JANUARY 28, 2011

Airport Services - Restoration of status quo

PRIOR to the July 1, 2010, services covered under the category of “commercial or industrial construction services” and “works contract services” when provided in respect of airports were kept outside the purview of service tax (ie, as these services were excluded under the category of commercial or industrial construction services and works contract services).

With effect from July 1, 2010, all services rendered within the airport (including services covered under the definition of “commercial or industrial construction services” and “works contract services”) are re-classified under the category of “airport services” and the provisions of section 65A containing the principles of classification of services were made inapplicable to services rendered within the airport.

In order to avoid unintended effects of certain services hitherto exempted getting attracted to service tax unintentionally due to such reclassification, and to restore the abatements and exemptions presently available under individually defined taxable services, when provided within airport, certain notifications / amendments to existing notifications were issued (Circular No 334/03/2010-TRU, dated July 1, 2010 can be referred to).

Consequently, Notification 42/2010 was issued to restore exemption under the “airport services” for services covered under the category of “commercial or industrial construction services”, when provided wholly within the airport.

However, no such exemption was granted for services covered under “works contract services” (which was available prior to the reclassification of services).

As a result, the exemptions that were available to various services such as EPC, installation, etc are no longer available, even though these are inextricably linked to construction activities of the airport and even though they enjoyed exemption prior to the amendments/reclassification of services.

This has resulted in an unintended burden on airport construction/ expansion projects in as much as the services covered under the category of “works contract services” is no longer exempt, when rendered in respect of airports.

The plea

This can be undertaken by amending the Notification 42/ 2010 as follows:

“In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of commercial or industrial construction referred to in sub-clause (zzq) and works contract services referred to in sub- clause (zzzza) of clause 105 of section 65 of the Finance Act, when provided wholly within the airport, from the whole of service tax leviable thereon under section 66 of the Finance Act. “