By TIOL News Service

BANGALORE, OCT 09, 2013: M/S. IVRCL-KBL-MEIL-JV ("appellant”) is a Joint Venture between M/s. IVRCL, M/s. Kirloskar Brothers Ltd. and M/s. Megha Engineering & Infrastructures Ltd. The appellant is registered with the service tax department under ‘works contract service'. Based on the data/ documents submitted by the appellant, a show-cause notice dated 08.4.2011 was issued by the Commissioner of Customs, Central Excise & Service Tax, alleging that the appellant had evaded service tax on the value of services provided under the category of execution of works contract and accordingly demanded Rs. 5,08,90,503/- towards service tax and cess payable under Section 73(1) of the Finance Act, 1994, and that the appellant is liable to pay interest under Section 75 of the Act and penal action under Sections 76 & 77 of the Act.

The appellant submitted that the services provided by them in respect of works are in respect of Lift Irrigation Schemes for lifting the water from source to the canal and for further transmission of water. These projects were undertaken by Government of Andhra Pradesh, Irrigation & CAD Department for the purpose of providing water for Irrigation Schemes. Lift Irrigation is a method of irrigation in which water is not transported by natural flow (as in gravity-fed canal systems) but is lifted with pumps or other means. Lift irrigation schemes must accomplish two main tasks: first, to carry water by means of pumps from the water source to the main delivery chamber, which is situated at the top most point in the command area; second, they must distribute this water to the field of the beneficiary farmers by means of a suitable and proper distribution. Therefore, in the Lift Irrigation System, the water is drawn from main source and due to terrain difficulties; the same is lifted and fed to a gravitation canal for further transmission/distribution for the purpose of irrigation.

Further, the appellant referred to and relied upon Notification No. 41/2009-S.T., dated 23.10.2009 wherein the service tax in relation to execution of works contract in respect of canals, other than those primarily used for the purpose of commerce or industry, is exempted from the whole of service tax leviable thereon under Section 66 of the Act.

At this stage, it was felt that the decision as to whether the appellant has a prima facie case or not, would depend on the facts as to whether the appellant is eligible for the benefit of Notification No. 41/2009-S.T. dated 23.10.2009.

The relevant notification is as under:-

Canals other than those for commerce & industry - Exemption to works contract service.

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service referred to in sub-clause (zzzza) of clause (105) of section 65 of the said Act, in relation to execution of a works contract in respect of canals, other than those primarily used for the purposes of commerce or industry , from the whole of service tax leviable thereon under section 66 of the said Act."

Tribunal observed, "It can be seen from the Notification that the exemption is available in respect of taxable service in relation to execution of works contract in respect of canals. Prima facie , we felt that there is no dispute as to whether the appellant's service is covered under works contract service or not. Therefore, the question to be determined is whether the appellant's work can be considered as 'works contract service' in respect of canals."

It was submitted by the Authorised Representative on behalf of Revenue that the words "in respect of canals" have to be given strict interpretation and only when the works are such that the same is directly relating to a canal namely digging, strengthening embankments, strengthening the walls of the canals, etc. the work can be said to be done 'in respect' of canals. According to the contracts, the appellants were basically not digging the canals but providing infrastructure facilities and lifting the water from lower level to higher level wherever it is required. This work cannot be said to be done 'in respect of canals'.

Meaning of 'in respect of' : The Tribunal considered the meaning of ‘in respect of'. According to 'The Law Lexicon' (The Encyclopaedic Legal & Commercial Dictionary) Reprint 2004, the expression 'in respect of' is wider in its connotation than weird 'in' or 'on'. The law Lexicon also says that the words 'in respect of' are wide enough to permit changes being made as terminals so long as any of these things, viz. stations, sidings, wharves, depots, warehouses, cranes and other similar matters have been proved and are being maintained. According to S.B. Sarkar's "Words & Phrases of Excise & Customs" (3 rd Edition), the words 'in respect of' have the widest possible scope. They import such meanings as 'in relation to', 'with reference to', or 'in connection with'. The phrase 'in respect of' is probably the widest of any expression intended to convey some connection between two related subject matters.

After considering the submissions and the meaning of the words 'in respect of', prima facie conclusion is that the expression covers the work undertaken which is in relation to canals. Undisputedly, the pump house and other facilities were erected by the appellant to lift the water from lower level to higher level of canals. In these circumstances, the appellant has made out prima facie case for complete waiver in view of the fact that the period involved is subsequent to October 2009 and during the relevant period, exemption notification was available.