Case Law Details
Steel Works & Power Engineers Private Limited Vs Commissioner of Customs (CESTAT Kolkata)
The CESTAT Kolkata allowed the appeal against Order-in-Original dated 12.03.2016, which had confirmed service tax of ₹74,48,274 (including Education Cess and Secondary & Higher Education Cess), along with interest and an equivalent penalty under Section 78 of the Finance Act, 1994.
The appellant, a registered service tax assessee engaged in fabrication, erection and allied engineering activities, executed works during FY 2010-11 and FY 2011-12 (up to June 2011) in Bhutan as an approved sub-contractor for the Punatsangchu Hydro Electric Project and the Dagachu Hydro Power Project. The work included fabrication, testing, painting, transportation, erection, alignment and commissioning of pressure shaft steel liners and related components. The appellant also supplied tunnelling formwork to M/s. Druk Impex, Bhutan, and maintained a fabrication workshop and site office in Bhutan.
The Revenue alleged that the consideration received in Indian Rupees or Bhutanese Ngultrum did not constitute receipt in convertible foreign exchange under the Export of Service Rules, 2005. Consequently, it issued a show cause notice dated 19.03.2015 proposing recovery of service tax, interest and penalties under Sections 78 and 78A of the Finance Act, 1994. The adjudicating authority confirmed the demand, holding that the services did not qualify as export of service.
Before the Tribunal, the appellant accepted that the receipts were not in convertible foreign exchange and did not press the issue of export of service. Instead, it contended that the services were intrinsically connected with hydroelectric power projects and were exempt under Notification No. 11/2010-ST dated 27.02.2010 and Notification No. 45/2010-ST dated 20.07.2010. It also argued, without prejudice, that the show cause notice failed to classify the services under a specific taxable category applicable in the pre-negative list regime. The Revenue reiterated that the services did not qualify as export of service and supported the adjudication order.
The Tribunal identified the principal issue as whether the services were exempt under the above notifications. It observed that the Revenue had not disputed the appellant’s assertion that the services were intrinsically connected with hydroelectric power generation. The work orders themselves showed that the contracts related to fabrication, erection, testing, transportation, alignment and commissioning of components forming part of hydroelectric projects. The Tribunal also accepted the appellant’s explanation that the work executed for M/s. Druk Impex was likewise intended for hydroelectric power projects, there being no material to the contrary.
After examining Notification Nos. 11/2010-ST and 45/2010-ST, the Tribunal held that they exempted taxable services relating to the generation, transmission or distribution of electricity. Since the appellant’s activities were intrinsically and inextricably connected with hydroelectric power generation, they fell within the exemption notifications and were not liable to service tax during the relevant period. Relying on the Chennai Bench decision in Tamil Nadu Electricity Board v. Commissioner of GST & Central Excise, Salem, the Tribunal concluded that the demand, interest and penalties could not be sustained. Having allowed the appeal on merits, it declined to examine the challenge to the show cause notice. The Revenue’s cross-objection was found to be generic and unsupported by corroborative material and was rejected. The service tax demand, interest and penalty under Section 78 were set aside, the impugned order was modified accordingly, and the appeal was allowed with consequential relief.
Cases Discussed
- M/s. Nirman Construction v. Commissioner of C.Ex., S.T. & Cus., Final Order No. 77064/2025 dated 29.07.2025
- Tamil Nadu Electricity Board v. Commissioner of GST & Central Excise, Salem (CESTAT Chennai), (2024) 17 Centax 9 (Tri.-Mad.)
FULL TEXT OF THE CESTAT KOLKATA ORDER
The present appeal has been preferred by M/s. Steel Works & Power Engineers (P) Ltd. [hereinafter referred to as the “appellant”], a registered Service Tax assessee, assailing Order-in-Original No. 49/COMM/ST/SLG/15-16 dated 12.03.2016 passed by the Ld. Commissioner of Customs, Central Excise & Service Tax, Siliguri Commissionerate, whereby Service Tax amounting to Rs.74,48,274/- (inclusive of Education Cess and Secondary & Higher Education Cess) came to be confirmed against the appellant, together with applicable interest, besides imposition of an equivalent penalty under Section 78 of the Finance Act, 1994.
2. The facts of the case are that the appellant is engaged in the business of fabrication, erection and allied engineering activities involving supply of steel structural components for power and other infrastructure sectors. During the material period spanning Financial Years 2010-11 and 2011-12 (up to June, 2011), the appellant undertook various works in Bhutan as an approved sub-contractor of M/s. Hindustan Construction Co. Ltd. in connection with the Punatsangchu Hydro Electric Project and the Dagachu Hydro Power Project. The scope of work, inter alia, comprised fabrication of pressure shaft steel liners together with their accessories, testing, painting, transportation, erection, alignment and commissioning thereof. The appellant had also undertaken fabrication and supply of tunnelling formwork of different specifications to M/s. Druk Impex, Bhutan for use in hydro-electric power projects. For execution of the aforesaid works, the appellant maintained a fabrication workshop and site office at Hebesa Road, Wangdue Phodrang, Bhutan.
2.1. On the basis of an enquiry initiated by the Revenue, it was alleged that the appellant had earned consideration towards fabrication and erection activities undertaken in Bhutan during the aforesaid period, the payments whereof had been received either in Indian Rupees or Bhutanese Ngultrum. According to the Revenue, neither of the aforesaid currencies qualified as “convertible foreign exchange” within the meaning of the applicable statutory provisions and notifications and, consequently, the services rendered by the appellant did not satisfy the conditions prescribed under the Export of Service Rules, 2005 so as to qualify as ‘export of service’. It was, therefore, alleged that the appellant had failed to discharge Service Tax on the consideration received towards the said activities.
3. In the aforesaid backdrop, a Show Cause Notice dated 19.03.2015 came to be issued proposing recovery of Service Tax amounting to Rs.74,48,274/-, together with applicable interest, besides imposition of penalties upon the appellant-company under Section 78 and upon its Director under Section 78A of the Finance Act, 1994. The Show Cause Notice proceeded primarily on the allegation that the consideration received by the appellant in respect of the services rendered in Bhutan was not received in convertible foreign exchange and, therefore, the benefit available to export of services under the Export of Service Rules, 2005 was not admissible.
4. The appellant filed a detailed reply to the Show Cause Notice contesting the allegations levelled therein and also participated in the adjudication proceedings by attending the personal hearing afforded by the adjudicating authority.
5. Upon consideration of the materials on record, the ld. adjudicating authority, by way of the impugned Order-in-Original No. 49/COMM/ST/SLG/15-16 dated 12.03.2016, confirmed the entire Service Tax demand of Rs.74,48,274/- along with applicable interest and inter alia imposed an equivalent penalty under Section 78 of the Finance Act, 1994 upon the appellant-company. While doing so, the ld. adjudicating authority, inter alia, held that the work orders had been awarded to the appellant’s office situated in the taxable territory of India, that the services were substantially provided from its Siliguri office and the invoices had also predominantly been raised therefrom. It was further held that the services rendered by the appellant pursuant to the work orders executed in Bhutan did not qualify as ‘export of service’ owing to the non-fulfilment of the condition relating to receipt of consideration in convertible foreign exchange and were, therefore, exigible to Service Tax under the provisions of the Finance Act, 1994.
5.1. Aggrieved by the aforesaid Order-in-Original, the present appeal has been preferred before this Tribunal. The Respondent has also filed their cross objection to the instant appeal preferred by the assessee.
6. The Ld. Counsel appearing for the appellant, while assailing the impugned order, inter alia, advanced the following submissions: –
(i) That it is not disputed that the consideration for the services rendered in Bhutan was received either in Bhutanese currency or in Indian currency, both of which do not qualify as “convertible foreign exchange” for the purpose of the Export of Service Rules, 2005. The appellant, therefore, does not press the controversy on the issue of export of service. That the services rendered by the appellant were intrinsically connected with hydro-electric power projects in Bhutan and were meant for and related to the generation and supply of electricity. Consequently, the said services were exempt from Service Tax during the material period by virtue of Notification No. 11/2010-ST dated 27.02.2010 and Notification No. 45/2010-ST dated 20.07.2010.
(ii) That the aforesaid contention is supported by the decision of the Chennai Bench of this Tribunal in Tamil Nadu Electricity Board v. Commissioner of GST & Central Excise, Salem, reported in (2024) 17 Centax 9 (Tri.-Mad.).
(iii) Without prejudice to the above, it is contended that the Show Cause Notice itself is legally unsustainable inasmuch as, while alleging receipt of “erection income” and “fabrication income” and quantifying the demand work-order-wise, it failed to specify the precise taxable category under which Service Tax was proposed to be demanded, such as “Erection, Commissioning and Installation Service” or “Works Contract Service”. It is submitted that the period involved falls under the pre-negative-list regime, when Service Tax was leviable only under specified taxable categories, and therefore a demand raised without clearly classifying the services category-wise is void ab initio and incapable of being sustained in law.
(iv) In support of the aforesaid proposition, reliance has been placed upon the decision of this Tribunal in M/s. Nirman Construction v.Commissioner of C.Ex., S.T. & Cus. [Final Order No. 77064/2025 dated 29.07.2025].
6.1. On the strength of the above submissions, the Ld. Counsel for the appellant prayed that the impugned Show Cause Notice and the consequent Order-in-Original No. 49/COMM/ST/SLG/15-16 dated 12.03.2016 be set aside with consequential reliefs.
7. On the other hand, the Ld. Authorized Representative of the Revenue reiterated the findings contained in the impugned Order-in-Original. He stressed that that the services rendered by the appellant did not qualify as “export of service” and that the consideration for the said services had been received in Indian currency and/or Bhutanese currency, neither of which constitutes convertible foreign exchange for the purposes of the Export of Service Rules, 2005. He, thus, prayed for dismissal of the appeal.
8. Heard both sides and perused the records placed before us.
9. Having carefully considered the rival submissions advanced on behalf of the parties and perused the materials placed on record, we find that the principal issue which falls for determination is whether the services rendered by the appellant during the material period were exigible to Service Tax or stood exempt by virtue of the exemption notifications viz. Notification No. 11/2010-ST dated 27.02.2010 and Notification No. 45/2010-ST dated 20.07.2010 prevailing during the relevant period.
10. At the outset, it is pertinent to note that the appellant has categorically submitted that the services rendered under the contracts in question were intrinsically connected with and meant for the generation and supply of electricity through hydroelectric power projects in Bhutan. Significantly, the aforesaid factual assertion has not been disputed before us by the Revenue during the course of hearing. On the contrary, a perusal of the Work Orders, as noticed by the adjudicating authority itself in paragraphs 6.10 to 6.13 of the impugned Order-in-Original, unmistakably reveals that the contracts pertained to hydroelectric power projects involving fabrication, erection, testing, painting, transportation, alignment and commissioning of pressure shaft steel liners and allied structural components forming part of such projects.
10.1. As regards the Work Orders executed for M/s. Druk Impex, Bhutan, it has been explained by the appellant that the activities relating to supply and fabrication of tunnelling formwork of different radii were likewise undertaken for various hydroelectric power projects. The said assertion has been specifically brought to our knowledge during the course of hearing. In this connection, it has been stated by the appellant that M/s. Druk Impex is a company primarily engaged in activities concerning hydroelectric power projects and the supply of equipment therefor, which lends considerable assurance to the appellant’s contention that the services rendered thereunder were equally intended for generation and supply of electricity. In the absence of any material to the contrary on record, we agree with the submissions made that the said work orders are equally related to generation and supply of electricity through hydroelectric power projects.
10.2. It transpires that during the material period, Notification No. 11/2010-ST dated 27.02.2010 and Notification No. 45/2010-ST dated 20.07.2010 granted exemption from Service Tax in respect of taxable services relating to the generation, transmission or distribution of electricity. The appellant has specifically invoked the aforesaid notifications, contending that the services rendered by it squarely fall within the ambit thereof.
- Notification No. 11/2010-ST dated 27-2-2010:-
“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 provided to any person, by any other person for transmission of electricity, from the whole of service tax leviable thereon under section 66 of the said Finance Act.”
- Notification No. 45/2010-ST dated 20-7-2010:-
“Whereas, the Central Government is satisfied that a practice was generally prevalent regarding levy of service tax (including non-levy thereof), under section 66 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as ‘the Finance Act’), on all taxable services relating to transmission and distribution of electricity provided by a person (hereinafter called ‘the service provider’) to any other person (hereinafter called ‘the service receiver’), and that all such services were liable to service tax under the said Finance Act, which were not being levied according to the said practice during the period up to 26th day of February, 2010 for all taxable services relating to transmission of electricity, and the period up to 21st day of June, 2010 for all taxable services relating to distribution of electricity;
Now, therefore, in exercise of the powers conferred by section 11C of the Central Excise Act, 1944 (1 of 1944), read with section 83 of the said Finance Act, the Central Government hereby directs that the service tax payable on said taxable services relating to transmission and distribution of electricity provided by the service provider to the service receiver, which was not being levied in accordance with the said practice, shall not be required to be paid in respect of the said taxable services relating to transmission and distribution of electricity during the aforesaid period.”
10.3. Upon a conjoint reading of the aforesaid notifications, it becomes manifest that the legislative intent was to exempt taxable services rendered in relation to the generation, transmission or distribution of electricity. Therefore, the activities undertaken by the appellant, being intrinsically and inextricably connected with hydroelectric power generation projects, are unmistakably covered by the above exemption notifications. Once the services are found to answer the statutory description contemplated therein, the inevitable corollary is that they are not exigible to Service Tax during the material period. The impugned demand of Service Tax, as confirmed by the authorities below, cannot therefore be sustained.
11. The present issue has also been analysed by the Tribunal, Chennai in the case of M/s. Tamil Nadu Electricity Board v. Commissioner of GST & Central Excise, Salem [(2024) 17 Centax 9 (Tri.-Mad.)], wherein the scope and applicability of the aforesaid exemption notifications in relation to services connected with generation and transmission of electricity came to be considered. Relevant extracts of the aforesaid decision are reproduced below: –
“7.3 M/s. TNEB is engaged in generation and distribution of electricity and all the Services relating to generation or distribution are exempted in terms of Notification No. 11/2010-ST dated 27-2-2010 and Notification No. 45/2010-ST dated 20-7-2010. In terms of the above Notifications, all taxable services relating to transmission and distribution of electricity are exempted….
…
7.5 We note that the decision rendered by the Tribunal Delhi in the case of Paschimanchal Vidyut Vitran Nigam Ltd. (supra) has ruled that installation of the electricity meters to be in relation to transmission of electricity. It has been decided therein that any activity or service like erection, commissioning and installation of meters as also technical testing and analysis can easily be termed as services relating to the transmission and distribution of electricity.”
12. In view of the foregoing discussion and by applying the ratio of the decision cited supra, we are of the considered opinion that the services rendered by the appellant in this case were covered by the exemption notifications operating during the relevant period and consequently do not attract levy of Service Tax. The impugned demand, together with the consequential interest and penalties, therefore, cannot be sustained in the eyes of law.
13. The appellant has also assailed the validity of the Show Cause Notice on the ground that the proposed demand was not classified under any specific taxable service despite the proceedings pertaining to the pre-negative list regime. However, having held that the impugned services were otherwise exempt from levy of Service Tax on merits, we do not consider it necessary to examine the aforesaid contention.
14. Regarding the cross objection filed by the Revenue, we observe that the grounds canvassed therein are generic and perfunctory in nature, which are not backed by any corroborative material on record. Accordingly, the cross objection is found to be devoid of merit and liable for rejection.
15. Consequently, the impugned demand of Service Tax, together with interest and imposition of penalty under Section 78 of the Act, is, therefore, set aside. The impugned order thus stands modified to the above extent.
16. The appeal is disposed of on the above terms, with consequential relief, if any, in accordance with law. The cross objection filed by the respondent also stands disposed of in the above manner.
(Operative part of the order was pronounced in open court)
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