Custom, Excise & Service Tax Tribunal
M/S Graphite India Ltd vs Commissioner Of Central Excise, Nashik on 24 January, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. ST/62/2009 (Arising out of Order-in-Original No. 10/ST/2008 dated 30.12.2008 passed by the Commissioner of Central Excise & Customs, Nashik). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s Graphite India Ltd. Appellant Vs. Commissioner of Central Excise, Nashik Respondent Appearance: Shri M.H. Patil, Advocate with Ms. Padmavati Patil, Advocate for Appellant Shri Rakesh Goyal, Addl. Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 24.01.2014 Date of Decision: 24.01.2014 ORDER NO. Per: P.R. Chandrasekharan
The appeal arises from Order-in-Original No. 10/ST/2008 dated 30.12.2008 passed by the Commissioner of Central Excise & Customs, Nashik. Vide the impugned order, a Service Tax demand of Rs.1,04,77,307/- has been confirmed on the appellant M/s Graphite India Ltd. for the period 16.6.2005 to 31.3.2008 in respect of Commercial or Industrial Construction Services undertaken by them for M/s Gujarat Industrial Development Corporation. Further interest has been levied on the said Service Tax demand confirmed apart from imposing equivalent amount of penalty under Section 78 of the Finance Act, 1994. Aggrieved of the same, the appellant is before us.
2. The brief facts of the case are as follows: -
(i) The appellant has been supplying GRP pipes manufactured by it on payment of Central Excise duty and also carrying out activity of lowering, laying, joining and testing of such GRP pipes at the site of the customers namely, (i) M/s Videocon Narmada, (ii) Birla Copper, (iii) M/s IVRCL Infrastructure, (iv) Gujarat Industrial Development Corporation, (v) Vizag Municipal Corporation and (vi) Surat Municipal Corporation. These activities ultimately led to construction of long distance pipelines or conduits, which appeared to be taxable under the category of Commercial or Industrial Construction Service. Accordingly, a show-cause notice dated 6.8.2008 was issued to the appellant proposing to classify the services undertaken by them under the category of Commercial or Industrial Construction Service and demanding Service Tax amounting to Rs.1,25,78,990/- along with interest thereon and also proposing to impose penalties.
(ii) In respect of such pipelines laid for the parties mentioned at sr. No. (i) to (iii) above, the appellant discharged Service Tax liability. However, in respect of customers specified at Sr. No. (iv) to (vi) above namely, Gujarat Industrial Development Corporation (GIDC), Vizag Municipal Corporation and Surat Municipal Corporation, the appellant did not discharge any Service Tax liability.
(iii) The adjudicating authority held that laying of long distance pipeline for Surat and Vizag Municipal Corporation would not come under the purview of Commercial or Industrial Construction. However, in respect of pipeline laid for GIDC, he concluded that the activity would come under the category of Commercial or Industrial Construction and accordingly passed the impugned order.
3. The learned Counsel for the appellant submits that GIDC is a Government of Gujarat Undertaking and its main objective is establishing and organizing industrial estates and commercial centres. As part of this activity, they are required to provide amenities such as roads, supply of water or electricity, street lights, drainage, sewerage etc. and such activities are basically creation of infrastructure and, therefore, cannot be considered as commercial or industrial in nature. In the present case, pipelines have been laid for providing water supply through GIDC compound, Versa to GIDC, Waterway at Dahej and providing water supply would not come under the category of Commercial or Industrial Construction. It is his further contention that the CBE&C vide Circular No. 80/10//04-ST dated 17.9.2004 had clarified that the tax is limited only in case the service is provided by a commercial concern. Similarly, vide Circular No. 116/10/2009-ST dated 15.9.2009, the CBE&C had clarified that canal system built by the Government will not be chargeable to Service Tax as it does not come under the commercial or industrial construction activity. In view of the Circulars, the appellant was under the bona fide belief that they were not liable to pay any Service Tax on the construction of pipelines for GIDC. He further relies on the decision of this Tribunal in the case of Dinesh Chandra Agarwal Infracon P. Ltd. 2011 (21) STR 41 (T), PSC Ltd. 2013 (31) STR 570 (T), Nagarjuna Constructions 2010 (19) STR 259 (T), wherein this Tribunal has held that laying of pipelines for water supply will not amount to commercial activity and, therefore, Service Tax is not attracted on laying of pipeline for water supply. It is his further contention that the department was well aware of the activities undertaken by the appellant as early as 2005 when Service Tax was demanded on the said activity vide letter dated 18.1.2005 under the category of Testing and Analysis Services. The department had also undertaken audit of the records from time-to-time and, therefore, the extended period of time could not have been invoked for confirmation of Service Tax demand. It is his further contention that since the appellant bonafidely believed that the activity undertaken did not amount to Commercial or Industrial Construction, there was a reasonable cause for his failure to pay Service Tax and hence, penalty should be waived invoking the provisions of Section 80 of the Finance Act, 1994. Accordingly, he pleads for setting aside the impugned order and allowing the appeal.
4. The learned Addl. Commissioner (AR) appearing for the Revenue strongly refutes the contentions raised by the Counsel for the appellant. He submits that GIDC has been set up to establish and promote industrial estates and commercial centres and, therefore, laying of pipelines for water supply to industrial estates and commercial centre would be activity in relation to Commerce or Industry. Therefore, the activity undertaken by the appellant would squarely fall within the definition of Commercial or Industrial Construction Service as defined in law.
4.1 As regards the bona fide belief, the learned AR submits that the reliance placed on 2004 Circular of CBE&C is of no help inasmuch as construction of pipeline itself came under the purview of Service Tax only w.e.f. 16.6.2005. He also points out that in the 2004 Circular, the CBE&C had clearly stated that construction of pipeline for industrial or commercial establishment would fall within the scope of the levy of Service Tax. Therefore, the plea of bona fide belief entertained by the appellant is without any evidence especially that the appellant was discharging the Service Tax liability in respect of similar activity undertaken in respect of the other commercial bodies.
4.2 As regards the issue of time bar raised by the appellant, the learned AR submits that the letter of the Superintendent referred to the appellant prepared in January, 2005 is much before the inception of levy in June, 2005 and, therefore, the said letter issued cannot be a basis for coming to any conclusion that the department was aware of the activity undertaken by the appellant. He also points out that in the ST-3 Returns filed by the appellant for the relevant period, the appellant had not disclosed that they were undertaking the activities under the exempted/non-taxable category. Therefore, the appellant has clearly suppressed the fact of rendering commercial or industrial construction services to GIDC and accordingly, the extended period of time has been rightly invoked. He also placed reliance on the decision of the Tribunal in the case of Nazareth Metal Vs. Commissioner of Central Excise, Mumbai-II 2006 (205) ELT 998 (Tri-Mum) in support of his contention that mere knowledge of the department is not the relevant factor to be considered for time bar. Accordingly, he pleads for upholding the impugned order.
5. We have carefully considered the submissions made by both sides.
5.1 It will be relevant at this juncture to peruse the legal provisions relating to Commercial or Industrial Construction Service. Section 65(25b) of Finance Act, 1994 as amended by Finance Act, 2005 reads as follows: -
(25b) [Commercial or industrial construction Service] 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 or 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;] From the above definition, construction of pipelines which is used or to be used primarily for commercial or industrial work or intended for commerce or industry would fall within the purview of Commercial or Industrial Construction Service.
5.2 M/s GIDC has been set up under the Gujarat Industrial Development Act, 1962 and the preamble of the Act reads as follows: -
An Act to make special provision for securing the orderly establishment and organization of industries in industrial areas and industrial estates in the State of Gujarat and for the purpose of establishing commercial centres in connection with the establishment and organization of such industries and for that purpose to establish an Industrial Development Corporation, and for purposes connected with the matters aforesaid. The expression commercial centre has been defined as the site where Corporation builds shops and other buildings and makes them available for any commercial activity. Similarly the expression Industrial area has been defined as an area which is to be developed and where industries are to be accommodated. Section 3 of the Act dealing with Establishment and Constitution of the Corporation reads as follows: -
3(1) For the purpose of securing and assisting in the rapid and orderly establishment and organization of industries in industrial areas and industrial estates in the State of Gujarat and for the purpose of establishing commercial centres in connection with the establishment and organization of such industrial, there shall be established by the State Government in the Official Gazette, a Corporation by the name of the Gujarat Industrial Development Corporation. 5.3 From the above legal provisions, it is absolutely clear that the GIDC has been set up to establish and organize industry in industrial areas and industrial estates and for establishing commercial centres. In other words, the activity undertaken by the GIDC relates to commerce or industry. As per the functions assigned to the corporation specified in Section 13, the same inter alia includes to undertake schemes for providing industrial units and commercial establishment with such structure and facilities as may be necessary for the earlier establishment, growth and development, the structure and facilities provided by GIDC is for the growth of industrial units and commercial establishments. The pipelines are for supply of water to industrial units and commercial establishments. From these legal provisions, it is absolutely clear that the laying of pipelines undertaken by the appellant for M/s GIDC comes squarely and clearly within the definition of Commercial or Industrial Construction Service as defined under Section 65(25b) of the Finance Act, 1994 and, therefore, the appellants are liable to discharge Service Tax liability on the consideration received in respect of such activities.
5.4 The appellant has also undertaken the plea that activity included both supply of pipeline as also laying of pipelines and, therefore, it would come within the purview of Works Contract and a composite contract cannot be vivisected. However, this contention of the appellant is no longer sustainable in view of the decision of the Hon'ble High Court of Delhi in the case of G.D. Builders & Ors. Vs. Union of India 2013-TIOL-908-HC-DEL-ST, wherein it has been held that a composite contract can be vivisected and service portion of composite contracts can be subjected to levy of Service Tax.
5.5 As regards the reliance placed by the appellant in the case of Dinesh Chandra Agarwal Infracon; PSC Ltd. and Nagarjuna Constructions (supra), we notice that in those cases, the Tribunal dealt with the situation where the pipelines were laid for supply of water for drinking purpose under the contracts awarded by the Gujarat Water Supply and Sewerage Board (GWSSB). This Tribunal noted that GWSSB was set up for development and proper regulation of water supply and sewerage services in the State of Gujarat and, therefore, cannot be considered as a commercial organization. Those are not the facts obtaining in the present case. GIDC has been set up for development of industry and commerce in the State of Gujarat. Therefore, the ratio of the said decisions would not apply to the facts of the present case and we hold accordingly.
5.6 As regards reliance placed on the Circular of the Board issued in 2004 and 2009, perusal of the same indicates that the Board had clearly clarified that the purpose and object of the construction needs to be seen and if it is for commercial or industrial purposes, the activity would be leviable to Service Tax. Therefore, we do not know how the appellants can mis-interpret the Circular issued by the Board in this regard.
5.7 As regards the invocation of extended period, the appellants contention is that the Revenue was aware of the activity undertaken by them, inasmuch as they had sought to classify the activity under Testing and Analysis Service as early as in January, 2005. This contention merits rejection for the following reasons. A letter dated 18.1.2005 was issued to the appellant demanding Service Tax on the testing charges based on certain debit notes raised by the parties. From the debit notes, it cannot be established that the activity undertaken by the appellant pertained to Commercial or Industrial Construction Service. In any case, this debit note pertains to the period 2003-04, whereas the levy on pipelines construction came into force on 16.6.2005. Therefore, even invoices have no relevance to the proposed demand. From the records, it is also seen that after the levy was brought into force, the department had written to the appellant asking them to furnish copies of Works Contract/letter of awards of contracts and copies of invoices/bills raised for the works/services rendered to GIDC, CIDCO, COCL, ONGC etc. The appellant provided these documents only vide letter dated 12.9.2007. In the present case, the show-cause notice has been issued in August, 2008 well within a period of one year from the date of supply of the documents by the appellant. We have also perused the Returns filed by the appellant in respect of the various services rendered by them during the period covered in the show-cause notice. In none of the Returns filed by them, they have indicated that they are rendering the services to GIDC or the amount of consideration received for such services. Therefore, it has to be concluded that the appellant had suppressed the fact of rendering services to GIDC and receiving consideration for the same. Therefore, invocation of extended period of time is clearly justified.
5.8 This Tribunal in the case of Nazareth Metal (supra) and Tanzeem Screen Arts Vs. Commissioner of Central Excise, Mumbai - - 2005 (196) ELT 209 (Tri) had held that knowledge of the department cannot curtail the period provided under the provisions of Section 11A of the Central Excise Act, 1944. It was further held in these decisions that bona fide belief is not a blind belief that what one is doing is right. Similar view was taken by the Hon'ble Gujarat High Court in the case of Neminath Fabrics 2010 (256) ELT 369 (Guj). In view of these decisions, we are of the considered view that the invocation of extended period for confirmation of demand in the present case is sustainable in law.
5.9 As regards the plea for waiver of penalty under Section 80, the appellant has not shown any reasonable cause for failure to discharge of Service Tax liability. The appellant was well aware of the provisions of the law inasmuch as they were discharging the Service Tax liability in respect of the very same activity undertaken for other entities. Therefore, this contention of the appellant cannot be accepted.
6. To sum up, we do not find any merit in the appeal and accordingly dismiss the same.
(Operative portion of the order pronounced in Court) (Anil Choudhary) (P.R. Chandrasekharan) Member (Judicial) Member (Technical) Sinha 10