By TIOL News Service:

NEW DELHI, MAY 11, 2016: HYUNDAI Rotem Company has filed following two applications before the AAR raising the following question in respect of service tax liability in the matter of contract entered into with Delhi Metro Rail Corporation and with respect to Hyderabad Metro Project with L&T Metro Rail Hyderabad Limited .

Whether the applicant is eligible for claiming exemption from payment of Service Tax in terms of Notification No. 25/2012 dated 20.06.2012 for the activities in relation to Testing & Commissioning, Integrated Testing & Commissioning and Trial runs of Trains to be undertaken under the Contract?

Applicant further submits that in terms of the meaning given to 'original works' in the exemption Notification No. 25/2012-ST dated 20.06.2012 read with the Explanation 1 in rule 2A of the Service Tax (Determination of Value) Rules, 2006, the exemption will be available to erection, commissioning or installation of plant, machinery or equipment pertaining to metro.They also rely on the decisions in CIT vs. Mir Mohammad Ali = 2002-TIOL-1516-SC-IT-LB , CIT v. TajMahal Hotel = 2002-TIOL-642-SC-IT to state that the Rolling Stocks, which are installed by the applicant will fall within the definition of 'plant', 'machinery' as well as 'equipment' and therefore, will be covered by said exemption Notification.

Revenue submitted that the services related to installation and commissioning of Rolling Stock will be exempt from Service Tax, if these are for original works pertaining to Railways, including Monorail and Metro.

The authority inter alia observed –

++ The applicant would be eligible to avail benefit of exemption Notification No. 25/2012-ST dated 20.06.2012, in case, services provided by the applicant are;

a) by way of construction, erection, commissioning or installation

b) of original work and

c) pertaining to railways, including monorail or metro.

++ The word 'Commissioning' has not been defined under the Finance Act, 1994. Therefore, one has to refer to its dictionary meaning. As mentioned above, "commission" means to bring a machine, plant, equipment etc., into operation. Rolling Stocks are plant as well as machinery, as held by the Hon'ble Supreme Court in CIT vs. Mir Mohammad Ali = 2002-TIOL-1516-SC-IT-LB and CIT vs. TajMahal Hotel = 2002-TIOL-642-SC-IT respectively. Further, these Rolling Stocks are to be brought into operation by the applicant, which would fall under the meaning of word "commissioning". Therefore, we agree with the applicant that the services provided i.e. in relation to testing & commissioning, integrated testing and commissioning, trial runs of trains, are by way of commissioning.

++ Second issue is whether services provided by the applicant pertain to the original work. As per paragraph 2(y) of Notification No. 25/2012-ST dated 20.06.2012, "original works" is the meaning, assigned to it in Rule 2A of the Service Tax (Determination of Value) Rules 2006, wherein "original work" inter-alia means erection, commissioning or installation of plant, machinery or equipment or structures, whether fabricated or otherwise. We have already held in preceding paragraph that Rolling stock is at least plant and machinery and same would be commissioned by the applicant. Therefore, the applicant would satisfy this condition also i.e. providing services by way of commissioning of original work.

++ Third condition relates to providing said services pertaining to railways, including monorail or metro. This condition has not been opposed by the Revenue, as it is evident that the services relate to Delhi Metro Rail Corporation and L&T Metro Rail Hyderabad Limited.

Ruling:

Applicant is eligible for claiming exemption from payment of Service Tax in terms of Notification No. 25/2012-ST dated 20.06.2012 for the activities in relation to Testing & Commissioning, Integrated Testing & Commissioning and Trial runs of Trains to be undertaken under the contract.

In passing : Amending notification 9/2016-ST dated 01.03.2016 relating to –

Entry 14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,-

(vi) in entry 14, with effect from 1st March, 2016,

A. for item (a), the following shall be substituted, namely:-

“(a) railways, excluding monorail and metro;

Explanation.-The services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro, where contracts were entered into before 1st March, 2016, on which appropriate stamp duty, was paid, shall remain exempt.”.

(See 2016-TIOL-13-ARA-ST)