ST - Railways with public investment and private investment function under same statute i.e. Railways Act, 1989 - Railway sidings built by appellant fall within exclusionary portion of sec 65(25a) and are outside ambit of taxation: CESTAT
By TIOL News Service
MUMBAI, SEPT 14, 2016: THE appellants are contractors for infrastructure projects and the demands pertain to alleged non-payment of tax under Finance Act, 1994 by them. The amounts of tax involved are Rs.28,48,55,027/- and Rs.11,55,45,002/- along with interest and penalties galore.
The demands pertain to –
+ rendering of ‘erection, commissioning and installation service' to M/s Maharashtra State Road Development Corporation between 2004-05 and 2006-07;
+ construction of civil structures and erection, commissioning and installation services to M/s Maharashtra Enviro Power Ltd, M/s Vidharbha Enviro Power Ltd without including the goods component in the gross taxable value without producing evidence of value of goods supplied;
+ construction of railway sidings for M/s Vedanta Aluminium Ltd, M/s BALCO and M/s MSEB;
+ rendering ‘site formation and clearance service' to M/s Western Coalfields Ltd.;
+ construction of railway sidings for M/s MAHAGENCO;
+ mobilization advance received from principals with whom contracts were entered into;
+ outstandings from associate concerns.
Before the CESTAT, the appellant inter alia submitted –
+ Work rendered to M/s MSRDC was always claimed to be ‘works contracts' which the adjudicating authority refused to accept and the issue stands settled by the decision of the Supreme Court in Larsen & Toubro Ltd - 2015-TIOL-187-SC-ST.
+ In relation to services rendered to M/s MEPL, M/s VEPL and M/s CSEB, tax liability on the labour contract had been discharged at the appropriate time and that the cost of goods involved were, in accordance with section 67 of Finance Act, 1994, correctly excluded.
+ Mobilization advance are payments received towards obtaining necessary equipment and creating basic facilities before the commencement of rendering of service. The Tribunal in Thermax Instrumentation Ltd - 2015-TIOL-2736-CESTAT-MUM held that advance made cannot be subject to tax if such advances are adjusted against dues for rendering of service as that would amount to double taxation.
+ Tax liability was being discharged upon receipt of dues as prescribed in the statute upto May 2008; consequently, there is no outstanding due.
The Bench agreed with the above submissions after noting that the AR – 'was not in a position to convince us that these submissions were incorrect'.
In the matter of sinking of the mine shaft on which, admittedly, the appellant has not effected any payment of tax, it is the contention of the appellant that ‘mining service' was rendered taxable only after 2007 and that ‘site formation and clearance service' was intended to tax the work that precedes construction activities.
The CESTAT observed –
+ In the light of a subsequent entry to tax 'mining service' by section 65(105)(zzzy) of Finance Act, 1994 with effect from 1 st June 2007 which was intended to cover all activities relating to mineral exploration and extraction under one head as a consolidation entry, the actual sinking of a shaft cannot be treated as 'site formation and clearance service' but as related to excavation of mineral from the mine. Consequently, we are in agreement with the appellant that the demand for the disputed period is not valid.
As regards construction of railway sidings the AR placed reliance on the decision in AB Projects Pvt Ltd - 2010-TIOL-110-CESTAT-MUM to contend that any activity of construction that is able to generate revenue will not be exempt from levy of service tax.
The appellant relied upon the orders in Afcons Infrastructure Ltd - 2014-TIOL-679-CESTAT-MUM and Delhi Metro Rail Corporation Limited to drive home the point that coverage under Railways Act, 1989 is sufficient to consider any such infrastructure as railways.
The Bench observed –
"…The Railways Act, 1989 provides for railways with public investment and private investment and both function under the same statute. Such railways established in the private sector have a statutorily acknowledged Administrator. Consequently, we too hold that railway sidings built by the appellant fall within the exclusionary portion of section 65(25a) and are outside the ambit of taxation."
Conclusion:
++ Liability to tax on the labour portion of work executed by the appellant is confirmed and which has been duly discharged by appellant. The demands under the other heads are set aside. Penalties are also set aside.
The appeals were disposed of.
(See 2016-TIOL-2396-CESTAT-MUM)
