Karvembu and Co. vs Under Secretary, Department of Revenue

N. Paul Vasanthakumar, J.—The prayer in these writ petitions are either to quash the Circular No. 110/4/2009-S.T., dated 23.2.2009 or to

quash the show cause notices/summons issued by the respective Respondent calling for appearance/details pursuant to the said Circular.

The common issue raised in these writ petitions is, whether the road management, maintenance or repair services carried on by the Petitioners,

who are contractors, are liable to pay service tax from 16.6.2005 to 26.7.2009, when the Government of India in its Notification No. 23/2009

Service Tax, dated 27.7.2009 has granted exemption from the service tax levy to all persons, who are doing management, maintenance or repair

of roads.

The brief facts necessary for disposal of these writ petitions are as follows :

(a) The Petitioners are Road Contractors. They are claiming that they are not covered under the definition of maintenance and repair as defined u/s

65(64) of the Finance Act, 1994. The Petitioners are engaged in laying new roads and also doing the job of patch work, which is specifically

exempted u/s 65(105)(zzzza). By the impugned circular, a clarification is issued stating that resurfacing, renovation, strengthening, relaying of roads

and filling up of potholes will fall under the category of maintenance, and repair activities and is liable to tax under ""Management, Maintenance and

Repair Services"" u/s 65(105)(zzg) of the Finance Act, 1994. According to the Petitioners any clarification issued by the department is binding on

the lower authorities and therefore the said clarification is challenged in the writ petitions contending that the said clarification is contrary to the

Finance Act, 1994.

(b) It is also stated in the affidavit that the State Highways Authorities and Local Authorities, who are in charge of laying and relaying of roads in

the State, regularly call for tenders for the said works. Tenders are awarded to the successful contractors. The Contractors are carrying on the

work of road laying and relaying and maintenance for the past several years. The State Highways Department and Local Authorities are having

necessary data regarding the execution of the works and the contractors on completion of the contract will hand over the roads to the respective

authority.

(c) According to the Petitioners, the nature of the contract awarded falls under the definition of ""Works Contract"" under the TNGST Act, 1959,

and TNVAT Act, 2006. Sub-clause (zzza) to Clause 65(105) of the Finance Act, 1994 was inserted by Section 134 of the Finance Act, 2007

with effect from 1-6-2007 which states that taxable service means ""any service provided or to be provided to any person, by any other person in

relation to the execution of the works contract, excluding works contract in respect of roads, airports, railways transport terminals, bridges, tunnels

and dams"". The Petitioners are doing road repair works and they have not taken any registration for service tax and they are continuously assessed

under TNVAT Act, 2006, for the levy of tax of deemed sale of goods in the works contract and they are paying the same.

(d) According to the Petitioners, prior to 16-6-2005, a service called construction service was defined u/s 65(30a) of the Act. Under the said

provision, construction services do not include laying or relaying of roads. Therefore from 16-6-2005, construction service was named as

commercial and industrial construction services u/s 65(25b) of the Act. However, road laying or relaying is not included. Section 65(105)(zzza) of

the Act as stated supra excludes works contract relating to roads, airports, railways transport terminals, bridges, tunnels and dams. It is the case of

the Petitioners that the Government thought fit to keep out the scope of service tax to the works connected thereto viz., repairing and relaying for

the purpose of reducing the cost of the project and the first Respondent by Circular No. 110/4/2009-S.T., dated 23-2-2009 stated that even now

the laying of new road, widening of narrow road to broader roads, changing road surface, etc., are excluded from Service tax.

(e) The intention of the parliament specifically excluding the activities relating to the roads and the incidental works has been borne in mind by the

first Respondent while issuing Notification No. 23/2009-Service Tax, dated 27-7-2009 and for the earlier period only the Respondents are

demanding the details of road repair works and therefore the action of the Respondents in demanding the details regarding the earlier period is

unsustainable in view of the latest notification dated 27.7.2009.

The Assistant Commissioner of Central Excise, Salem has filed counter affidavit stating that the impugned Circular dated 23.2.2009 clarified the

exclusion of maintenance or repairs of roads as there is no specific exemption for management, maintenance or repair of roads. Therefore the only

conclusion possible is that the construction of road is not a taxable service, however, management, maintenance or repair of roads are in the nature

of taxable service attracting service tax. Further contention raised in the counter affidavit is that by the enactment of Finance Act, 1994, the Central

Government derived its authority from the residuary Entry 97 of the Union list for levying tax on services including taxes on service. By 88th

Amendment to the Constitution of India, a new entry 92C was introduced in the Union list for the levy of service taxes. The department is now

only collecting information from the Petitioners and has not yet issued any legal demand from the Petitioners and therefore the prayers sought for in

these writ petitions are premature. Even if any demand is made, the Petitioners have to exhaust the legal remedy available under the Finance Act,

1994, and therefore these writ petitions are not maintainable.

The learned Senior Counsel appearing for the Petitioners submitted that when the road works are excluded from the provisions of the Service

Tax, the incidental works viz., maintenance relating to roads also cannot attract service tax as these works are also carried out by the

Government/Local Authority and if tax is payable for these kind of works, the Government/Local Authority have to incur more expenses and there

will be no purpose in collecting service tax for such work even if the same is appropriated between the Union Government and State Governments.

The learned Senior Counsel also submitted that the object of granting exemption for the road works cannot be defeated by the impugned circular

issued by the first Respondent and realizing the said position, subsequent notification was issued on 27.7.2009 which clearly show that at any point

of time the contractors doing road works need not pay service tax.

The learned Counsels appearing for the Respondents on the other hand submitted that the notification dated 27.7.2009 is an exemption from

paying service tax in relation to management, maintenance or repair of roads and the said exemption benefit cannot be applied retrospectively as

claimed by the Petitioners, particularly when the notification is not stating about the retrospective exemption.

I have considered the rival submissions made by the learned Senior Counsel for the Petitioners as well as respective learned Counsels for the

Respondents.

The issue to be decided in these writ petitions is, in the light of the notification issued on 27-7-2009 granting exemption from paying service tax

for the works in relation to management, maintenance or repair of roads, whether the said exemption can be taken advantage of by the Petitioners

for the earlier period i.e., for the period from 16.6.2005 to 25.7.2009.

The facts in these cases are not in dispute. The contractors are doing road repair/maintenance works. The said works are awarded by the

Highways Department or Local Bodies. It is an admitted case that for laying new roads, widening narrow roads and for changing road surface, no

service tax is payable. Maintaining the already laid roads, viz., resurfacing, renovation, strengthening, relaying, filling potholes, etc., are carried on in

the already laid roads which are called road maintenance. The repair/maintaining of the existing roads are also carried out by the Highways

Department or Local Bodies through contractors. In the Notification dated 27-7-2009, the maintenance and repair of roads are exempted from

paying service tax. The said notification reads as follows :

Government of India

Ministry of Finance

(Department of Revenue)

New Delhi, the 27th July, 2009

Notification No. 24/2009-Service Tax

G.S.R.(E) - In exercise of the powers conferred by Sub-section (1) of Section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to

as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable

service, referred to in Sub-clause (zzg) of Clause (105) of Section 65 of the Finance Act, 1994, provided to any person by any other person in

relation to management, maintenance or repair of roads, from the whole of the service tax leviable thereon u/s 66 of the said Finance Act.

Sd/- xxxxxxxxxxxxxxxxxx

Under Secretary to the Government of India

Thus, it is manifest that the Central Government on 27-7-2009 taking note of public interest granted exemption from paying service tax in relation

to works namely management, maintenance/repairs of roads u/s 66 of the Finance Act, 1994. The said notification nowhere states that the

exemption is granted with retrospective effect. It is well settled in law that unless a notification issued specifically stating ''with retrospective effect'',

such notification will operate only prospectively. The Division Bench of the Kerala High Court in the decision reported in The Commissioner of

Central Excise and Customs Vs. Mustang Rubbers Indl. Estate, considered similar notification issued u/s 5A(1) of the Central Excise Act, 1944,

and held in para 3 as follows,

3... The very purpose of Clause 5(a) to Section 5A is to cloth the Government with the power to grant benefit of any notification retrospectively

wherever it is required or desirable. It is for the Government to consider whether a notification should be given retrospectively, and if so, up to

what period and unless it is so provided, the Tribunal or even the High Courts have no power to grant retrospectively for a notification in the

interpretation process. We therefore, allow the appeals by quashing the orders of the Tribunal and restoring the original orders confirmed in first

appeals.

The same is the view taken by the Himachal Pradesh High Court in the decision reported in 2009 (236) E.L.T. 47 (H.P.)(Commissioner of Central

Excise v. Himachal Aluminium Pvt. Ltd.) in para 4 held that notification which may affect the rights of the parties are treated to be prospective in

nature unless the notification itself clearly indicates that it will have retrospective effect A similar notification was considered by the Supreme Court

in the decision reported in Jay Mahakali Rolling Mills Vs. Union of India (UOI) and Others, and in paragraphs 6 to 10 (in SCC) held thus,

A bare reading of the circular clearly shows that it was intended to have prospective effect.

It is to be noted that in the Circular dated 31-3-1987 it has been stated that the ""products like bars and rods made from such ship-breaking

scrap would ''now'' be exempt from excise duty"". The effect of the word ''now'' is that it is to operate henceforth. If the intention was to give

retrospective effect, it would have been stated to be so specifically.

""Retrospective"" means looking backward, contemplating what is past, having reference to a statute or things existing before the statute in

question. Retrospective law means a law which looks backward or contemplates the past; one, which is made to affect acts or facts occurring, or

rights occurring, before it comes into force. Retroactive statute means a statute, which creates a new obligation on transactions or considerations or

destroys or impairs vested rights.

By the amendment relatable to notification on 27-3-1987, items which were earlier not included were specified as inputs have been included.

That being so, the contention that the amendment merely clarified the notification as it stood prior to the amendment, is not untenable.

Looked at from any angle the High Court''s order does not suffer from any infirmity to warrant interference. The appeal is dismissed.

The Supreme Court in the decision reported in Suchitra Components Ltd. Vs. Commissioner of Central Excise, Guntur, considered the grant

of giving benefit of the circular to a Tax-payer. In the said decision, following its earlier decision reported in Commnr. of Central Excise, Bangalore

Vs. Mysore Electricals Industries Ltd., the Supreme Court held that beneficial circular has to be applied retrospectively, while oppressive circular

has to be applied prospectively, which means, when circular is against the Assessee, they have right to claim enforcement of the same

prospectively.

The above two judgments of the Supreme Court are with reference to circular and not amendment. Hence the said judgment will not help the

Petitioners to quash the summons. The notification dated 27-7-2009 cannot be given retrospective effect in the absence of specific and express

provision as held by the Supreme Court in the decision reported in Commissioner of Customs, Bangalore Vs. Spice Telecom, Bangalore, . Thus,

the notification dated 27.7.2009 granting exemption from levy of service tax to road maintenance and repairs is to be held only as prospective and

for the earlier period the Petitioners are bound to produce the records to the show cause notice/summons. The circular dated 23.2.2009 cannot be

set aside as it reflects the changes made in the Finance Act, 2005. On 1.6.2005 the Central Board of Customs and Excise issued circular to clarify

the same, which reads as follows:

Maintenance or Repair Services :

16.2 Prior to 16.6.2005, such services covered maintenance or repair or servicing of any goods or equipment, excluding motor vehicles.

However, since 16.6.2005, services relating to maintenance or management of immovable property (such as roads, airports, railways, buildings,

parks, electrical installations and the like) have also been covered under the purview of Service Tax. Such services would be taxable when

provided under a contract or an agreement by any person or by a manufacturer or any person authorized by a manufacturer.

(Emphasis Supplied)

The Board vide Circular No. 110/4/2009-S.T. under F. No. 345/17/2008-TRU, dated 23-2-2009 further clarified as follows:

Commercial or industrial construction service (Section 65(105)(zzg)) specifically excludes construction or repairs of roads. However,

management, maintenance or repair provided under a contract or an agreement in relation to properties, whether immovable or nor, is leviable to

the service tax u/s 65(105)(zzg) of the Finance Act, 1994. There is no specific exemption under this service for maintenance of repair or roads etc.

Reading the definitions of these two taxable services in tandem leads to the conclusion that while construction of road is not a taxable service,

management, maintenance or repair of roads are in the nature of taxable services, attracting Service Tax.

The Government of India, Ministry of Finance, having issued exemption Notification No. 24/2009 on 27.7.2009, it is beyond doubt that prior

to the said date, the items of works namely maintenance and repair of roads was covered for the payment of service tax. The provision of the Act

is not challenged by the Petitioners in these writ petitions. Hence, I am unable to uphold the contentions of the Petitioners challenging the validity of

the circular dated 23.2.2009 as it is a clarification of the Finance Act, 2005 and the circular dated 1.6.2005. If the Finance Act does not empower

the Respondents to levy service tax for maintenance of roads, repair works, the Petitioners can raise the said plea, if any demand is made. At this

stage the said issue is premature. If the Petitioners are able to establish that there was any ambiguity in the Finance Act, definitely they will get

benefit.

As far as the summons issued for the production of documents for the period from 16.6.2005 to 26.7.2009 are concerned, the Petitioners are

bound to produce the same before the authority concerned. The authorities are bound to consider all aspects and decide the matter in the light of

the Finance Act, 1994 and 2005, particularly whether road maintenance and repair is coming within the taxing statute without reference to the

circulars issued while adjudicating the matter. Even after the adjudicating authority''s order, the Petitioners can very well agitate their non-liability

before the appellate authority or appropriate forum and finally before this Court as held by the Supreme Court in the decision reported in Raj

Kumar Shivhare Vs. Assistant Director, Directorate of Enforcement and Another, . Thus the writ petitions are not maintainable as contended by

the Respondents in the counter affidavit.

It is made clear that any finding given in this order need not be construed as giving any finding on the merits of the matter and the Department is

bound to decide the issue in accordance with law, particularly Finance Act, 1994 and 2005. The time limit given to the Petitioners to produce the

records is over and therefore the concerned Respondent is permitted to issue fresh summons and call for records and proceed further in

accordance with law.

The writ petitions are dismissed with the above observations. No costs. Connected miscellaneous petitions are also dismissed.