Hindustan Steel Works Construction Limited Vs Commissioner (CESTAT Kolkata)
The appellant, a Central Public Sector Undertaking, executed various government infrastructure projects including construction of Community Health Centres, Jawahar Navodaya Vidyalayas, canals for the Water Resources Department of Jharkhand, and roads under the PMGSY scheme. The Department issued a Show Cause Notice dated 23.04.2015 demanding service tax for the period 2009-10 to 2013-14 by classifying the appellant’s activities as “Consulting Engineer’s Service” and invoking the extended limitation period.
The appellant contended that the projects were executed under formal EPC/turnkey contracts on a cost-plus-margin basis. It argued that the contracts were composite works contracts involving supply of goods and services and could not be classified as Consulting Engineer’s Service. According to the appellant, the fee or margin received under the contracts represented its profit margin for executing the entire project and not consideration for consultancy services. The appellant also submitted that subcontractors were engaged for execution of works and that the contracts related to public utility projects which enjoyed service tax exemptions.
After examining the agreements, bills, TDS records and other documentary evidence, the Tribunal observed that the appellant was responsible for complete execution of the projects on a turnkey basis. The contracts required the appellant to undertake overall responsibility for construction and project completion, irrespective of whether portions of the work were executed through subcontractors.
The Tribunal found that the consideration paid under the contracts consisted of total project cost plus a fee. It held that the fee was not a separate payment for consultancy services but formed part of the overall contractual arrangement and represented the appellant’s profit margin. The Government of Jharkhand treated the entire construction cost and fee as a single transaction and deducted TDS under provisions applicable to contractors.
The Tribunal concluded that the contracts were composite works contracts involving both goods and services. It noted that the Revenue had classified the activity solely as “Consulting Engineer’s Service” throughout the period under dispute. However, the evidence did not establish that the appellant had rendered advice, consultancy, or technical assistance as contemplated under the statutory definition of Consulting Engineer’s Service.
The Tribunal further held that the Revenue had attempted to vivisect the composite contracts by isolating the fee component and treating it as consultancy charges. Relying on various judicial precedents, including decisions in Daelim Industrial Co. Ltd., Simplex Infrastructure Ltd., Ballast Nedam International, Larsen & Toubro Ltd., and Blue Star Ltd., the Tribunal reiterated that composite works contracts cannot be split for taxing individual components as consulting engineering services.
The Tribunal also noted that the projects undertaken by the appellant were public utility works such as roads and hospitals, which enjoyed service tax exemption both before and after 01.07.2012. It observed that even the Revenue had not sought to levy service tax on the entire project consideration.
On limitation, the Tribunal held that the Show Cause Notice covering 2009-10 to 2013-14 was issued on 23.04.2015 by invoking the extended period. It found no evidence of fraud, wilful suppression, misstatement, or intent to evade tax. The appellant had maintained books of accounts from which the Department itself gathered information for quantification of the demand. The Tribunal accepted that the appellant could have entertained a bona fide belief that no service tax was payable, particularly as the projects were exempt and the appellant was a Public Sector Undertaking.
Accordingly, the Tribunal held that:
