held thermal power plant taxable in case of Vindhyachal project wherein the noticee made same submission as in the case of dam. Therefore, it is beyond doubt that the services provided by the noticee in relation to hydro electric power plant are taxable."7
ST/50787/2014
11. The period involved in this appeal, as noted above, is from April, 2005 to September, 2011. „Works contract‟ service was made a taxable service for the first time under section 65 (105) (zzzza) of the Finance Act with effect from 01.06.2007. „Commercial or industrial construction‟ has been defined under section 65 (25b) and is taxable under section 65(105) (zzq) of the Finance Act.
12. Thus, the works executed for a hydro electric project would be excluded from the taxable service of „works contract‟ or „commercial or industrial construction‟ if the services are provided in respect of tunnels and dams. The Commissioner has held that the exclusion of the dams and tunnels would cover all the works of hydro mechanical nature, including civil construction of dams and tunnels for the reason that a dam or a tunnel would not be complete without hydro mechanical works. The Commissioner, therefore, concluded that the civil works forming part of dams and tunnels would not be exigible to service tax under the Finance Act as they would fall within the exclusion clause of both the aforesaid services.
13. There is no error in the finding recorded by the Commissioner and indeed it finds support from various decisions of the Tribunal.
8
ST/50787/2014
14. In PES Engineers Pvt. Ltd. vs. Commissioner of Central Excise & Service Tax, Hyderabad-II2, a Division Bench of the Tribunal while examining a matter where the assessee was engaged in large construction of projects relating to hydro electric projects observed that the activity undertaken for installation and commissioning of pressure shaft liners also called "steel liners/penstocks" would fall within the exclusion clause of the taxable service of „works contract‟ and the relevant findings are as follows:
" 5.5. This activity is performed within the excavated tunnel. The tunnel is formed and complete only after the steel liners are put in place and the space between liner and rock is filled with concrete and pressurised cement grout. It is also not disputed that these tunnels have been made in relation to hydro-electric projects as underground passage for conveyance of water. Thus, there is no doubt that the activity of fabrication penstock/ steel liners are essential for the completion of tunnels.
5.15. From these discussions, we find that the impugned activity of the assessee was nothing but "works contract service"
in respect of tunnels/ dams. We further find that since the works contract was in respect of tunnels for dams/ power projects, the same would then be excluded from taxability thereunder in view of the exclusion in section 65 (105)(zzzza) of the Finance Act, 1994."
(emphasis supplied)
15. The Civil Appeal filed by the Department before the Supreme Court against the aforesaid order of the Tribunal was dismissed on 23.07.2018, both on the ground of delay and on 2 2017 (7) GSTL 57 (Tri-Hyd) 9 ST/50787/2014 merit and the decision is reported in 2018 (16) GSTL J77(SC).
16. In MCM Services Pvt. Ltd. vs. Commissioner of Service Tax, Delhi3, a Division Bench of the Tribunal examined whether the nature of work executed by the appellant therein relating to construction of dam, which would be a part of the hydro electric project, would fall within the exclusion clause of the taxable service of „works contract‟ and held as follows:
" 4. We noted that the Adjudicating Authority denied the benefit of Exclusion Clause available in the taxable service entry- "Commercial or Industrial Construction Services". The taxable service in term of Section 65 (105) (wzq) and Section 65 (25b) does not include such services provided in respect of "road,.............., tunnels and dams". It is undisputed that the appellant are engaged in construction of Kol dam. The only reason adduced by the Original Authority to deny the exclusion from tax liability is that the said dam is part of the Hydroelectric Power Project. In other words, the exemption is available to dam and tunnel and not to Hydroelectric Power Project or work relating thereto. We find such interpretation by the Original Authority is fallacious and unsustainable. While admitting that the appellants were engaged in construction of a dam, the Original Authority held that when such dam becomes part of Hydroelectric Power Project, the tax liability will arise. We are not able to appreciate such interpretation. The statutory definition did not define the scope of the term "dam" or its ultimate use. It is common knowledge that in many cases, the dams are for multi-purpose like, irrigation, power generation, flood control, etc. The exclusion clause did not put any condition that the dams for particular purpose only will be excluded from tax liability.
3 2017 (52) STR 388 (Tri.-Del) 10 ST/50787/2014 We find no justification to give a restrictive meaning to the term "dam" to the effect that the exemption will be available only when it is not part of any bigger project."
(emphasis supplied)
17. In Continental Construction Ltd. vs. Commissioner of Service Tax (Adj), New Delhi4, a Division Bench of the Tribunal held as follows:
" The present cross appeals are both directed against the Order-in-Original No. 16/2013-14 dated 24/12/2013. The assessee is engaged in providing construction services. The dispute in the present case is with reference to certain projects executed by the assessee as follows:-
i. Maneri Bhali Hydro-Electric Project for the following work:-
Construction of Barrage, Intake, Sedimentation Chamber, Fore Bay, Flushing Conduit etc. and Head Race Tunnel (upto 4.5 KMs.) from Joshiyara End. ii. Similarly the contract agreement with Himachal Pradesh Electricity Board describes the scope of the work allotted to the noticee as under: LARJI HYDRO-ELECTRIC PROJECT (126 MW), DISTRICT MANDI (H.P.) Whereas the Himachal Pradesh State Electricity Board invited tenders for "Construction of 2075m long, 10.5m dia modified horse show shaped Highway (NH-
21) Tunnel as extension of existing Highway Tunnel from RD 646.30m including 125m long, 7.25m x 6.5m D-shaped construction Adit of Larji HEP".
2. In the show cause notice issued by the Revenue, it was proposed to charge service tax in respect of the activities carried out in the above two projects under the category of "Commercial and Industrial Construction Services". It was represented by the assessee that in such projects the activities carried out by the appellant are towards construction of dam in the case of Maneri Bhali Hydro-Electric Project and construction of Highway Tunnel in the case of the project for 4 2018 (12) GSTL 109 (Tri.-Del) 11 ST/50787/2014 Himachal Pradesh Electricity Board. Accordingly, the adjudicating authority dropped the demand for service tax by taking the view that it is covered under the exclusion clause providing under the "Commercial and Industrial Construction Service". Revenue has filed the appeal against this.
5. First we consider the issues raised in the appeal filed by Revenue. In the grounds of appeal Revenue has referred to para 13.4 of the Board‟s Circular No. 80/10/2004 ST, dated 17/09/2004 in which certain clarifications were given in connection with the exclusion clause within the Commercial and Industrial Construction (CICS). Revenue is of the view that such exclusion under CICS is available only to dams and tunnels independently and not applicable when they are constructed as part of a hydroelectric project.
From the description of work executed by the assessee in the Maneri Bhali Hydro-Electric Project, we note that it is in connection with construction of barage, intake sedimentation chamber, etc. There is no doubt that such work has been carried out as part of the hydroelectric project and construction of dam therefore. So, we find no infirmity in the view taken by the adjudicating authority that these activities are in connection with the construction of the dam and hence excluded from the purview of Commercial or Industrial Construction"
6. With reference to the work executed by the assessee for Himachal Pradesh Electricity Board, such work involves construction of highway tunnel which is extension of existing highway tunnel. Construction of tunnel is specifically excluded from the purview of "Commercial and Industrial Construction and we uphold the finding of the adjudicating authority in this regard to the effect that no service tax is liable for such construction activities.
In view of above Revenue appeal is dismissed."
(emphasis supplied)
18. Thus, in view of the aforesaid decisions of the Tribunal, it has to be held that the Commissioner committed no illegality in holding that the works undertaken by the appellant would fall within the exclusion clause of the definition of „construction and 12 ST/50787/2014 industrial construction‟ service and the taxable „works contract‟ service.
B. Material supplied free of cost.
19. The ground contained in the Memo of Appeal for assailing this finding of the Commissioner is contained in paragraph 5.10 and it is reproduced below:
5.10. Projects related to Sand blasting, grit blasting, Epoxy Coating, Site preparation given in para 69 and 74 of O-I-O-
While accepting the plea of the noticee that they have paid service tax on these projects, the adjudicating authority has erred in not observing that in most of the projects the noticee has received free of cost material and the noticee was liable to pay service tax on the materials so received. This fact was alleged in the SCN that the noticee did not provide the detail of free of cost material. During the adjudication proceedings also the adjudication authority has not taken up the issue, it has not been discussed whether the noticee had paid service tax on the free of cost material received from various clients eg. M/s Larsen & Toubro Ltd., M/s P & R Infra Projects Ltd., M/s Simplex Concrete Piles India Ltd., neither it has been mentioned whether the noticee was paying tax at full rate or taking abatement which was not available to him when free of cost material has not been added as alleged in the SCN."
20. The issue as to whether service tax can be levied on the cost of materials supplied free of cost has now been settled by the Supreme Court in Commissioner of Service Tax vs. Bhayana Builders Pvt. Ltd.5 It has been held that service 5 2018 (10) GSTL 118 (SC) 13 ST/50787/2014 tax cannot be levied on the amount of material supplied free of cost. The relevant observations are as follows:
" 13. A plain meaning of the expression 'the gross amount charged by the service provider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount' simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This further gets strengthened from the words 'for such service provided or to be provided' by the service provider/assessee.
Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider.
(emphasis supplied)
21. Thus, as the Supreme Court has held that the value of goods which are provided by the service recipient free of charge cannot be included in the gross amount charged by the service provider, the finding recorded by the Commissioner does not suffer from any error.
C. Whether a sub-contractor is required to discharge the service tax liability, even if the service tax liability has been discharged by the main contractor.
22. As on merits it has been held that service tax liability would not leviable on the works involved in this appeal, it would not be necessary to decide this issue, though a Larger Bench of the Tribunal in Commissioner of Service Tax, New 14 ST/50787/2014 Delhi vs. Melange Developers Pvt Ltd.6 has held that a sub-contractor would have to discharge the service tax liability even if the main contractor has discharged service tax liability on the activity undertaken by the sub-contractor in pursuance to the contract.
23. Thus, for all the reasons stated above, there is no merit in this appeal. It is, accordingly, dismissed.
(Order dictated and pronounced in open court) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) Tejo
6 2020 (33) GSTL 116 (Tri.-LB)