Commissioner of Service Tax Kolkata Vs Electrosteel Castings Limited (Calcutta High Court)
Conclusion: Construction of canals/ pipelines/ conduits to support irrigation, water supply or for sewerage disposal, when provided to the Government, could not be exigible to service tax. Once tax was not payable in law, there was no authority for the department to retain such an amount.
Held: Assessee had entered into an agreement with the Kerala Water Authority for construction of a distribution system for water supply for Thiruvananthapuram City. Assessee was informed that no service tax was payable on the service. Accordingly, it sought refund under Section 11B of the Central Excise Act of the amount which was paid by it on a mistaken impression that the activity undertaken by them would attract service tax. However, the Adjudicating Authority rejected the assessee’s application on the ground that no supporting documents for exemption of service tax were produced. Since the CESTAT allowed the assessee’s appeal, the Revenue moved the High Court alleging that the bid document mentioned that all duties, taxes and other levies should be payable by the director under the contract, and the total bid price submitted by the bidder should include the same. It was held that assessee had performed the work for the Kerala Water Authority, which was undoubtedly a Government/Government undertaking and the project was aimed at providing civic amenities to the public at large, it can never be termed to be a commercial or an industrial project. Furthermore, the revenue did not dispute the fact that the Kerala Water Authority was the State Government authority under the Public Health and Engineering Department of Kerala State Government and the project was aimed to provide civic amenities to the public at large, namely the citizens of Thiruvananthapuram city and if that be the admitted factual situation, the Water Supply Board could not be said to be a project for the purpose of profit. Thus, the view taken by Tribunal holding that the service, which was rendered by assessee to the Kerala Water Authority, would not be a taxable service under Works Contract Services. Once tax was not payable in law, there was no authority for the department to retain such an amount. The decision in KVR Construction was challenged before the Hon’ble Supreme Court by the revenue and the revenue’s appeal was dismissed (Commissioner of C.Ex (Appeals) vs. KVR Construction, reported in 2018 (14) GSTL J70 (SC). In the decision in M.C.I. Leasing (P) Ltd., the Hon’ble Division Bench had referred to the decision in KVR Construction to point out the correct legal position. In the light of the above decision, the question of Section 11B of the Central Excise Act, 1944 would not stand attracted to the facts and circumstances of the case.
