By TIOL News Service

MUMBAI, MAY 28, 2013: 26^th July, 2005, the day Mumbai received 994 mm of rainfall.

The term 26 July, now is, in context always used for the day when the city of Mumbai came to a standstill. Large numbers of people were stranded on the road, lost their homes, and many walked for long distances back home from work that evening. At least, five thousand people lost their lives in the flooding that also took place in the districts of Thane, Raigad, Chiplun, Khed and Ratnagiri.

Nothing has remained the same since then. Every monsoon, Mumbaikars keep a tally of the high-tide timings and pray that it does not rain then. Simply because they are in the know that no concrete efforts have been taken by the administration to ensure that there is no repeat of the 'disaster' - even today it is debated as to whether the disaster was a man-made or a natural one. Coupled with the antiquated storm-water drainage system still in use, the 'flooding' disaster was waiting to happen. Actually the term 'flooding' is a misnomer, it should be inundation and in technical parlance it is termed as drainage congestion or the inability of the drainage process to match the rainfall rate. The blame game began and continues…!

Somewhere down the line, the "Mithi river" came into the picture. The prestigious Bandra Kurla Complex (BKC) also abuts this river, which unfortunately never was seen as a river but a giant nullah inasmuch as large slum colonies (read vote banks) have dotted its banks since times immemorial.

The Wikipedia describes Mithi river thus-

++ The Mithi Rive r (aka Mahim River) is a river in Salsette Island , the island of the city of Mumbai . It is a confluence of tail water discharges of Powai and Vihar lakes. The river is seasonal and rises during the monsoons . The overflowing lakes also contribute to the river flow which is stopped by a dam in other times. The river is also a natural drainage channel which carries the excess waters during the monsoons. However it is filthy mainly due to the presence of slums and the discharge of industrial effluents.

++ The river originates from the overflow of Vihar Lake and also receives the overflows from the Powai Lake about 2 km later. It flows for a total of 15 km before it meets the Arabian Sea at Mahim Creek flowing through residential and industrial complexes of Powai, Saki Naka , Kurla , Kalina , Vakola , Bandra-Kurla complex , Dharavi and Mahim .

++ Very often, and this continues to happen, citizens dump raw sewage, industrial waste and municipal waste into the river, unchecked. Besides this, illegal activities like washing vessels, animals and oily drums, discharge of unauthorized hazardous waste are also carried out along the course of this river. Cattle sheds in some areas contribute animal waste. Barrel cleaners, scrap dealers and others dump sludge oil, effluent and garbage in the river. The organic waste, sludge and garbage dumping has reduced the carrying capacity of the river. The water with mixture of sewage and industrial waste is a threat to marine life. The river bed is full of sludge, garbage and vegetation growth like hyacinth in many parts.

Every year, the Municipal Corporation of Greater Mumbai undertakes a cleanliness drive of all gutters, nullahs and the Mithi river and spends crores of public money only to be told that only 10% of the work is complete. This, when the monsoon is just a week away.

This year would be no different.

Excuse us if we have clogged you with talks about the ‘dirty' nullahs and the Mithi river but it is in the Mithi river that the present Service Tax case originated.

During the period 05/05/2006 to 31/07/2007, the appellant had undertaken dredging of 'Mithi River ' under a contract entered into with Mumbai Municipal Regional Development Authority (MMRDA, for short). The CCE, Thane-II demanded service tax of Rs.91.23 lakhs from the appellant on the total amount collected from MMRDA for the work of dredging done in 'Mithi River'.

But naturally, the appellant had to shift his attention from Mithi river to the CESTAT.

The case of the appellant is that ' Mithi River ' is not a river but only a 'storm water drain' . It is submitted that dredging of a drain is not taxable under Chapter V of the FA, 1994 inasmuch as the definition of 'dredging' given under section 65(36a) does not apparently include dredging of any body or stream of water other than river, port, harbour, backwater or estuary.

The appellant produced maps, sketches and photographs in their bid to show that 'Mithi River' is just a drain. The appellant also submitted that navigation is not possible in that stream of water and that it is just a conduit for effluent waters to the sea. A study report dated 10.7.2004 submitted to the Maharashtra Pollution Control Board, which contains results of 'Mithi River' water analysis and also contains finding to the effect that 'Mithi River' is formed due to overflows of Vihar and Powai lakes and that the cumulative discharge of sewage from the thickly populated area around the stream has converted the river into the biggest combined sewage of Mumbai was also produced before the Bench.

In fine, it was submitted that 'Mithi River' is not a river in popular parlance in the modern times and hence the dredging work undertaken by them is not taxable.

The Revenue representative submitted that the stream was always known as a river and even the tender notice of MMRDA described it as a river. It was further submitted that since the appellant obtained the dredging work with reference to such tender notice they cannot plead that they were not dredging (the) river during the period of dispute.

The Bench after hearing the submissions took a prima facie view that the appellant is liable to pay Service Tax and ordered the appellant to make a pre-deposit of Rs.10 lakhs. We reported this as 2011-TIOL-670-CESTAT-MUM.

The appeal matter was heard recently and many ‘clear' arguments were made by both sides - whereas the appellant traced the 200 year old history of the city the Revenue representative stuck to the Tender notice issued by MMRDA and which contract was awarded to the appellant.

The Bench after hearing the lengthy arguments observed -

"5. We have carefully considered the submissions made by both the sides. We have also perused the records of the case which includes the Tender Notice, the contract awarded and the affidavit filed by the Government of Maharashtra before the Hon'ble High Court of Bombay in Writ Petition NO. 2116 of 2005.

5.1 From the Tender Notice and work awarded to the appellant, it is clear that the work pertains to Widening and Deepening the depth of Mithi River. Thus, the contract awarding authority as well as the appellant, the contractor, understood the work as pertaining to dredging of river and not as anything else. Having agreed to and undertaken the work as widening and deepening of the river, the appellant cannot turn around now and say that what he has done is dredging of a nalla and not a river. From the affidavit filed by the Government of Maharashtra, it is clear that the Government has established a "Mithi River Development and Protection Authority"with a view to channelize the river, remove and rehabilitate all activities adversely impacting the environmental conditions of Mithi river, beautify and redevelop suitable activities along the river etc. If Mithi River was not a river, there was no need to have undertaken all these activities by creating a special River Development and Protection authority. In the said affidavit, it is further stated that the work to channelize the Mithi River by dredging is carried out by MMRDA to ensure proper channelisation of the river within the BKC. From these documentary evidences available on record, it is clear that the work has been undertaken in respect of a river.

5.2 Section 65 (36a) defines "Dredging"as follows:-

"dredging"includes removal of material including, silt, sediments, rocks, sand, refuse, debris, plant or animal matter in any excavating, cleaning, deepening, widening or lengthening, either permanently or temporarily, of any river, port, harbor, backwater or estuary."

And the ‘taxable service' is service rendered to any person by any other person in relation to dredging as per the provisions of Section 65 (105)(ZZZb) of the Finance Act, 1994.

5.3 From the contract awarded, it is clear that the work allotted is widening, deepening an desilting of Mithi River and, therefore, the activity undertaken by the appellant squarely falls within the definition of taxable service as defined under Section 65(36a) and accordingly, the Service Tax demand confirmed in the impugned order along with interest thereon is sustainable in law."

In the matter of imposition of penalties u/ss 77 & 78, the Bench inter alia observed -

"5.4 As regards the imposition of penalty, in the instant case, a penalty has been imposed under Section 77 for an amount of Rs.5000/- for non-compliance with the statutory provisions of Service Tax Rules, 1994. A penalty of Rs. 1 crore has been imposed under Section 78 on ground of suppression of facts, as the appellant had obtained Service Tax registration under Dredging activity earlier and subsequently they failed to discharge the Service Tax liability and comply with the statutory provisions inspite of being aware of the legal position in respect of Service Tax liability with an intent to evade payment of Service Tax. In the instant case, the demand has been raised within normal period of time. In this scenario, one has to consider whether the imposition of penalty of Rs. 1 crore is justified. Under Section 78, penalty is leviable equal to the Service Tax demand confirmed. In the instant case, Service Tax demand confirmed is Rs.91,23,081/- and penalty imposed is Rs. 1 crore; therefore, penalty imposed is in excess of the Service Tax demand and the same is not sustainable in law .

5.5 As regards the question whether penalty equal to Service Tax can be imposed, in our view suppression of facts or mis-statement with intent to evade Service Tax is not attracted in the facts of the case. The activities undertaken by the appellant was in the public domain and it is a contract awarded by the Govt. of Maharashtra and, therefore, nobody can suppress the facts form any public authorities. The charge against the appellant can at best be described as mis-interpretation of law. But mis-interpretation is not a mis-statement or suppression of facts. In these circumstances, we are of the view that the imposition of penalty under Section 78 is not warranted and accordingly we set aside the same.

5.6 As regards the imposition of penalty of Rs. 5000/- under Section 77 towards non-compliance of the provisions of Service Tax law, we uphold the same."

The appellant also raised the claim of CENVAT Credit on various inputs/input services. The Bench observed that since the same was never made before the adjudicating authority, the appellant is at liberty to substantiate their claim before the competent authority and who would consider the same in accordance with law.

In fine, the Bench upheld -

+ the confirmation of Service Tax demand of Rs.91,23,081/- along with interest thereon;

+ penalty of Rs.5000/-imposed under Section 77 of the Finance Act, 1994.

However, the penalty of Rs.1 crore imposed under Section 78 of the Finance Act, 1994 was set aside.

In passing : Some more interesting facts from the stay order -

"5. The learned counsel has pointed out that, though the same activity was continued beyond 31.3.2007 and consideration for the service was collected from MMRDA, no demand was raised by the department. It is also submitted that a sister-concern of the appellant-company has also been undertaking the same activity in the same 'Mithi River' but there is no demand of service tax on them…."

( See 2013-TIOL-795-CESTAT-MUM)