By TIOL News Service

HYDERABAD, APR 16, 2015: THE Appellant has undertaken work comprising of various civil works relating to construction of Hydro Power Projects in Himachal Pradesh, Sikkim, Uttarakhand etc. The appellant had entered into contracts for execution of certain civil works with M/s Lanco Green Power Private Ltd., M/s. Lanco Energy Pvt. Ltd. etc. The scope of work in each of these contracts, inter-alia, includes various activities like preliminary site activities, bus bush clearance, Topographical survey, construction of approach roads, temporary buildings, tunnels, coffer dams, underground power house tunnels, transformer tunnels etc., The value of contract is fixed at a lumpsum amount for the scope of the work defined in the contract. However, the appellant had paid service tax only on the items representing Erection, Commissioning, Transportation of equipment and did not pay service tax on the value relating to Tunnels, Roads, Dams etc. The appellant did not pay the tax believing that work relating to construction of Tunnels, Roads, Dams, etc., are excluded from the definition of ‘Commercial or Industrial Construction Services' as per section 65 (25b) of the Finance Act, 1994. Taking a view that the appellant could not have vivisected a single contract into different components and claim of exemption on that part of the amount received towards construction of Tunnels, Roads, Dams etc., is not in order, proceedings were initiated.

Commissioner took the view that the essential character of the work is commercial construction and therefore the appellant is required to pay service tax on the balance amount received for which exemption has been claimed.

As a result of proceedings initiated, impugned order has been passed confirming demand for service tax of Rs.8,97,85,818/- with interest for the period from July 2009 to March 2010 and imposing penalty on the appellant.

Appellant relied on CBEC Circular dated 27.07.2005, in which CBEC had clarified that even if the contract is a single composite contract, segregation or demarcation between the portion relating to Construction of Roads and other constructions is allowed.

Tribunal referred to Board Circular dated 27.07.2005 and held that there is nothing wrong in segregating the work undertaken relating to Roads, Bridges, Tunnels and Dams which are clearly excluded from the definition of Construction services for the purpose of levy of service tax. Tribunal further held that what comes out is the fact that all items of work are related to Dam and in a Power Project Dam constitutes the main activity and it is difficult to imagine a hydro power project without a dam.

On this basis, Tribunal granted waiver of pre-deposit.

(See 2015-TIOL-688-CESTAT-HYD)