By TIOL News Service

MUMBAI, AUG 16, 2013: THE appellant Mumbai undertook civil construction i.e construction of viaduct and stations of Delhi Metro Railway Project for Delhi Metro Rail Corporation (DMRC) under turn-key contracts entered into during the year 2006, 2007 and 2008.

The department was of the view that the appellant is liable to discharge service tax on the above activity under the category of ‘commercial or industrial construction service' and accordingly four show cause notices were issued demanding service tax of Rs. 21,25,49,390/- on the consideration received by the appellant during the period 01/04/2006 to 31/03/2011.

The Commissioner of Service Tax, Mumbai-II confirmed the demands along with penalties and interest.

Before the CESTAT, the appellant submitted -

+ Delhi Metro Rail Corporation (DMRC) is owned by the Government of India and the Government of New Delhi with 50% shareholding each and, therefore, the Delhi Metro Railway is a railway owned by the Government.

+ ‘Commercial or Industrial Construction Service' as defined in Section 65(25b) excludes from its purview such activities undertaken in respect of roads, railways, transport terminals, bridges, tunnels and dams. There is no distinction made in the said definition between Government railway and non-government railway and all activities in relation to railways are excluded from the scope of the service and, therefore, there is no liability to pay service tax on the said activity.

+ The High Court of Delhi in the case of DMRC vs. Municipal Corporation of Delhi [2008 (103) DRJ 369] has held that DMRC is a "railway" as defined in section 2(31) of the Railways Act, 1989 and, therefore, the ratio of the above judgement will apply equally in case of service tax liability also.

+ DMRC is a member of Indian Railways Conference Association (IRCA) and is bound by Indian Railways Conference Association Rules which makes it amply clear that DMRC is a ‘railway' as defined under the Railways Act, 1989.

The Revenue representative reiterated the findings of the adjudicating authority and while extracting findings from the O-in-O submitted -

+ "the Central Government, while examining the scope of the term ‘Railways' in the context of the request for Service Tax exemption for Commercial or Industrial Construction Service in respect of Monorail projects, has taken a view that the term ‘Railway' does not include Monorail and consequently exclusion from levy of Service Tax leviable to railways is not available in respect of Monorail projects."

+ DMRC is a company formed under the Companies Act, 1956 and declared mission to operate on sound commercial lines obviating the need for government support, which indicates that DMRC is a commercial organization and, therefore, the construction service provided in respect of DMRC undoubtedly falls within the scope of Construction of Civil Structure provided to a person primarily in Commerce and is also used for commerce.

+ in Section 66D(o) of the Finance Act, 1994 effective from 01/07/2012 in respect of service of transportation of passengers by railways, distinction has been made among Metro, Monorail or Tramway which also would indicate that Monorail and Tramways are different from railways as commonly understood.

+ the Delhi HC decision cited has been distinguished on the ground that the Court had not examined and gone into the question with reference to third parties, other than property tax and other taxes.

The Bench observed -

"5.1 The definition of ‘Commercial and Industrial Construction Service' as provided in section 65(25b) excludes such activities relating to roads, ports, railways, dams, bridges, tunnels etc. There is no distinction between a monorail or metro rail or any other kind of rail and, therefore, the term ‘railways' used therein has to be given its widest meaning to include all types of railways and all types of railway lines. Therefore, the distinction sought to be made by the adjudicating authority is not sustainable in law.

5.2 Secondly, we do not find any basis for the conclusion drawn by the learned adjudicating authority by referring to some decision of the Government while examining the scope of the terms ‘railways' in the context of certain tax exemptions. There is no evidence before us to show that the Government examined the matter and came to such a conclusion nor is there any circular or notification issued by the Government in this regard. In the absence of any such decision which is in the public domain, we are unable to accept the contention raised by the Revenue in this regard and reject the same totally. In other words, the law has to be interpreted as it stood, as held by the hon'ble Apex court in the case of Doypack Systems Pvt. Ltd. - (2002-TIOL-389-SC-MISC) wherein it has been held that the notings in the government files are not relevant for interpretation of the statutes and the statute has to be interpreted by the wordings explicitly used therein and if there is no ambiguity in the language used therein, there is no need to refer to the notings in the government file. On that ground also, the observation of the adjudicating authority has no bearing to the facts on hand and has to be rejected."

Noting that the demand is for the period prior to 01/07/2012, the Bench held that there was no bearing whatsoever of the definition contained in clause (o) of section 65D [Negative List of Services] and the same is not applicable for interpreting the law. Adverting to the Delhi High Court decision cited by the appellant, the Bench observed that since it has been held that DMRC is Government Railway as defined in the Indian Railway Act, the question of levy of Service Tax under ‘Commercial or Industrial Construction Service' would not arise at all as such constructions in respect of Railways stands excluded from the scope of the levy.

Citing the apex Court decision in State of Uttar Pradesh vs. Mohammed Nooh - 1958 (1) SCR 595 where it is held that justice should be done in a common sense point of view, the Bench, on the point taken by the adjudicating authority that DMRC is a company formed under the Companies Act, 1956 observed -

"7. It is also a well-known fact that the Indian Railway itself is an organization, which is meant to run on commercial basis. Recognizing these facts, there is a provision for a separate Railway-Budget to be presented before the Parliament and whenever there is a surplus, the Railways declared a dividend and pass it on to the Consolidated Fund of India. Therefore, the argument that only DMRC is run on commercial basis and not Indian Railway, is not an acceptable proposition. In view of the specific exclusion of ‘railways' from commercial and industrial construction service, the question of imposing any Service Tax on the railways run by the DMRC does not arise at all."

In fine, the Bench held that the demand of Service Tax on construction undertaken for Delhi Metro Rail is clearly unsustainable in law.

The order passed by the Commissioner of Service Tax, Mumbai-II was set aside and the appeals were allowed.

(See 2013-TIOL-1225-CESTAT-MUM)