Whether Construction of dams & Canals on tender and contracts issued by Sardar sarovar Narmada Nigam Limited (SSNNL) is liable to service tax?
First of all we have to look at the extract of 12th entry of Notification No. 25/2012(MEGA EXEMPTION) ST dated 20.06.2012, which states that benefit of mega exemption is available only if :
Services are provided to the government , local authority, or a government authority by way of constructions, erection, commissioning , installation, completion, fitting out, repair, maintenance, renovation or alteration of –
d) Canal, dam or other irrigation works;
In the above context words which used are government, local authority or government authority. The definition of such terms is as mentioned below:
Government authority means:
1) A board or an authority or any other body established with 90% or more participation by way of equity or control by government.
2) And set up by an act of Parliament or a state legislature to carry out any function entrusted to municipality under article 243 W of the constitution.
Government “shall include both Central government and any state Government. As define under section 3(8) of the general clause act 1897.
Similarly Local Authority has been defined in section 65B (31) of the general clause act 1897.
Now if we go in deep in a stated issue contractor is performing construction of dam work for the “SARDAR SAROVAR NARAMADA NIGAM LIMITED” but since “SARDAR SAROVAR NIGAM LIMITED” entity can’t be said as government authority because “SARDAR SAROVAR NIGAM LIMITED” is not able to fulfill condition as stated “And set up by an act of Parliament or a state legislature to carry out any function entrusted to municipality under article 243 W of the constitution”
So the assessee is not able to claim the benefit under 12th entry of Notification No. 25/2012(MEGA EXEMPTION) ST dated 20.06.2012. Hence assessee is Liable to pay Service Tax.
Now, Second Question arises whether subcontractor is also liable to pay service tax ?
For analyzing the same one have to look at item No.29(h) of notification No.25/2012 –ST, (MEGA EXEMPTION) dated 20.06.2012 .Which states that exemption is available if ( work contract service provided by sub- contractor to another contractor provided that “ work contract services are exempt from payment of service tax” )
Hence here also to get the benefit of exemption one has to fulfill the two conditions as stated below:
1) Work contract service provided by sub- contractor to another contractor.
2) Work contract services are exempt from payment of service tax.
Since from the above Para we can say that in such cases “work contract service itself is not exempt from payment of service tax”. Hence subcontractor is also liable to pay service tax.
Now, Third Question arises whether in such cases Service Provider is eligible to take CENVAT credit of input/ input services?
In respect of work contract ,It is said under explanation 2 of rule 2A(ii), of CENVAT Credit Rules that the provider of taxable services shall not take CENVAT Credit of duties or cess paid on any inputs, used in relation to work contract.
Thus CENVAT Credit is not allowed on inputs in case of Work Contracts.
Now still question remains that on such activity whether CENVAT Credit of Input services are allowed or Not?
With Effect from 01-04-2011, The definition of Input service is divided into 3 parts such as 1)Main Part, 2) Inclusive Part, 3)Excluded Part. If we through a light on “excluded part of definition of input service its states that certain “specified services” are excluded from the definition of “Input Service” when they are used for “specified purposes” as shown below:
Such Specified Services are : Architect service, Port service, other port service, Airport service, Commercial or Industrial Construction service, Construction of Complex service, Work Contract service.
And such specified input service is not eligible for CENVAT Credit if they are used for:
a) Construction of building or civil structure or part thereof ,or
b) Laying of foundation or making of structure for support of capital goods,
Except for the provision of one or more of the specified services as mentioned above. It means that if specified services are used for giving a output service which in itself is specified service than such activity are not cover under an exclusion part. And assessee is eligible to take credit of such specified input services.
Now if we look into an above case, where output service by Main contractor is “Work contract services /or Commercial or industrial construction service ” for which he is using a input services such as architect services, work contract services as provided by sub contractor which again cover under a specified services.
So by way of exception such transaction is also not covered under exclusion part of definition. As input services & output services both are specified services.
So at last we can say that in such cases as mentioned above a Service Provider is eligible to take CENVAT credit of input services.
Conclusion: So now the contractors to whom the construction of dam & canals work is issued by Sardar sarovar Narmada Nigam Limited (SSNNL) is liable to pay service tax.
———————–
Anuj Mehta
09712286097
OUR QUESTION
(1) Ok, as far as status is concerned, above status, limited company, SSNNL, is not exempt from S.Tax obligation and his contractors have to pay service tax.
(2) Now SSNNL ,in tender which is before date 1-7-2012, than what about exemption for earlier contracts ? in which contractor is not getting any s.tax from Gujarat Government ?
(3) With change of status from Gujarat Government`s some status to limited company (SSNNL) , the original intension, that people and farmer of Gujarat should provide water for living and farming, which is civic amenities for Gujarat Government towards people of Gujarat, and intension or the aim does not change, and this is not a commercial money making project and it is for public utility, so only change of status can impose 5% tax liability on contractor or not ?
(4) In tenders of SSNNL ,it is specifically written that “ A WHOLLY OWNED GOVERNMENT OF GUJARAT UNDERTAKING), so what should it mean ?
Vary intresting & knowledgeable Article.
Many many thanks.
A.P.Saxena
EXCELLENT ARTICLE ————INFORMATIVE TO CONTRACTORS & PROFESSIONALS.
Very good analysis is done by the Author and in a very lucid language.
Thanks,
Vivek Bapat
bahu jordar che saheb..
Nice Article…..