By TIOL News Service

MUMBAI, JAN 05, 2017: THE appellant had filed a claim for refund of an amount of Rs.2,01,14,891/- on the ground that the Service Tax was paid by them inadvertently on the invoices issued to M/s Delhi Metro Rail Corporation Ltd. ("DMRC") as the said Service Tax is not payable in view of the fact that the contract in question is a turnkey contract and cannot be vivisected.

The adjudicating authority rejected the said refund claim.

The appellant is before the CESTAT.

A miscellaneous application is also filed by M/s Delhi Metro Rail Corporation Ltd. which seeks to be impleaded in the proceeding as they are final beneficiary of the appeal filed by the appellant.

The Bench held that the miscellaneous application is devoid on merits inasmuch as in the proceeding before the lower authorities, the applicant M/s Delhi Metro Rail Corporation Ltd. was never a party.

In the matter of the appeal filed, the Bench observed thus –

"6. …, we find that there is no dispute as to the fact that contract which was awarded to appellant is a turnkey contract for completing the project of DMRC. We find strong force in the contention raised by the learned Counsel that an identical contract for civil contract awarded by DMRC to Afcons Infrastructure Ltd. which was sought to be tax after vivisection said contract by the department. The said Afcons Infrastructure Ltd. aggrieved by the adjudicating authority's order confirming the demand, was in appeal before the Tribunal in appeal No. ST/362/11 which was disposed of by the Bench vide final Order No. A/1583-1590/13/CSTB/C-I dated 04.07.2013 as reported at 2013-TIOL-1225-CESTAT-MUM. We find that the ratio of the said judgment of the Tribunal in paragraph no. 5.1 to 8 are very relevant which we respectfully reproduce.

x x x

"7. It is also a well known fact that the Indian Railway itself is an organization, which is meant to run on commercial basis. Recognizing these facts, there is a provision for a separate Railway-Budget to be presented before the Parliament and whenever there is a surplus, the Railways declared a dividend and pass it on to the Consolidated Fund of India. Therefore, the argument that only DMRC is run on commercial basis and not Indian Railway, is not an acceptable proposition. In view of the specific exclusion of ‘railways' from commercial and industrial construction service, the question of imposing any Service Tax on the railways run by the DMRC does not arise at all."

7. Since the issue involved in the case is in respect of very same DMRC but a construction company for civil contract. As such contract cannot be vivisected, the impugned order is to be held as unsustainable.

Noting that the issue is now squarely settled by the decision of the Apex Court in the case of Larsen & Toubro Ltd. 2015-TIOL-187-SC-ST, wherein Apex Court has specifically settled the law that in works contract, there cannot be vivisection and calculation of tax under various categories of services, the impugned order was held to be unsustainable.

The order was set aside and the appeal was allowed with consequential relief.

(See 2017-TIOL-43-CESTAT-MUM)