Service Tax - Stay and Waiver of pre-deposit: EPC need not be whole project, it can also be a part - Person includes Government - Pre-deposit ordered: CESTAT
By TIOL News Service
BANGALORE, NOV 29, 2013: THIS is a Stay and waiver of pre-deposit of Service Tax of Rs.3,87,51,973/- for "Commercial or Industrial Construction Service", for the period December 2005 to September 2009 and service tax of Rs.28,94,07,221/- under the taxable "Works Contract Service", for the period June 2007 to September 2009.
The petitioner during the period in question entered into several contracts, 12 in number; 11 pertaining to provision of the taxable 'works contract service' entered into with the Irrigation and CAD Department of the State of Andhra Pradesh and one contract for the taxable "industrial or commercial construction" service pursuant to a contract with the Andhra Pradesh Power Generation Corporation Ltd. (APGENCO).
It is noted that the impugned order to the extent it confirms the service tax demand in relation to the taxable "works contract service", is covered in favour of Revenue by the judgment of this Tribunal in Ramky Infrastructure Ltd. vs. C.S.T., Hyderabad - 2012-TIOL-613-CESTAT-BANG.
The Counsel for the petitioner seeks to distinguish the said judgment on the basis of the following contentions:-
1. That Section 65 (105) read with appropriate taxing provision i.e. clause (zzza) enjoins the liability to tax where the taxable service is provided by a person to another person (during the relevant period). The contention is that the service should be provided to natural persons and not to an artificial/juristic person, at any rate when the service is provided to an instrumentality of the State.
The Tribunal prima facie did not agree, because in the absence of a contextual exclusion, the expression 'person' would include a persona juris as well.
2. That for a transaction to be taxable as a "works contract" under Section 65 (105)(zzza), the work must be in relation to a project; that a turnkey project must comprise the entirety of the project and not one or a few components of the whole.
The Tribunal did not find a practical, commercial or contemporaneous guidance for such creative interpretation of the expression 'turnkey project' and observed, “The relevant provision, Section 65 (105) (zzza) enacts that the 'works contract' means a contract wherein - (ii) such contract is for the purposes of carrying out, - (e) turnkey projects, including engineering, procurement and construction or commissioning (EPC) projects. We are not advised at present that turnkey project means the whole universe of the larger enterprise. On a prima facie view of the matter, a turnkey project i.e. EPC contract means any contract involving execution of the EPC components i.e. whether the component be in relation to larger work including all components of the entire enterprise a component/project thereof. Thus EPC projects could be executed even in respect of one or more components of a larger project.”
Thus, the Tribunal prima facie did not accept the arguments to distinguish the judgment in Ramky Infrastructure Ltd .
Another contention is that since several contractors were under impression that Government is not comprehended within the expression 'person', the petitioner failed to file returns or remit tax but not with a view to willfully suppress the relevant taxable income or with an intent to evade its liability to tax.
This contention also did not commend acceptance of the Tribunal since for invocation of the extended period, the necessary ingredients are those stated under the proviso to Section 73 (1) of the Act. As per clause (e) thereof, contravention of the provisions of the Act with an intent to evade payment of tax is sufficient to invoke the extended period. Therefore, what is necessary to escape the rigour of the extended period is existence and establishment of a bona fide belief as to Immunity to tax. A bona fide belief must be distinguished from a delusionary assumption. Tribunal found no such bona fide belief, prima facie.
Another contention is that the some of the 'works contract' agreements were entered into prior to 1.6.2007, the date from which "works contract" was enacted as a distinct taxable service and in fairness, those contracts, anterior to 1.6.2007 would not come within the tax net under that category.
This contention is also rejected. With effect from 1.6.2007, 'works contract' is enacted to be distinct taxable service. Only this taxable service provided or to be provided and remuneration received for such service provided or to be provided after 1.6.2007 would thus fall within the ambit of the levy of tax under this category. (But then why is this contention rejected?)
"commercial or industrial service": the contention of the petitioner is two fold:- (a) that in so far as the works were provided to the APGENCO, a public unity service of the State Government and for providing energy to the people, it cannot be considered to constitute provision of commercial services; and (b) that ingredients of the definition of "commercial or industrial construction" service in Section 65(105)(zzzq) of the Act also fall within the definition of 'work contract', the other taxable service.
On the first contention, Tribunal prima facie accepted the same. The definition is prima facie clear and admits of no ambiguity Section 65(25b) defines 'commercial or industrial construction' to mean inter alia construction of new building or a civil structure or a part thereof, which are used or to be used primarily, or occupied or to be occupied primarily with; or engaged or to be engaged primarily in, commerce or industry or work intended for commerce or industry but excluding services provided in respect of the specifically enumerated works. Tribunal observed, “We infer from the legislative context that works provided under the aegis of an instrumentality of the State Government are not per- se excluded from the generic meaning of commercial or industrial construction unless the work does not have a primarily commercial or business motive. In so far as the enacting of distinct taxable service, one as "commercial or industrial construction" with effect from 10.1.2004; and the other as "works contract", with effect from 1.6.2007, the present stage is inappropriate for a detailed analysis as to whether "works contract" service is a distinct and stand alone taxable entity or is carved out partly or wholly from the earlier "commercial or industrial construction" service, enacted later.”
Another contention is that despite the specific claim by the petitioner for the benefit of abatement to the extent of 67% of the gross taxable value, the claim for this benefit was unreasonably rejected. Exemption Notification No.15/2004 dated 10.9.2004 and the later Notification No.1/06 dated 1.3.2006 grant abatement in relation to commercial or industrial construction service to the extent of 67% of the gross value, subject to the conditions stipulated thereunder. According to the petitioner, it has fulfilled and has not violated any of the specified conditions but exemption was nevertheless denied on the sole ground that the value of supply of material free of cost by the service recipient was not included in the gross value submitted for tax, by the petitioner.
Prima facie, the Tribunal accepted this contention.
If you have not understood the above, what it really means is:
The Tribunal ordered pre-deposit of Rs.28,94,07,221/- plus interest thereon; and 33% of Rs.3,87,51,793/- (relatable to commercial or industrial construction service) together with proportionate interest thereon.
(See 2013-TIOL-1779-CESTAT-BANG)
