By TIOL News Service

MUMBAI, JULY 08, 2013: THE appellant is holding Service Tax registration under the categories of GTA Services, Site Formation and Clearance, Excavation, Earth Moving and Demolition Services.

Intelligence revealed that the appellant was engaged in providing ‘Management, Maintenance or Repair Service', ‘Commercial and Industrial Construction Service' and ‘Site Formation and Clearance, Excavation, Earth Moving and Demolition Service' to various agencies like Airport Authority of India, military bases, Municipal Corporation of Nagpur, CPWD etc. Such services included repairs and strengthening of roads, improvement and resurfacing of runways, construction of toll plazas and on these services the appellant was not discharging service tax.

Accordingly, in adjudication proceedings a service tax demand of Rs.10,25,72,125/- was confirmed by the CCE, Nagpur along with imposition of penalties and interest.

In appeal before the CESTAT, the appellant pointed out that no service tax is payable in respect of repairs of roads as the same were exempted with retrospective effect from 16/6/2005 to 26/7/2009 by virtue of Section 97 of the Finance Act, 2012. It was also submitted that vide notification 24/2009-ST, dated 27/7/2009 the Central Government had exempted service tax leviable in relation to maintenance and repairs of roads .

The CESTAT vide order dated 30/7/2012 while partly dispensing with pre-deposit held that repairs and maintenance of roads are exempted from service tax and, therefore, demand made by the revenue to that extent is not tenable. However, the Tribunal took a view   that the repairs and maintenance of runways at airports are chargeable to service tax.

Inasmuch as the Bench directed the appellant to deposit an amount of Rs.3 crores being the demand attributable to the service of repairing of runways for the purpose of hearing the appellant's appeal on merits.

Against this order of the CESTAT, the appellant filed an appeal before the Bombay High Court.

The High Court after hearing both sides observed -

"6. ...We find that the issue for consideration before the Tribunal on merits would be whether the word “roads” would include within it “runways” at airports. Prima facie, it appears to us that runways at the airports are species of the genus "road" . Therefore, the runways should also normally receive the same treatment as roads for service tax purpose. We find prima facie that the case of the appellant is a very arguable case….”

Accordingly, the High Court set aside the order of the Tribunal dated 30/7/2012 and directed the Tribunal to hear the appellant's appeal on merits without insisting for any pre-deposit of duty, interest or penalty.

The High Court, however, clarified that the observations made are only a prima facie view and the Tribunal should not be influenced by the same while disposing of the appellant's appeal on merits. See 2012-TIOL-1030-HC-MUM-ST .

The appeal was heard recently by the CESTAT.

On the question of extending the benefit of exemption notification 24/2009-ST dated 27/07/2009 in respect of services in relation to management, maintenance and repair of roads and the retrospective effect given by the Finance Act, 2012, the Bench agreed that the matter has to go back to the adjudicating authority to consider the grant of exemption since at the time of adjudication, the provision of the law had not come into existence.

In the matter as to whether the expression ‘road' includes ‘runways', the Bench made the following observations –

+ ‘Runway' is not defined in the Act neither the term ‘road'.

+ As per the dictionary meaning while a road is a path or way between two different places, a runway is a specially prepared surface on an airfield. The purpose for which a road is put to use and a runway is put to use are substantially different.

+ While a road is a means of travel from one place to another for the purpose of transportation of passengers or goods or animals, the runway is not a means of travel at all. Public access is prohibited and it is only a piece of land where the aircrafts can land or take off.

+ It is also not necessary that runway has to be built on land. In the case of aircraft carriers, runways are built on the ship and the aircrafts land or take off from the ship. Thus, there is substantial difference between a road and a runway.

+ The definition given by ICAO of a ‘runway' also says that a runway is a strip of land over which aircrafts to land or take off.

+ The definition of ‘road' and ‘runway' in the Chamber's Dictionary also makes this position clear. While road is defined as a tract suitable for road traffic, a highway, a roadway etc. runway is defined as a firm strip of ground for aircraft to take off from land and land on.

+ Therefore, in common understanding, road and runways are not one and the same. They are distinct and different.

By concluding as above, the Bench negatived the contentions raised by the appellant that maintenance or repair of road would include maintenance or repair of runways. Furthermore, in the absence of a specific exemption in respect maintenance or repair of runways, the benefit of service tax exemption available in respect of roads cannot be extended to runways, the Bench observed.

As regards the claim of the appellant that in respect of runways constructed in defence airports, the benefit of retrospective exemption provided by the Finance Act, 2012 would be available, the CESTAT observed that this aspect needed consideration by the adjudicating authority as this issue had not been raised or considered by the said authority.

In fine, the matter was remanded to the adjudicating authority.

In passing : More than a month ago, we had reported the CESTAT decision in Reliance Michigan JV [ 2013-TIOL-795-CESTAT-MUM] where the dispute was whether “ Mithi is a river or a storm water drain ”.

The Bench had while confirming the Service Tax demand under the head ‘Dredging Service' observed –

“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…”

(See 2013-TIOL-1029-CESTAT-MUM)