Hari Construction & Associates Private Limited Vs Commissioner of CGST & Excise (CESTAT Kolkata)
Summary: The appellant, Hari Construction & Associates Private Limited, was engaged in construction of railway sidings under work orders awarded by M/s Rites Limited. During 01.04.2012 to 31.03.2016, it constructed railway tracks and railway sidings for NTPC, Bihar State Power Generation Company Limited (BSPGCL), Kanti Bijli Utpadan Nigam Limited (KBUNL), Barawni Thermal Power Station (BTPS) and SAIL. The activity was treated by the Revenue as “Works Contract Service” and a service tax demand, along with interest and penalty, was raised under the Finance Act, 1994.
For the post-01.07.2012 period, the activity was considered in the context of Section 65B(54) of the Finance Act, 1994 and Clause 14(a) of Notification No.25/2012-ST dated 20.06.2012. The appellant contended that construction of railways was exempt irrespective of whether the railway was used by a Government or private entity. For the pre-01.07.2012 period, the appellant relied upon Notification No.17/2005-ST dated 07.06.2005. TaxGuru has published the relevant works contract provision and Notification No.17/2005-ST.
The Revenue opposed the claim, submitting that the issue was whether railways used by a private party could qualify for the exemption under the cited notifications. The adjudicating authority confirmed the service tax demand, leading the appellant to approach the CESTAT.
The appellant relied upon the Tribunal’s decision in Konkan Railway Corporation Limited Vs. Commissioner of CGST & Excise, Navi Mumbai, Final Order No. A/86247/2022 dated 17.02.2022. In that decision, the Tribunal considered whether the expression “railways” in the service tax exemption could be restricted to railways used for public carriage or Government-operated railways.
The Tribunal in the present matter reproduced the relevant reasoning from the Konkan Railway decision. It noted that the exclusion or exemption relating to “railways” had been considered in several Tribunal decisions. In particular, the Tribunal discussed the treatment of commercial consideration and the meaning of “railways” in the earlier decision concerning Hindustan Construction Company Ltd. The reasoning reproduced in the order states that, in the absence of any qualification attached to “railway” in the relevant service tax provisions, any railway, irrespective of ownership, was covered.
The reproduced reasoning further states that Notification No.25/2012-ST dated 20.06.2012 exempted services relating to construction, erection, commissioning or installation of original work pertaining to railways after 01.07.2012. It also states that neither the notification nor the Finance Act, 1994 defined “railway” in a manner that permitted a distinction between railways for private purposes and railways for public service. The Tribunal observed that such a distinction could not be artificially introduced for tax administration purposes.
The order also records that the Konkan Railway decision had been affirmed by the Hon’ble Apex Court in Civil Appeal Diary No.22280/2023 dated 04.07.2023.
Following that reasoning, the CESTAT Kolkata held that the issue was no longer res-integra. It held that the appellant was entitled to the benefit of Notification No.17/2005-ST dated 07.06.2005 for the period prior to 01.07.2012 and Notification No.25/2012-ST dated 20.06.2012 for the period after 01.07.2012. The Tribunal consequently found no merit in the impugned order and set it aside. The appeal was allowed with consequential relief, if any.
Cases Discussed
- Konkan Railway Corporation Limited Vs. Commissioner of CGST & Excise, Navi Mumbai, Final Order No. A/86247/2022 dated 17.02.2022 — relied upon for the proposition that the railway-related exclusion/exemption was not restricted according to ownership and covered railways irrespective of whether they were privately used or Government-operated.
- KVR Rail Infra Projects Pvt Ltd — referred to in the reproduced Konkan Railway proceedings in relation to the exemption available to railway-related construction activity.
- Afcons Infrastructure Ltd — referred to in the reproduced reasoning concerning the approach adopted by the adjudicating authority to the meaning of “railways”.
- Hindustan Construction Company Ltd. — considered in the reproduced Konkan Railway reasoning on whether commercial consideration or ownership could restrict the railway-related exclusion/exemption.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellant is in appeal against the impugned order demanding service tax from the appellants for their activity for railway tracks and other support structures etc. for NTPC, Bihar State Power Generation Company Limited (BSPGCL), Kanti Bijli Utpadan Nigam Limited (KBUNL), BTPS and SAIL under the category of “Works Contract Service”, along with interest and imposing penalty on the appellant under the Finance Act, 1994.
2. The facts of the case are that the appellant is engaged in construction of Railway Sidings on the basis of work orders awarded by M/s Rites Limited. During the period 01.04.2012 to 31.03.2016, the appellant has constructed railway tracks and railway sidings for NTPC, Bihar State Power Generation Company Limited (BSPGCL), Kanti Bijli Utpadan Nigam Limited (KBUNL), Barawni Thermal Power Station (BTPS) as “Works Contract Service” as defined in Section 65B (54) of the Finance Act, 1994.. Such services were exempted from levy of service tax under Clause 14 (a) of exemption Notification No.25/2012- ST dated 20.06.2012. The said activity was not included in the definition of “works contract service” under Section 65(105)(zzz)(a) of the Act and under exemption Notification No.17/2005-ST dated 07.06.2005 prior to 01.07.2012.
3. Revenue is of the view that the activity undertaken by the appellant is “works contract service” to the above various service recipients. Therefore, they are liable to pay service tax under negative list and under exemption Notification No.17/2005-ST dated 07.06.2005 and under Clause 14 (a) of exemption Notification No.25/2012-ST dated 20.06.2012 was sought to be issued by issuance of the show-cause notice dated 23.06.2017.
4. The matter was adjudicated. The demand of service tax was confirmed. Against the said order, the appellant is before us.
5. The ld. Counsel for the appellant, submits that the railway tracks and railway siding is exempted under Clause 14 (a) of exemption Notification No.25/2012-ST dated 20.06.2012 for the period post 01.07.2012 and for the period prior to 01.07.2012, the activity was exempted under Notification No.17/2005-ST dated 07.06.2005. The exemption is available for construction of railways irrespective of nature of the recipient i.e. Government or Private. To support this contention, he relied on the decision of this Tribunal in the case of Konkan Railway Corporation Limited Vs. Commissioner of CGST & Excise, Navi Mumbai vide Final Order No.A/86247/2022 dated 17.02.2022.
6. On the other hand, the ld.A.R. for the Revenue opposes the contention of the ld.Counsel for the appellant and submits that the moot question in this case is whether the railways used by the private party can be exempted under the above cited Notification or not.
7. Heard the parties and considered the submissions.
8. We find that the same issue came up before this Tribunal in the case of Konkan Railway Corporation Limited (supra), wherein this Tribunal has observed as under:
“6. Learned Authorised Representative submits that the decision of the Tribunal in re KVR Rail Infra Projects Pvt Ltd is pending before the Hon’ble Supreme Court and that the impugned project, undertaken exclusively for handling coal to be used by M/s National Thermal Power Corporation for generation of thermal energy, was not eligible for exemption intended for ‘railways’ engaged in public carriage of persons and goods.
7. It is interesting to note that the assessee had placed reliance upon the decisions of the Tribunal supra before the original authority which did not appear to have carried much impression with him and, 6ST/86191/2021 demonstrating inability to acknowledge the binding precedent of a judgment or decision of appellate authority or the manner in which it is to be read, the adjudication order has referred to decision in re Afcons Infrastructure Ltd but to the exclusion of everything therein other than submissions made on behalf of Revenue and his opinion therefrom that ‘
52. Having arrived at the above conclusion, I turn my attention to the prime contention of the Noticee that the impugned SCN has resorted to a narrow understanding of expression ‘railways’ in the absence of a permissible referral under the Finance Act/Mega exemption notification. From my reading of the records of the case and the available material, I find that the Noticee is way off the mark in understanding the logic and the emphasis of the SCN which in my view is well founded and amply supported by the statute, be it the Finance Act or the Railways Act. For this reason, an examination of the judicial pronouncements quoted by the Noticee in their defence does not seem warranted.’ speaks for itself. This transgression on the part of the adjudicating authority is not acceptable. We do not wish to dilate further on this.
8. Entitlement of every sort of railways to the exemption provided, either by exclusion from the definition of ‘taxable service’ in the ‘pre-negative list’ regime or by specific exemption in the ‘negative list’ regime has been dealt with in several decisions of the Tribunal. While addressing the issue of ‘commercial consideration’ being the 7 ST/86191/2021 bench mark for determining eligibility for exclusion/exemption, the Tribunal, in re Hindustan Construction Company Ltd, held that ‘5. The exclusion, whether under the separate entry or within the umbrella of the new taxable service, of ‘railways’ continued unabated. It would appear that the adjudicating authority was particularly impressed by the activity brought within the tax net to be ascertained on the basis of commerciality to bring it in conformity with the description of the taxable activity. Hence, according to him, the operation of the two recipients of service, being evidently commercial, did not merit the exclusion contained therein. For a better appreciation of the arguments, we deem it appropriate to record the particular finding the adjudicating authority that
‘3.7 The Term “Railways” mentioned in Section 65(25b) for the purpose of exclusion from the scope of levy of Service Tax needs to be understood in the appropriate context and especially the scheme of taxation of services under the Finance Act, 1994. The objective to levy Service Tax under Section 65(105)(zzzp) read with Section 65(25b) is clearly to levy Service Tax on Commercial or Industrial construction service. However, Commercial or Industrial construction of building or structure in respect of ’’railways” is excluded from the scope of the levy.
3.8 … … It is the general principle followed in the levy of Service Tax that when Government undertakes commercial or business activity, then they should be treated on par with similar activity undertaken by non-governmental bodies or any other persons for the purpose of taxation. This is essential to avoid competitive disadvantage to other similar nongovernmental service providers and to ensure level playing field to all similar service providers.
3.9 Indian Railways under the Ministry of Railways is part of the Government of India and not on commercial basis. Therefore, Indian Railways cannot be compared or equated with MMO/DMRC, a Company formed under the Companies Act and is committed to run purely on commercial lines even if it is fully owned by the Government…. ”Railway” in the Indian Context is popularly known as “Indian Railways” and is more appropriately understood as Railways operated under the Indian Railways Act especially for the purpose of 8ST/86191/2021 any special dispensations such as tax exemptions.’ 6. We find no authority for these sweeping statements on the intent of Finance Act, 1994, the scope of the taxable service under which the levy has been confirmed or the status of railway operations in the country. In the context of the claim of the appellants, limited to the exclusion from the taxability otherwise attached to ‘commercial or industrial construction service’, we are not required to define the scope of the taxable service; the test of commercial imperative of the impugned activity is not in dispute. All that we are required to ascertain is the conformity of the operation of the recipients of the service to the excluded aspect of the taxable service. The adjudicating authority is far from correct in assuming that the dutiability devolving, under Customs Act, 1962 and Central Excise Act, 1944 on governmental transactions by specific inclusion in the statutes is, similarly, present in Finance Act, 1994. Nor does the reason ascribed by him as the prompting for such inclusion in the commodity tax statutes find resonance in any decision, circular or elucidation. Furthermore, to the extent of our understanding, the operations, or its popular designation as ‘Indian Railways’, of Government-run Railways is not stripped of its commercial mantle. A stray reference to the statute governing railway operations does not establish the postulate of such definition to be applicable in every special dispensation.
7. The definitions in the statute governing Railways is intended for fencing in the operational component to such objects as are included in that law. It is not appropriate to place reliance on such definitions save under the express authority of Finance Act, 1994. It is also not correct to contend that the coverage of the statute governing Railways is limited to Government Railways; no such distinction is drawn except for the purposes of jurisdiction of the railway 9ST/86191/2021 authorities specified therein for the governance of the Railways belonging to the Government.
8. In the absence of any qualification for the ‘railway’ incorporated in the exclusion component of the taxable service, any railway, irrespective of ownership, is covered. Within the scheme of ‘negative list’, there is a specific exemption for metro or monorail within the broader exclusion available to Railways.
The exclusion of ‘metro’ or ‘monorail’ has occurred only after the period of dispute and therefore does not concern us.’
9. It is, thus, clear that the proposition of strict construction of intent of exemption notification must also go hand in hand with strict construction of every word/phrase therein. The exemption from tax is available to ‘railways’, excluding mono rail or metro, by notification no. 25/2012-ST dated 20th June 2012 after 1st July 2012 and, as conceded by the adjudicating authority, there being no definition of ‘railway’, either therein or in Finance Act, 1994, the distinction between railway for private purpose and railway for public service cannot be artificially contrived to suit tax administration; neither can the definition in another statute be drawn upon for the purported purpose of illumination. The Railways Act, 1989 was enacted to authorize Government of India to operate the railway network of the country; it also affords a framework for administration of the railway services and jurisdictional monopoly. The ‘taxable service’ in Finance Act, 1994 excluding ‘railways’ from the ambit of the service did not place any restriction on benefit going to private railways. The statute, 10ST/86191/2021 too, did not consider it necessary to fall back on the definition of ‘railways’ in another statute for determination of taxability and it is not open to the adjudicating authority to arrogate that privilege in an executive capacity. The intent of exclusion prior to 1st July 2012, and exemption for the period, thereafter, is abundantly clear.”
The said order has been affirmed by the Hon’ble Apex Court in Civil Appeal Diary No.22280/2023 dated 04.07.2023.
9. We, therefore, hold that the issue is no more res-integra and the appellant is entitled for benefit of Notification No.17/2005-ST dated 07.06.2005 prior to 01.07.2012 and under Notification No.25/2012-ST dated 20.06.2012 for the period post 01.07.2012.
10. In view of this, we do not find any merit in the impugned order and the same is set aside.
11. In the result, the appeal is allowed with consequential relief, if any.
(Dictated and pronounced in the open court)
