By TIOL News Service

MUMBAI, MAR 21, 2014: THE appellants are engaged in the activity of lowering, laying, jointing and testing GRP pipes (manufactured by the appellant) at the customers' site.

They undertook such activity for the benefit of customers namely M/s Videocon Narmada, Birla Copper, IVRCL Infrastructure, Gujarat Industrial Development Corporation (GIDC), Surat Municipal Corporation and Vizag Municipal Corporation.

In respect of the service rendered to the first three parties, the appellants paid service tax but not in the matter of services rendered to GIDC & the Surat & Vizag Municipal Corporations.

SCN was issued demanding ST not paid by the appellants for the period 16.06.05 to 31.03.08. Adjudicating the dispute, the Commissioner held that the service rendered by the appellants to the municipal corporations was not taxable inasmuch as these customers were not 'commercial' concerns. However, in respect of service rendered to GIDC, the adjudicating authority upheld the proposals made in the show cause notice. It was held that the activity of lowering, laying, jointing and testing GRP pipes in the premises of GIDC were squarely covered by the definition of 'Commercial or Industrial Construction Service' given under section 65(25b) of the Finance Act, 1994. Accordingly, by invoking the extended period of limitation on the ground of suppression of material facts by the assessee, the Commissioner confirmed demand of service tax and imposed penalty.

Before CESTAT, while seeking waiver of pre-deposit and stay of recovery in respect of service tax confirmed of Rs.1,04,77,357/-, the appellant submitted that GIDC is not a profit making institution and hence the service rendered to them would not come within the ambit of the above definition. On the other hand, the Revenue argued that the construction of pipelines, which was used or to be used primarily for industry squarely fell within the ambit of the above definition.

The Bench prima facie negated the submissions of the appellant on merits as well as on limitation and ordered the applicant to make a pre-deposit of Rs.50 lakhs. We reported this order as 2009-TIOL-1583-CESTAT-MUM.

The appeal was heard recently and the appeal was dismissed by inter alia observing thus -

++ From the definition (s. 65(25b) of FA, 1994), construction of pipelines which is used or to be used primarily for commercial or industrial work or intended for commerce or industry would fall within the purview of Commercial or Industrial Construction Service.

++ From the preamble to the Gujarat Industrial Development Act, 1962 and section 3 of the same, it is absolutely clear that the GIDC has been set up to establish and organize industry in industrial areas and industrial estates and for establishing commercial centres. In other words, the activity undertaken by the GIDC relates to commerce or industry.

++ The pipelines are for supply of water to industrial units and commercial establishments. From these legal provisions, it is absolutely clear that the laying of pipelines undertaken by the appellant for M/s GIDC comes squarely and clearly within the definition of ‘Commercial or Industrial Construction service' as defined under Section 65(25b) of the Finance Act, 1994, and, therefore, the appellants are liable to discharge Service Tax liability on the consideration received in respect of such activities.

++ The plea that activity included both supply of pipeline as also laying of pipelines and, therefore, it would come within the purview of Works Contract and a composite contract cannot be vivisected is not sustainable in view of the decision in G.D.Builders & Ors. vs. Union of India - 2013-TIOL-908-HC-DEL-ST wherein it is held that a composite contract can be vivisected and service portion of composite contracts can be subjected to levy of Service tax.

++ In none of the Returns filed, they have indicated that they are rendering the services to GIDC or the amount of consideration received for such services. Therefore, it has to be concluded that the appellant had suppressed the fact of rendering services to GIDC and receiving consideration for the same. Therefore, invocation of extended period of time is clearly justified.

Placing reliance on the decisions in Nazareth Metal (2006-TIOL-864-CESTAT-MUM), Tanzeem Screen Arts (2005-TIOL-1312-CESTAT-MUM) and Neminath Fabrics (2011-TIOL-10-HC-AHM-CX), the Bench held that the invocation of extended period for confirmation of demand is sustainable in law. The plea for waiver of penalty u/s 80 was also rejected by holding that the appellant had not shown any reasonable cause for failure to discharge of Service Tax liability inasmuch as they were well aware of the provisions of law as they were discharging the Service tax liability in respect of the very same activity undertaken for other entities.

The appeal was rejected.

(See 2014-TIOL-433-CESTAT-MUM)