CESTAT explains Service Tax on Site Formation Services

M/s. Sem Construction Vs C.C.E. & S.T. (CESTAT Ahmedabad)

Brief facts of the case are that the appellant had been awarded a contract under agreement dated 01.04.2011 by M/s. Archelean Chemical Private Limited at Rann of Kutch for job of “metal spreading for supply un­course black Trap Rubble stone” and its spreading/dressing along the outer edge of bund for formation of toe wall land filling the trenched with stones above ground level, constructing the pitching above toe line, using stones or filling at various cuts in bunds and dressing of entire bund slope, before metal spreading. The charges for the said single and composite work were specified in two parts. In metal spreading 1) for metal spreading & Toe wall and 2) for labour work for spreading metal. A further contract vide agreement dated 18.04.2012 was also awarded to the appellants for job of supplying and spreading GSB on top of road, including compaction with roller, for which separate rates were specified for the work of GSB as well as for compaction. The appellant had discharged the service tax on the aforesaid activities under the three taxable service categories of works contract, construction service & formation service. The department seeks to deny such classification of services and contend that the services provided by appellant to M/s. Archelean Chemical Private Limited, are only classifiable under “site formation and clearance and excavation, earthmoving services” under section 65 (105) zzza of the Finance Act, 1994 as against the claim of appellant under ^„works contract^‟. Accordingly the show cause notice dated 09.10.2015 was issued for the period 2010-11 to 2014-15 wherein the differential service tax demand was raised with propositions for equal penalty and other penalties under sections 76 & 77 and also applicable interest under Section 75. The show cause notice also invoked the larger period for making demand of service tax. The original adjudicating authority namely the Commissioner of Service Tax Rajkot, confirmed the entire demand of the service tax raised and also imposed penalty vide Order in Original dated 27.09.2016. Being aggrieved by the said Order in Original, the appellant filed the present appeal before us.

2. Shri. Hasit Dave, Learned Counsel appearing on behalf of the appellant submits that the work awarded to the appellant is not only for ^„spreading of GSB metals^‟, but also supply of un-course black trap stone, excavating trench, along the outer edge of bund formation of toe wall, filling the trenches with stone above ground level, constructing the pitching above toe-line using stones, earth filling at various cuts in bunds and dressing of entire bund slope before metal spreading. As per the above activities it was for composite work which included supply of metals, earth work, construction work and spreading of metals. He submits that there is contract which included ^„supply^‟ , then there must be a ^„sale^‟ and it is also a fact that as the contract involved ^„sale^‟, there was payment of VAT and thus it becomes a works contract. He submits that the bunds constructed was pertaining to commercial or industrial construction and the appellant had to provide service for creation of/ completion of bunds, which are immovable property for the appellant^‟s client company, as the same is used for the salt harvesting and transportation purpose. The bunds are considered as fixed assets (Immovable property) for the salt manufacturing company and the activity related to the bunds are covered under the Work Contract Service as provided under the definitions of works contract. The VAT is payable on the creation of such bunds, therefore the service provided in the present case are classified only under ^„Works Contract Service^‟. As the appellant has to provide services along with material, which are related to the commercial construction service and since the sales tax is also leviable under the provision of GVAT Act, 2006 on the property so transferred therefore the service of supplying GSB and spreading thereof through which bunds are created are in nature of commercial or industrial construction and since the VAT is also leviable on the said transfer of property in goods involved in provision of service.

2.1 He submits that there are gross contradictions too in the finding of the Learned Commissioner. His finding that appellant is only doing job of metal spreading and all other activities undertaken by them are ancillary thereto, which are preparing sites for activities undertaken for bunds is therefore a Site Formation Service, akin to defined activity of Site Excavation and formation services, is entirely misplaced against the very definition under the Act and clearly wrongly interpreting Works Contract Services. It is his submission that in fact the activities undertaken by the appellant relate to construction of bunds which are used for storage of water, as Roads for patrolling there. The activities therefore are not Site formation or clearance or excavation, but rightly works contract for construction of bunds. He submits that in almost all ^„works contract^‟ services, it is sale of certain materials along with service which generally is used for construction of ^„immovable property^‟, but in any case what is sold is the construction or repairing materials, being ^„immovable property^‟ and structure that is constructed is ^„immovable property^‟, which is not sold. In the present case also, what was sold/supplied was GSB metals/stones and not the ^„bunds^‟, but with GSB metals/stones and using other materials and services, bunds were constructed. In case the ^„contractor^‟ is not registered with the VAT department then in those cases, the recipient of works contract service, in which there is supply of materials also, pays the applicable VAT on behalf of the service provider. Appellant also submits that the provision of Tax Deduction at Source was inserted in the Gujarat Value Added Value Tax, 2003 vide section 59A and 59B. In the present case the service recipient has discharged the VAT and same was deducted at source from the bill amount payable to the appellant. He also submits that in the appellant^‟s own case on the same issue for the subsequent period, the Learned Commissioner (Appeals) vide Order No. RAJ-EXCUS-000-APP-144-2018-19 Dated 06.07.2018 set aside the demand of service tax raised under the category of “Site Formation and Clearance and Excavation, Earthmoving services” in respect of the same services and appeal was allowed.

2.2 He further submits that in any case the invocation of the larger period of limitation is also not applicable in the facts of the present case as everything was clearly declared to the service tax department and on the same service the appellant had been discharging the service tax regularly and declared in ST-3 returns, therefore there is no suppression of facts. In support of his submissions, he placed reliance in the following judgments:-

• M/s. Padma Engineering Works Vs. Commissioner of GST & C.C Chennai North Commissionerate-2020-TIOL-889-CESTAT-MAD
• Commissioner of C.EX. & CUS., Kerala Vs. Larsen & Toubro Ltd-2015 (39) S.T.R. 913 (s.C.)

3. On the other hand, Shri. Ghanshyam Soni, Learned Joint Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order. He submits that the appellant is carrying out the job of only earth filling at various cuts in bunds and dressing of entire bunds slope, before metal spreading and thereafter they have to spread the metal stones on bunds which were already exist, therefore, the appellant is no where constructing bunds, therefore, the appellant plea that after constructing bunds they handed over to service recipient this property transferred is not acceptable and no where adjudicating authority has held that the appellant has constructed bunds

4. In view of the activity carried out by the appellant it is clearly classifiable under the “Site Formation, Clearance, Excavation and Earthmoving Services”, therefore, the Learned Commissioner has rightly demanded that differential service tax. In support, he placed reliance on the following judgments:-

• 2017 (346) ELT 109 (All)- N K G Infrastructure Ltd Vs. Union of India (Para-8)
• 2017 (48) STR J104 (SC) – N K G Infrastructure Ltd Vs. Commissioner
• 2019 (30) GSTL J95 (SC) ^–Timken India Ltd Vs. Commissioner
• 2020 (33) GSTL 187 (Chhattisgarh) – Ambalal Chauhan Vs. CCE., Raipur (Para- 10)
• 2017 (3) GST 164 (Tri.-Chennai) ^–CMS (I) Operations & Maintenance Co P Ltd Vs. CCE., Puducherry (Para-7&8)
• 2014 (34) STR 104 (Tri-Del) – CCE., Kanpur Vs. Agra Computers (Para-11 &12)
• 2011 (23) STR 433 (SC) ^–Idea Mobile Communication Ltd Vs. CCE., Cochin (Para-18)
• Circular No.B1/6/2005-TRU dated 27.07.2005 (Para-6)
• Notification No.24/2012-ST dated 06.06.2012
• 2015 (40) STR 707 (Tri-Del)- Cellebrum Technologies Ltd Vs. CCE., Chandigarh (Para-9)
• 2017 (52) STR 291 (Tri-Del)- Ramesh Construction Company Vs. CCE., Raipur (Para-5)
• Notification No. 30/2012-ST dated 20.06.2012

5. We have heard both the sides and perused the records. The issue to be decided by us in the present appeal is the classification of services provided by the appellant to their service recipient that whether the said services will fall under “Site Formation and clearance, Excavation and Earth Moving Services” as claimed by the department or under Works Contract Service as claimed by the appellant. As per the facts of the case, the service provided by the appellant is the supply of various materials and construction of bunds. With the said material bunds were created by the appellant for the Service recipient viz. M/s. Archelean Chemical Private Limited. The said bunds are used for production of Salt from the sea water. Before arriving at any conclusion it is necessary to go to the contacts between the appellants and said service recipient. The scanned copy of the contract is reproduced below:

5.1 From the above contacts it can be seen that the contacts is for the construction of bunds which includes various services such as supply of un­course black trap rubble stone and its spreading/dressing, worth filling at various trenches and bunds and dressing of entire bunds slope before metal spreading. As regard the rate of the job it is bifurcated into the labour work and metal spreading. This clearly shows that the appellant have not only provided the service of construction of bunds but also supplied the vital material such as un-course, black trap rubble stone and other material, therefore, it is a composite work of Works Contract which includes supply of material and construction of bunds. It is also undisputed that the service recipient is a commercial organization who are doing business trading of Salt which is produced in the bunds constructed by the appellant. Therefore, the service is clearly falling under the category of Industrial & Commercial Construction Service. This service is specified under Works Contract Service. Since the service is provided along with supply of material, the composite service is classifiable as works contract service. As per the another contract dated 18.04.2012, the job assigned to the appellant is supplying and spreading good quality GSB (had) on top of embankment and road uniformly to a thickness of 0.15 to 0.30 M including the compaction with 10 MT capacity rollers. This is also work of construction of road which by any stretch of imagination cannot be classified as “Site Formation Service and Clearance and Excavation and Demolition services”. In this contract also there is a supply of goods which is spreaded on the road and compacting on the same therefore, it is composite contract of supply of service and goods, therefore clearly classifiable as Works Contract Service. Now we come to the definition of both the rival services. We find that to qualify a service as Works Contract Service under Section 65B(54)of the Act, it refers to the criteria :

a) There should be transfer of property in goods.

b) Such supply should be subjected to VAT.

c) Construction should be of an immovable property.

5.2 In the present case since the appellant have admittedly supplied the material there is a transfer of property of the said material. The overall construction job subjected to payment of VAT which was paid by their service recipient under Reverse Charge mechanism. The appellant in this regard submitted various documents which shows that the job undertaken by the appellant has suffered VAT liability. The overall work is of construction of bunds which falls under Industrial & Commercial Construction Service. The said construction is undisputedly of an immovable property. With this fulfilment of the criteria, the service is squarely covered under the category of Works Contract Service.

“(97a) Site formation and clearance, excavation and earthmoving and demolition” includes,-

(i) Drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or

(ii) Soil stabilization; or

(iii) Horizontal drilling for the passage of cables or drain pipes; or

(iv) Land reclamation work; or

(v) Contaminated top soil stripping work; or

(vi) Demolition and wrecking of building, structure or road, but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies”.

6.1 From the plain reading of the above definition of Site Formation Services it can be seen that the service provided by the appellant does not fall under any of the clause (i-vii) of Section 65 (97a). Moreover, services provided in relation to restoring of Water bodies are clearly excluded from the Site Formation Service. In the present case, the bund constructed by the appellant is used for creating a water body although the same is used for extracting the salt, therefore, the bund wherein the water is restored, is a water body and the same is excluded from definition of Site Formation. For this reason also the service does not fall under Site Formation. We also observed that in the appellant^‟s own case jurisdictional Commissioner (Appeals) vide Order No. RAJ/EXCUS/000/APP/144/2018-19 dated 06.07.2018.

6.2 Considered the same issue for the subsequent period in detail and came to the conclusion that the service in question is classifiable under Works Contract Service and consequently demand of service tax raised under the category of Site Formation, Clearance, Excavation and Earth Moving and demolishing Services was set aside and appeal was allowed. We are in the agreement with the view taken by the Commissioner (Appeals). This order has not been appealed against before any forum by the Revenue. Hence, it has attained finality. As regard the judgment cited by both the sides, we find that none of the judgment is directly on the issue in hand particularly in the fact of the present case, therefore, we are not discussing those judgments.

7. As regard the limitation issue argued by the Learned Counsel, we find that there is no dispute in the fact that this is not a case where the appellant have not paid the Service tax at all. The appellant on the same services had been discharging the service tax regularly and they were filing the periodical returns in ST-3 form therefore, there is absolutely no suppression of facts on the part of the appellant. Moreover, the Learned Commissioner (Appeals) also passed order in their favour, therefore the appellant had a bona fide belief regarding claim of the classification of the service under Works Contract, for this reason also no mala fide can be attributed to the appellant.

8. In these facts we are of the clear view that there is no suppression of facts on the part of the appellant. Hence, the demand for the longer period is not only liable to be set aside on merit but also on time bar.

9. As per our above discussion and finding, we hold that the services provided by the appellant merits classification under ^„Works Contract Service^‟ and the claim of the revenue in classifying such service under “Site Formation Clearance, Excavation and Earth Moving, demolition Service” is

10. Accordingly, the impugned order is set aside. Appeal is allowed.