Service Tax Liability Cannot Be Fastened On Implementation Of Govt Projects: Calcutta High Court

The Calcutta High Court has held that construction of canals/ pipelines/ conduits to support irrigation, water supply or for sewerage disposal, when provided to the Government, cannot be exigible to service tax. A division bench of Chief Justice TS Sivagnanam and Justice Hiranmay Bhattacharyya relied on two Circulars issued by the Central Board of Indirect Taxes and Customs to observe, “Even in case of works contract, if the nature of the activities is such that they are excluded from the purview of commercial or industrial construction services, or erection, commissioning or installation services, then they would generally remain excluded from this taxable service as well. These circulars are sufficient indication to hold that when the Government projects are being implemented, the service tax liability cannot be fastened.” In the case at hand, the Respondent-assessee had entered into an agreement with the Kerala Water Authority for construction of a distribution system for water supply for Thiruvananthapuram City. The assessee was informed that no service tax was payable on the service. Accordingly, it sought refund under Section 11B of the Central Excise Act of the amount which was paid by it on a mistaken impression that the activity undertaken by them would attract service tax. However, the Adjudicating Authority rejected the assessee's application on the ground that no supporting documents for exemption of service tax were produced. Since the CESTAT allowed the assessee's appeal, the Revenue moved the High Court alleging that the bid document mentions that all duties, taxes and other levies shall be payable by the director under the contract, and the total bid price submitted by the bidder should include the same. The High Court however noted that the assessee had performed work for the Kerala Water Authority, which is a Government undertaking. Moreover, the project was aimed at providing civic amenities to the public at large, which could not be termed to be a commercial or an industrial project. “Commercial or industrial construction service is chargeable to service tax if it is used, occupied or engaged either wholly or primarily for the furtherance of commerce or industry…in case of works contract if the nature of the activities is such that they are excluded from the purview of commercial or industrial construction services, or erection, commissioning or installation services, then they would generally remain excluded from this taxable service as well,” it said. Reliance was placed on Lanco Infratech Ltd. v. CC, CE & ST, Hyderabad, where CESTAT had held, “Construction of canals/pipelines/conduits to support irrigation, water supply or for sewerage disposal, when provided to Government/Government undertakings would be for non-commercial, non-industrial purposes, even when executed under turnkey/EPC contractual mode and would fall within the ambit of clause (b), Explanation (ii) of Section 65(105)(zzzza); and would consequently not be exigible to Service Tax.” Accordingly, the High Court dismissed Revenue's appeal. Appearance: Mr. Uday Sankar Bhattacharyya, Adv. Mr. Tapan Bhanja, Adv. for the appellant; Mr. Rahul Dhanuka, Adv. Mr. Niraj Baheti, Adv. Ms. Sreeja Chakraborty, Adv. for the respondent Case title: Commissioner Of Service Tax Kolkata Vs M/S Electrosteel Castings Limited Case no.: CEXA/56/2024 Click Here To Read/Download The Order

Service Tax Liability Cannot Be Fastened On Implementation Of Govt Projects: Calcutta High Court

Kapil Dhyani

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