By TIOL News Service

AHMEDABAD, OCT 07, 2017: THE CESTAT 2017-TIOL-1081-CESTAT-AHM had while allowing the appeal of the assessee held –

ST - Assessee laid down pipelines in execution of a contract with M/s Gujarat Water Supply and Sewerage Board (GWSSB) - Revenue sought to classify said activity under heading "Commercial or Industrial Construction" service and imposed duty demand with penalty - What is to be examined in order to determine taxability is whether the pipeline was laid for some commercial purpose - In this case, sale/purchase of water are incidental objectives, but the primary objective is to supply water to needy citizens - Hence not taxable: CESTAT

The department is in appeal before the Gujarat High Court and presents the following questions for consideration –

i) Whether the activities of M/s GWSSB i.e. purchasing and selling water falls within the meaning of 'commerce' or a 'commercial activity' as defined under 'Commercial or Industrial Construction Service' in Sec. 65 (25b) of Chapter V of the Finance Act, 1994?

ii) Whether the activities of M/s GWSSB and its status as an 'industry' under Industrial Disputes Act, 1947 falls within the meaning of 'industry' or 'industrial activity' as defined under 'Commercial or Industrial Construction Service in Sec. 65(25b) of Chapter V of the Finance Act, 1994?

iii) Whether the usage of pipelines laid/constructed by M/s. BMS Projects Pvt. Ltd. for M/s GWSSB for transporting the traded water, falls within the scope of the expressions 'used, occupied, or engaged, primarily in, commerce of industry or work intended for commerce or industry as specified in the above mentioned definition of Commercial or Industrial Construction Service?

iv) Whether CESTAT was justified in treating the activities of M/s GWSSB as not being commercial or industrial activities or that the usage of Pipelines laid by Ms/. BMS Projects Pvt. Ltd., were not for use in commerce or industry?"

v) Whether CESTAT was justified in holding that all activities which are concerned with welfare of citizens are excluded from liability of Service tax?

The High Court observed that for a service to be included within the meaning of Commercial or Industrial construction services, different activities specified in clauses (a) to (d) thereof are such which are used or to be used primarily for commerce or industry.

It was further observed that High Court was broadly in agreement with the view of the Tribunal that -

+ GWSSB discharged an important duty and responsibility of providing drinking water to the people, industries etc.

+ The Board was constituted mainly to supply drinking water and maintenance of sewerage system.

+ The usage charges recovered by the Board from Gram Panchayats, Nagar Palikas and Nagar Panchayats are at highly subsidized rates and therefore, cannot be considered as an industry in the sense that the said word is used in the definition of taxable entry. Only a small portion of the water was provided to the industries at commercial rates.

+ The Board was sustaining on the grants released by the State Government, therefore, the pipelines were not laid to facilitate any commercial or industrial activity.

Holding that no question of law arises, the Tax Appeal filed by Revenue was dismissed.

(See 2017-TIOL-2112-HC-AHM-ST)