M/S Aaditya Constructions @APPELLANT @Hash Principal Commissioner of CGST-Raipur Chhattisgarh @RESPONDENT

P.V. Subba Rao, J

M/s Aaditya Constructions, the appellant is a partnership firm engaged in providing construction services in respect of commercial or industrial buildings, civil structures and works contracts and was a recipient of “transportation of goods by road” services. It had registered with the service tax department and had been filing service tax returns.

Intelligence gathered by the department indicated that the appellant had not assessed and paid service tax correctly and that though the appellant had rendered services during 2008-09, it had obtained the service tax registration only on 19.03.2010. After scrutiny of the audit reports submitted by the appellant, its balance sheets, etc., a Show Cause Notice dated 18.10.2013, SCN was issued to the appellant proposing demand of service tax of Rs. 2,02,73,997/-for the period 2008-09 to 2011-12 invoking the extended period of limitation under section 73 of the Finance Act 1994, Finance Act. It was also proposed in the SCN to impose penalties under section 76, 77, 78 of the Finance Act.

The proposals in the SCN were confirmed by Order dated 22.12.2017, Impugned order passed by the Principal Commissioner assailing which the appellant filed this appeal.

We have heard Shri B.L. Narasimhan, learned counsel for the appellant assisted by Ms. Daliya Singh and Shri Manoj Kumar, learned authorised representative appearing for the department and perused the records.

On scrutiny of the audit reports of the appellant, the department found that the amounts indicated in the ST-3 returns as payments received for taxable services had not tallied with the receipts shown in the balance sheets. Accordingly, summons dated 29.07.2013 and 02.09.2013 were issued to the appellant seeking re-conciliation statements and documents which were provided by the appellant by its letter dated 19.09.2013 along with copies of work orders. In these documents, the appellant’s claim was that the amounts on which it had not paid service tax pertained to providing exempted services. More documents were sought by the department by issuing summons dated 04.10.2013 but the appellant had not provided them. After re-conciliation of the ST-3 with the balance sheets for the period 2008-09 to 2011-12, it was felt by the department that the appellant had not paid service tax on some services and the SCN was issued. The details are as follows:

Sl. No.

Nature of Activity

Total Amount

Service Tax payment status

1.

Construction of Road

16,21,20,777/-

Not paid

2.

Construction of boundary wall and area grading

4,59,76,158/-

24,04,910/-

3.

Construction and fixing of tiles in water reservoir

53,39,347/-

Not paid

4.

Supply of machinery

1,75,407/-

Not paid

5.

Supply of boulders & dust

40,46,34/-

Not paid

6.

Supply of aggregate

1,56,29,937/-

Not paid

Learned counsel for the appellant submits that it had paid service tax on S. No. 2 and had settled the issues pertaining to S. No. 4, 5 and 6 above under the Voluntary Compliance Encouragement Scheme, VCES. Therefore, the only questions to be decided are the taxability of services at serial no. 1 and 3 above and the dispute regarding demand of service tax on reverse charge.

Construction of road (serial no. 1 in the above table): This demand of service tax on an amount of Rs. 16,21,20,777/- is on the consideration received by the appellant as follows:

During 2008-09

(a) Construction of roads as a sub-contractor of M/s BB Verma Engineers and Contractors is Rs. 2,30,66,404/-

(b) Construction of Roads as a sub-contractors M/s Shanti Enggicon Pvt. Ltd. Korba-Rs.26,20,875/-

During 2010-11

(c) Construction of roads as a sub-contractors of M/s B.B. Verma Engineers & Contractors-Rs.1,13,84,238/-

(d) Construction of roads as a sub-contractors of M/s Shanti Enggicon Pvt Ltd., Korba -Rs. 2,79,86,552/-

During 2011-12

(e) Construction of roads as a sub-contractors of M/s B.B. Verma Engineers & Contractors-Rs. 1,33,20,801/-

(f) Construction of road as a sub-contractor-M/s Shanti Enggicon Pvt.Ltd.-Korba-Rs.1,41,20,572/-

(g) Construction of roads as a sub-contractors M/s Aditya Construction-Rs. 1,37,05,379/-

The proposal in the SCN was to demand service tax on the above under “works contracts services/ construction services”.

Learned counsel for the appellant submits that the show cause notice failed to classify the services and it was not clear whether the demand was being made under the construction of complex services or under the works contract services. It is his submission that the contracts which it had received were for providing services along with the use of materials. Therefore, they were in the nature of work contract services. For that reason, as per the judgment of the Supreme Court in Commissioner of C. Ex. & Customs, Kerala vs. Larsen and Toubro, 2015(39)STR 913(SC) service tax could not have been demanded under the construction of complex services. As far as the “works contracts services” are concerned, while every service which is rendered along with use of materials falls under the definition of “works contract” not all works contracts are exigible to service tax. In terms of section 65(105) (zzzza) of the Finance Act, only some types works contracts covered within the definition were exigible to service tax. Section 65 (105) (zzzza) during the relevant period specifically excluded services rendered in relation to construction of roads from its ambit. Therefore, the services rendered by the appellant with respect to the construction of roads were not exigible to service tax at all.

Construction and fixing of tiles in water reservoir (S. No.3 of the table). An amount of Rs. 53,59,347/- was received by the appellant as follows:

(a) Construction and fixing of tiles in water reservoir as a sub-contractor of M/s Akmaii Construction Company Pvt. Ltd. during 2009-10.

(b) Construction and fixing of tiles in water reservoir of M/s Akmaii Construction Co Ltd. as a sub-contractor during 2011-12-Rs. 38,60,964/-.

Learned counsel for the appellant submits that these services were rendered by the appellant as a sub-contractor of M/s UPMAI who received a contract in respect of the water reservoir related to dams. The service rendered by the appellant included not only fixing of tiles but also providing the tiles. Therefore, this construction was in the nature of works contracts service and it could not have been taxed under construction of complex services. Services rendered in relation to dams would be specifically excluded from section 65 (105) (zzzza) and, therefore, no service tax could have been charged on these amounts even under the works contract service.

Learned counsel for the appellant also submitted that the demand is not sustainable for the preliminary reason that the impugned order failed to classify the services.

In addition to the above, there is a demand of service tax on GTA services alleged to have been received by the appellant. Learned counsel for the appellant submits that it had received transportation of services from individual truck owners and not from goods transport agencies and, therefore, no service tax was payable on them. The appellant also received some transportation services from goods transport agencies on which it had paid an amount of Rs. 3,30,671/-along with its VCES application 2013. The amount has paid stands appropriated.

He draws the attention of the Bench to Section 65 (50a) and section 65 (105) (zzq) which reads as follows:

“Section 65(50a)-“goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called”

“65 (105)(zzp) to any person, by a goods transport agency, in relation to transport of goods by road in a goods carriage,”

Learned counsel, therefore, submits that no service tax remains to be paid under reverse charge mechanism in respect of the transportation services received by the appellant.

Learned authorised representative appearing for the department supported the impugned order.

We have considered the submissions made by both the sides and perused the records.

Of the six heads under which amounts were received by the appellant for providing services, the appellant already paid service tax in respect of “construction of boundary walls and area grading” and settled regarding two disputed services, namely, supply of machinery, boulders and dust and supply of aggregates under the VCES scheme. The appellant submits that it had also settled dispute regarding the demand of service tax under reversed charged mechanism under GTA services received by it under the VCES scheme.

Therefore, what remains to be decided are the taxability of (a) services of construction of road by the appellant as a sub-contractor; (b) construction and fixing of tiles in water reservoir by the appellant as a sub-contractor and (c) service tax under reverse charge mechanism on the transportation service received from individual truck owners.

The submission of the learned counsel for the appellant that service tax cannot be demanded for the pre-negative list period without classifying the service deserves to be accepted. In fact, the impugned order mentions the service tax as being demanded under construction services/ works contract services. The demand is vague and deserves to be set aside on this ground alone.

It is also the submission of the learned counsel for the appellant that all disputed services, namely, construction of roads and construction and fixing of tiles in water reservoir were rendered along with supply of materials. He submitted few work orders and the contracts received by the main contractor in support of the appeal. There is nothing on record in the show cause notice or in the submissions made by the department to establish that these two services were rendered as services simpliciter. It has been held by the Supreme Court in Larsen & Toubro that the charge of service tax under various heads of section 65 (105) other than section 65 (105) (zzzza) is only a charge of services simpliciter. Therefore, there cannot be any demand of service tax under any head other than under works contract services. There is no specific demand under works contract services.

At any rate we find that section 65(105) (zzzza) reads as follows:

“Section 65 (105)(zzzza) to any person, by any other person in relation to execution of a works contract, excluding works contracts in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

Explanation- for the purpose of this sub-clause, ‘works-contract’ means a contract wherein,-

(1) Transfer of property in goods involved in the execution of such contract is leviable to tax a sale of goods, and

(2) such contract is for the purpose of carrying out-

a. …………..

b. Construction of a new building or a civil structure or a part thereof or a of a pipeline or conduit, primarily for the purpose of commerce or industry

c. …………….

d. Completion and finishing services, repair, alternation, renovation or restoration of, or similar services, in relation to (b) or (c); or

e. ……………….”

This charging section specifically excludes “works contracts in respect of roads” as well as the “works contracts in respect of dams”. Therefore, the demand of service tax either on the construction of roads or on the tiling of the reservoir for dams cannot be sustained.

As far as the demand of service under reverse charge mechanism on GTA service is concerned, section 65 (50a) defines goods transport agency as any person who provides service in relation to transportation of goods by road and issues a consignment note, by whatever name called. Section 65 (105)(zzq) defines “goods transport agency service” as a service provided to any person by “goods transport agency” in relation to transport of goods by road in a goods carriage. Unless the service provider is a “goods transport agency”, its services are not taxable either at the hands of the service provider or at the hand of service recipient because such services are out of the purview of the charging section. In order for an organisation to be a goods transport agency it must issue consignment notes. It is a well settled legal position that individual truck owners who do not issue consignment notes are not covered by the definition of goods transport agency and the services rendered by them are not exigible to service tax.

Learned counsel for the appellant submits that to the extent the appellant had received amount through goods transport agencies it has already paid service tax as a part of settlement under VCES 2013. As far as the individual truck owners are concerned, the services rendered by the appellant are not exigible to service tax because they are not goods transport agency.

In view of the above, the demand of service tax under reverse charge mechanism on roads transport agency services on the services rendered by the individual truck owners also cannot be sustained. Since the demand of service tax cannot be sustained, the demand of interest and penalty also need to be set aside.

In view of above, the appeal is allowed and the impugned order is set aside with consequential relief to the appellant, if any.

[Order pronounced on 22/01/2025]