AI Structured Summary
Not yet generated for this judgment
Judgment
By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal filed by the
assessee-respondent herein and set aside the order passed by CIT (A) as well as the original authority.
Counsel for the appellant has framed the following substantial question of law:
(i) Whether the ld. CESTAT was right in law in extending the benefit of exemption to the “Turnkey Projects†which is available to the
‘construction of building or civil structure services’ covered under clause (ii)(b) of Works Contract service, but is not available to “Turnkey
Projects†covered under clause (ii)(e) of Works Contract service, as both these services are entirely different?
The facts of the case are that the assessee is engaged mainly in the business of providing various types of civil construction works on contract
basis, being allotted by the State & Central Government departments, undertakings and bodies like Central Public Works Department, Military
Engineer Service, Space Application Centre, National Building Construction Corporation of India and some Private companies, at different locations in
the states of Rajasthan and Gujarat. The said Service provider had been registered with Service Tax department under the Commercial construction
service provider had been registered with Service Tax department under the Commercial construction service and Works contract service category,
having Service Tax Registration No.AAACJ3635PST001 and paying Service Tax on the Construction work carried out them for the private
companies.
3.1 An intelligence was received by the Directorate General ofCentral Excise Intelligence (DGCEI), Ahmedabad Zonal Unit (AZU), Ahmedabad that
M/s. Jatan Construction are indulging in evasion of service tax by non payment of service tax on the taxable services provided by them in the
construction work carried out by them for the National Building Construction company of India, which were covered under the taxable category of
‘Works Contract Service’, as defined under Section 65(105) (zzzza) of the Finance Act, 1994. Therefore, simultaneous searches were carried
out at the premises of M/s Jatan Construction, situated at “Jatanâ€, Todarmal Marg, Ajmer and its branch office situated at 17/28, Parth Bungalow,
Opp. Karanvati Club, Nr. Shalby Hospital, Ramdevnagar, Ahmedabad as per the provisions of Section 82 of the Finance Act 1994 under respective
Panchnamas, were withdrawn.
3.2 During the course of search, carried out at Ajmer premises ofM/s Jatan Construction, Shri Ramesh Agarwal, the Director of the said company,
who was present, informed that M/s Jatan Constructions P. Ltd. is engaged in construction of buildings and civil structures and that apart from him,
Shri Ashish Ramesh Agarwal, Shri Prashant Omprakash Agarwal and Shri C.K. Agarwal are the other directors of the company. A statement of Shri
Ramesh Chandra Agarwal, the Director of M/s Jatan Constructions P. Ltd. was recorded on 18.7.2011, under Section 14 of Central Excise Act, 1944,
read with Section 83 of the Finance Act, 1994, wherein, he stated tht he is supervising the activities of the Company and the work related to taxation
matter is being looked after by shri Prashant Agarwal, the other Director of their company. He further submitted that from 2006-07 onwards, the
following two work contracts have been received by their company from M/s National Building Construction Corporation of India Ltd. i.e. NBCC
(hereinafter referred to as NBCC):
a. Construction of new civil and allied works for PostGraduate Girls Hostel at Sardar Vallabhbhai National Institute of Technology Surat. The work
was started in the month of February 2009 and the value of work executed is Rs.5177.00lacs. (i.e. Rs.51.77 crores).
b. Construction/modernization of 300 beded Hospital atESIC, Jaipur. This work was started in year June 2009 and is under execution. The value of the
work contracts is Rs.7500.00 lacs (i.e. Rs.75 Crores.
3.3 The counsel for the appellant has contended in the light of averments made in memo of appeal which reads as under:
That the show cause notice dated 10.09.2012 was adjudicated by the ld. Commissioner, Central Excise Commissionerate, Jaipur II, i.e., the ld.
Adjudicating Authority, after considering the totality of facts and circumstances of the case, evidence available on record, submission of the assessee
respondent made in writing and orally during the course of personal hearing, the provisions of law, judicial views on the issues at hand, vide Order-in-
Original No.22/2013/ST/JPRII- Commissioner dated 06.08.2013 the ld. Adjudicating authority found that:
(1) the civil construction work carried out by theassessee for M/s NBCC, on completion of the entire work, the building or premises constructed by
them, was handed over to M/s NBCC and the property was thus transferred, which fulfills the main condition of any service to qualify for being
covered under the definition of works contract service;
(2) the above two civil construction works havebeen allotted back to back to the assessee through the Engineering Procurement and Construction, i.e.
EPC mode; therefore, the second condition of the definition of the works contract was also fulfilled;
(3) the assessee, vide their letter dated16.7.2012, submitted details of payment received from NBCC for the above two projects and on going through
the details of payments, it was found that the VAT on works contract is included in the total amount of the cheque which meets the basic condition
no.1 of works contract service;
(4) the assessee had used their own equipment,resources, manpower and made procurements to carry out construction activity independently.
Hence the ld. Adjudicating Authority held that their activity was covered under Turnkey Projects under clause (e) of the said definition of works
contract service. The adjudicating authority also observed that there is no specific exemption to such construction projects under works contract
service and therefore, the consideration received by the assessee in respect of above two construction works is liable to service tax under the
category of works Contract service.
Applicable interest and penalty was also levied.
3.4 He has also taken us to definition of taxable services defined under Section 65(105)(zzzza) of the finance Act, 1994 which reads as under:
“Taxable service†means any service provided or to be provided to any person, by any other person in relation to the execution of a works
contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation.- For the purposes of this sub-clause, “works contract†means a contract wherein,-
(I) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out,-
(a) erection, commissioning or installation ofplant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical
and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe
work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or
elevators; or
(b) construction of a new building or a civilstructure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry;
or
(c) construction of a new residential complex or apart thereof; or
(d) completion and finishing services, repair,alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering,procurement and construction or commissioning (EPC) projects;
3.5 Counsel for the appellant has also taken us through the finding of the first authority observing as under:
Result of Investigation:
9.1 Investigation conducted by DGCEL, Ahmedabad against M/s. Jatan Construction P. Ltd., Ajmer as discussed in the foregoing paras, reveals that
M/s Jatan Construction P. Ltd. has been engaged in the business of execution of civil construction projects, under works contract. During the course
of the search, it was found that in the financial year 2008-09 to 2011-12. M/s Jatan Construction P. Ltd., Ajmer was allotted the contracts for civil
construction work of Hostel Building for Post Graduation Girls, at Sardar Patel National Institute of Technology at Surat and a Hospital Building at
Jaipur, by M/s NBCC M/s Jatan constructions carried out the abovementioned works allotted to them under the two contracts in the time period from
2008-09 to 2011-12, after issuance of Letter of awards to them by M\s NBCC. During the course of search conducted at the premises of M/s Jatan
Constuction P. Ltd. on 18.07.2011, it was found that M/s Jatan Constructions P. Ltd., had not paid the applicable amount of Service Tax on the
taxable value received by them from M/s NBCC, in respect of the above two civil construction works. Therefore, M/s Jatan Construction P. Ltd. was
required to pay Service Tax on the payments received by them for the two works carried out by them at Surat and Jaipur, for M/s NBCC.
17.1 I have carefully gone through the caserecords, including defense reply and submissions made during personal hearings.
The issues before me to decide is (I) whether assessee is sub contractor of M/s. National Building Construction Corporation Ltd. (NBCC) (II)
whether construction activity of P.G. Hostel at SVNIT Surat and ESIC Hospital at Jaipur falls under the category of Works Contract Service. (III)
whether service provided by assessee to NBCC is liable to service tax or not? (VI) whether demand is hit by limitation?
17.2 Before deciding the issues, it is necessary togo into the background of the case. As stated in the brief facts, the officers of the DGCEI Zonal
Unit, Ahemdabad, acting on the intelligence, searched the office premises of the assessee at Ajmer and Ahemdabad on 18.7.2011 and resumed
certain documents/records.
Investigation conducted in the matter revealed that assessee has not paid service tax on two projects. The investigating team observed that two
projects being constructed on behalf of NBCC i.e. construction of P.G. Hostel at SVNIT Surat and ESIC Hospital at Jaipur, are liable for payment of
service tax. Accordingly SCN dated 10.9.2012 for demand of service tax of Rs.5,45,77,175/- was issued by ADG O/O the DGCEI Zonal Unit,
Ahemdabad.
17.3 Now I proceed to decide the case on merit.First of all I take up the issue of whether the assessee is sub-contractor of NBCC or net. Reliance is
placed on letter No. NBCC/AGM/LOA/2009/1208 dated 15.1.2009, written by M/s NBCC to the assessee, wherein cost of the project, period of
construction and other terms and conditions of the agreement were mentioned. The assessee was directed to furnish bank guarantee, insurance
coverage and obtaining statutory licenses. The letter written by Sh. A.K. Gupta AGM of NBCC, specifically mentioned that “This letter of award
shall form part of the contract agreement. This letter of award is being issued in duplicate. The duplicate copy is to be signed and stamped by the
authorized signatory of your company and is to be returned to this office in token of your confirmation and acceptance in fullâ€. In this letter the
contract was for construction of P.G. Hostel at SVNIT, Surat. The cost of the said project was revised vide letter dated 12.3.2010. Similar letter No.
NBCC/GM-RBG (E&I) ESIC/Jaipur/2009/1110 dated 3.3.2009 was for contract for construction of Hospital Building including internal services,
External electrical, Fire Fighting, at Jaipur.
17.4 From the above letters, it is evident thatassessee made contracts for construction of above two projects with M/s NBCC and raised running
account bills to M/s NBCC, who made payments. I find that assessee acted as per terms and conditions specified in their letter of agreement and
provided specific services as required by M/s NBCC. I find that assessee acted as sub-contractor of M/s. NBCC.
17.5 Now the question would arise as to underwhich service the construction activity undertaken by the assessee for two projects will be classified.
Whether it is commercial and industrial construction or works contract. I find that assessee vide their letter dated 23.8.2011, in their reply to show
cause notice and during personal hearings have contested that their construction activity do not fall under the category of works contract service & it
exclusively falls under 65(105)(zzq) i.e. construction service. Since the projects, pertained to hospital and hostel, belonging to government department,
the same are neither commercial nor industrial, but are for general public utility and charitable in nature. Therefore, they are exempted from levy of
service tax. I find that criteria to classify the service under any specific category will depend upon the terms and conditions of the contract dated
15.1.2009 and 3.3.2009 wherein it is specifically mentioned that “with reference to your tender for the above mentioned work, we are pleased to
accept your tender for the amount, worked out on the basis of rates quoted by you on the Bill of Quantities of the tender documents on terms and
conditions referred. It is also requested to mobilize immediately your site personnel plant and equipments and other resources so that work can be
started as per schedule.†I find that nature of contract, their terms and conditions, the running account bills raised by the assessee for payments of
the work done, the annual payment details with cheque numbers, which shows the amount for VAT on work contract, all these facts leads to the
conclusion that the activity undertaken by them fall under works contract service. I draw my inferences from the definition of service given under
section 65(105) (zzzza) of the Finance Act 1994 for works contract which reads as “to any person, by any other person in relation to the execution
of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
17.6 Explanation- For the purpose of this subclause, “works contract†means a contract wherein (I) transfer of property in goods involved in the
execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for carrying out,-
(a) Erection, commissioning or installation ofplant, machinery, equipment or structures, whether pre-fabricated or otherwise. Installation of electrical
and electronic devices, plumbing drain laying or other installations for transport of fluids, Heating, ventilation or air-conditioning including related pipe
work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water, proofing, lift and escalator, fire escape staircases or
elevators; or
(b) Construction of new building or a civilstructure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or-
(c) Construction of a new residential complexor a part thereof; or
(d) Completion and finishing services, repair,alteration, renovation or restoration or, or similar services, in relation of (d) and (e) above; or
(e) Turnkey projects including engineering,procurement  and  construction  or commissioning (EPC) projects.
He contended that the Tribunal has seriously committed an error in taking a view inspite of the decision of Banglore Tribunal in Ramky
Infrastructure Ltd. vs. Commr. Of Service Tax, Hyderabad reported in 2013 (29) STR 33 (Tri. Bang.) wherein it has been held as under:-
10.1 Whether, in the case of each of the two JVs, the service provided to the Government of Andhra Pradesh is classifiable as ""WCS"" has to be
determined from the nature of the relevant contracts as understood by the parties thereto as also from the scope of the works executed under the
contracts Of course, this exercise has to be undertaken with reference to the definition of ""works contract"" embodied in Explanation to Section
65(105)(zzzza) of the Finance Act, 1994.
10.12 The definition of ""commercial or industrial construction service"" excludes services provided in respect of certain specified items including ""dams
Similarly the definition of ""site formation and clearance, excavation and earth moving and demolition"" excludes services provided in relation to certain
specified items including ""irrigation"" Therefore, according to the counsel for the appellants, any service provided in relation to ""dams"" and ""irrigation
should be deemed to have been excluded from the purview of ""works contract service"" as well. There is no warrant for deeming so inasmuch as
every taxable entry needs to be understood with reference to the language used in such entry
and, accordingly, a given service has to be classified, which is the mandate of subsection (1) of Section 65A of the Finance Act, 1994. We have not
found anything in the text of the definition of ""works contract"" to indicate that turnkey/EPC projects for irrigation are excluded from the ambit of
taxable service of works contract With regard to ""dams"", we have already expressed our views in para (10.6) of this order. As rightly submitted by
the learned Special Consultant for the Department, there is no room for any intendment or assumption or presumption and, where the words of the
statute are plain and clear, there is no room for applying any of the principles of interpretation. In this context, the reliance placed by the Special
Consultant on the decision of the Apex Court in Grasim Industries case is found to be apposite.
10.13 Clause (e) of the definition of workscontract--turnkey projects including engineering, procurement and construction or commissioning (EPC)
projects--clearly conveys the legislative intent underlying the definition of ""works contract"" in relation to turnkey projects. It does not exclude EPC
projects for irrigation, nor does it discriminate between EPC projects for commercial/industrial purposes and those for non-commercial/non-industrial
purposes, nor between EPC projects of Government departments/agencies and private entities. What does not figure in the plain language of the entry
cannot be read into it by this Tribunal.
4.1 He contended that the judgment which has been sought to be relied upon is subject matter of SLP before the Supreme Court.
However, in our considered opinion, the Tribunal clearly observed as under:
Admittedly, in the present case the construction activity of the appellant is with reference to student’s hostel and the public hospital. These are
non-commercial buildings. Accordingly, these are excluded from tax liability under works contract service.
It is thus clear that the hostel which was constructed was a girls hostel and hospital which was need of the Jaipur was constructed. In that view of
the matter, it was not commercial building as per the language used and the activities neither fall under commercial activities nor industrial activities, it
is purely a social activity where the girls hostel is constructed for girls students in city of Surat and hospital in Jaipur.
Thus, we are in complete agreement with the view taken by the Tribunal. No substantial question of law arises in the appeal.
The appeal stands dismissed.