By TIOL News Service

MUMBAI, APRIL 11, 2013: THE nine appellants were awarded contracts for the construction of roads by Maharashtra State Road Development Corporation, National Highway Authority of India, Government of Maharashtra and also Government of India. These contracts were on Build, Operate and Transfer (BOT) basis. The consideration for the services rendered under these contracts were allowed to be recovered by collection of toll charges for a fixed tenure and appropriating the same towards the cost incurred. The case of the Revenue is that collection of toll charges by the appellants under these contracts comes within the purview of ‘Business Auxiliary Services'. Notices were issued and demands for service tax along with interest were confirmed apart from imposing equivalent amounts of penalty.

So, the appellants are before the CESTAT.

The appellants submitted that they have not rendered any service classifiable under ‘BAS'; that no part of the toll charges have been passed on to the Government or NHAI; that the service rendered in construction of roads is not taxable under the Finance Act, 1994 and the same have been specifically excluded from the purview of service tax levy both under ‘Commercial and Industrial Construction Service' as also under ‘Works Contract Service'; that even in respect of maintenance and repairs of roads, exemption from levy of service tax has been provided under Notification no. 24/2009-ST dated 27/07/2009 and the said exemption has been given retrospective effect from inception of levy in 2005 in the budget 2012.

The Bench after extracting the definition of BAS inter alia observed -

"…Neither in the show cause notice nor in the impugned order is there any proposal to classify the service rendered by the appellants under any of the sub-clauses of business auxiliary service. The only allegation is that the appellants have been authorized by the government or NHAI to collect toll charges on the use of the highways/roads constructed by them and, therefore, they have rendered a service. Non-specification of the charge is a gross violation of the principles of natural justice and on that ground along, the show cause notice and the impugned order are liable to be set aside. Be that as it may, let us see whether there is any merit in the allegation against the appellants.

5.5 The appellants herein have undertaken the construction of roads. To finance/compensate for the cost of construction, the contractors have been permitted by the Government/NHAI to collect toll charges from the users of these roads. Thus the toll charges have been collected by the appellants on their own account. If that be so, they cannot be said to have rendered any ‘Business Auxiliary Service' to the Government or NHAI or anybody else."

The CESTAT also took note of the CBEC Circular no. 152/3/2012-ST dated 22/02/2012 and remarked -

"…The above circular issued by the Board makes it abundantly clear that there is no liability to pay service tax on the toll charges collected by the service providers who have undertaken construction of roads on BOT basis under the category of Business Auxiliary Service. In spite of these clear instructions by the Board, which are binding on the departmental officers, a contrary view has been taken by the adjudicating authority for reasons best known only to him."

Holding that the activity of the appellant in construction of roads on BOT basis is not leviable to service tax either under commercial or industrial construction service, works contract service, maintenance, management or repair of immovable property service or under Business Auxiliary Service, the Bench set aside the nine orders passed by the Commissioner of Service Tax-II, Mumbai and allowed the appeals with consequential relief.

For whom bells toll - Interestingly, out of the nine orders-in-original, eight have been passed on the same day on 31/08/2012 and one of them is delayed by ten days.

(See 2013-TIOL-586-CESTAT-MUM)