Road Construction Services Are Excluded From The Taxable Service: CESTAT Quashes Service Tax Demand

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the demand for service tax and held that the service provided for road construction is excluded from the taxable service, namely "Commercial or Industrial Construction Service."

The two-member bench of Ramesh Nair (Judicial Member) and Raju (Accountant Member) has observed that the appellant has provided construction services to the Oil and Natural Gas Corporation (ONGC), the Gujarat Water Supply and Sewerage Board (GWSSB), and the Ahmedabad Urban Development Authority (AUDA). The ONGC cannot be treated as a government organization. Despite being a public sector undertaking, it will not be classified as government because it is a public limited company. However, in regard to the service provided to GWSSB and AUDA, both recipients are directly under the government of Gujarat.

The issue raised was whether the construction service provided to ONGC, GWSSB, and AUDA falls under a works contract to attract service tax and whether the demand is hit by limitation.

The appellant submitted that all three service recipients are government enterprises; therefore, the service provided to the government is not liable to service tax. The construction service provided by the appellant is along with the supply of material; therefore, the construction service falls under work contract service. As the Supreme Court held in the case of Larsen and Toubro Ltd., work performed under the contract prior to June 1, 2007 was not taxable.

The appellant contended that the department was well aware of the activity of the appellant as there was continuous correspondence. All the transactions were reflected in the balance sheets, from which the data was retrieved and the demand raised. Therefore, there is no suppression of fact on the part of the appellant. For the demand raised for the period 2005–2006 to 2007–2008, the show cause notice was issued after the normal period was hit by limitation, and the demand is not sustainable on a time basis either.

The tribunal remanded back the issue of whether the construction service provided to ONGC is a material contract and thus falls under the category of work contract service. The issue of limitation was also kept open.

Case Title: Apollo Construction Projects Pvt Ltd. Versus C.S.T.-Service Tax – Ahmedabad

Citation: Service Tax Appeal No.433 of 2012-DB

Date: 07.02.2023

Counsel For Appellant: R. R. Dave

Counsel For Respondent: Kalpesh P. Shah

Click Here To Read The Order