Case Law Details
Superintending Engineer Harbour Engineering Department Vs Commissioner of Central Excise (CESTAT Bangalore)
In Superintending Engineer Harbour Engineering Department Vs Commissioner of Central Excise, the CESTAT Bangalore examined service tax liability arising from a Government-funded coastal protection and construction project executed through a foreign company for the Government of Kerala.
The appellant, belonging to the Harbour Engineering Department, Government of Kerala, supervised and coordinated projects relating to rehabilitation, coastal protection, and construction funded through Government budgetary allocations. A foreign company, ASR Ltd., New Zealand, was entrusted with work relating to construction of an artificial reef at Kovalam under the project titled “Multipurpose Submerged Artificial Surf Reef for Water Sports and Beach Development at Kovalam.” Revenue alleged that the appellant had received works contract services from the foreign company and was liable to pay service tax on the gross amount paid for the project.
The Commissioner confirmed the demand of service tax amounting to ₹76,57,124 for the period from 28.03.2009 to 27.05.2010 under the category of Works Contract Services, along with interest and equal penalty. The appellant challenged the order before the Tribunal.
The appellant argued that the project was undertaken for the Government and was not commercial or profit-oriented in nature and therefore should not attract service tax. Reliance was placed on Circular No.116/10/2009-ST dated 15.09.2009 relating to exemption for Government Departments. It was further argued that Works Contract Service was not applicable because there was no transfer of property and the work was not executed for commercial or industrial purposes as defined under Section 65(105)(zzzza) of the Finance Act, 1994. The appellant also contended that Section 66A of the Finance Act, 1994 concerning services received from foreign service providers would not apply where the recipient was the Government of Kerala.
The Revenue contended that the project qualified as an Engineering, Procurement and Construction (EPC) project and therefore fell within the scope of Works Contract Services liable to service tax.
After examining the records, the Tribunal noted that the project was undertaken by the Department of Tourism, Government of Kerala, and the proposal of ASR Ltd., New Zealand, for construction of the reef at a value of USD 11,64,500 had been accepted. The tender documents specifically stated that statutory taxes and levies would be extra. Clause 4 of the tender schedule also provided that rates should include Value Added Tax, Income Tax, and contribution to the Kerala Construction Welfare Board.
The Tribunal further observed that the Commissioner had recorded that the appellant itself had included service tax liability in its price bids dated 05.11.2007 and 08.01.2008. The revised bid showed the project value exclusive of taxes and separately listed service tax, VAT, Kerala Construction Welfare Fund, and customs duty, resulting in a final price inclusive of taxes. According to the Tribunal, this demonstrated that the appellant was aware of the service tax liability but had not discharged it. The records also showed that taxes had been deducted and only the balance amount had been paid to the foreign company.
The Tribunal agreed with the Commissioner that the project was an EPC project falling under Works Contract Services and held that the appellant was liable to discharge service tax. However, it noted that the appellant had already paid service tax amounting to ₹28,57,060 under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 read with Notification No.32/2007-ST dated 22.05.2007. Since this payment was made on 08.08.2011, prior to issuance of the show cause notice dated 06.12.2012, the Tribunal held that there was no justification for imposing penalty.
Accordingly, the Tribunal set aside all penalties imposed by the adjudicating authority. The matter relating to demand of service tax was remanded back to the adjudicating authority for verification and redetermination of duty after granting the benefit of Notification No.32/2007-ST and considering the amount already paid by the appellant.
FULL TEXT OF THE CESTAT BANGALORE ORDER
This appeal is filed by the appellant ‘The Superintending Engineer, Harbour Engineering Department, South Circle, Thiruvananthapuram against Order-in-Original No. TVM-EXCUS-000-27-13-14 dated 20.02.2014 passed by the Commissioner of Central Excise and Customs, Thiruvananthapuram.
2. Briefly stated the facts are the appellant belongs to the Harbour Engineering Department, Government of Kerala who undertook Government funded projects. ASR Ltd. a foreign company who was entrusted with certain works relating to rehabilitation, costal protection and construction activities for Government of Kerala funded through Government budgetary allocations which was implemented, coordinated and supervised by the appellant on behalf of the Government. Alleging that the appellant had received the services of works contract on construction of Artificial Reef at Kovalam from a foreign company, Revenue issued a notice demanding service tax on the gross amount paid to the foreign company. The Commissioner in the impugned order confirmed the services received by the appellant under the category of Works Contract Services and demanded service tax amount of Rs.76,57,124/- for the period from 28.03.2009 to 27.05.2010 along with interest and imposed equal amount of penalty. Aggrieved by this order, the appellant is in appeal before us.
3. The Learned Counsel on behalf of the appellant submitted that the works undertaken was for the Government and cannot be considered as a Commercial in nature with profit ; hence, not liable to pay service tax. He also relied on the Circular No.116/10/2009-ST dated 15.09.2009 where service tax was exempted for Government Departments. He further submitted that Works Contract Services is not attracted since there is no transfer of property, no execution for commercial or industrial purpose as defined under Section 65(105)(zzzza) of the Finance Act, 1994. Further, it is stated that the service is rendered by foreign service provider and the recipient being Government of Kerala, Section 66A of Finance Act, 1994 does not apply; hence, claimed that the impugned order needs to be set aside.
4. The Learned Authorised Representative (AR) for the Revenue reiterating the findings of the Commissioner submitted that the Works Contract Service included execution of turn-key projects including Engineering, Procurement and Construction or Commissioning (EPC) projects and since the project undertaken by the appellant was an EPC project, the same was liable to service tax under Works Contract Services.
5. Heard both sides. As per the documents placed on record, we find that the project undertaken by the appellant was ‘Multipurpose Submerged Artificial Surf Reef for Water Sports and Beach Development at Kovalam’ undertaken by the Department of Tourism, Government of Kerala. As per the tender documents, it is seen that the proposal of M/s. ASR Ltd. New Zealand @ USD 11,64,500 for construction of multipurpose reef was accepted. The documents also stated statutory taxes and levies as applicable will be extra. The Tender Schedule at Clause-4 mentioned as follows:
The rate should be inclusive of Value Added Tax, Income tax and contribution to Kerala Construction Welfare Board’ and the above amount @ 6.2% of the contract value was to be deducted from the total amount due to the contracting firm on account of the completion of the project.
Thus, from the above facts, it is seen that the project was undertaken by the Department of Tourism and the tender was allotted to a foreign company. The Commissioner in the impugned order acknowledges the fact that the appellant had provisioned the service tax liability in the price bid dated 05.11.2007. We find that in the price bid dated 05.11.2007 and revised price bid on 08.01.2008, the appellant has categorically mentioned USD 11,64,500 exclusive of all taxes and under the taxes category, we find service tax, VAT, Kerala Constructions Welfare Fund and Customs duty and the final price inclusive of taxes is USD 12,89,370. This clearly establishes the fact that the appellant was aware of the tax liability but had not discharged the same. The records also show that the taxes were debited and only the balance amounts were paid to the foreign company. Therefore, as rightly observed by the Commissioner, since it is an admitted fact that it is an EPC project falling under the Works Contract Services and having collected the taxes from the foreign company, the appellant is liable to discharge service tax. However, we find that the appellant has paid service tax of Rs.28,57,060/- at the compounding rate of 4.12% on the gross amount as per the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 read with Notification No.32/2007-ST dated 22.05.2007 needs to be considered even though it was not opted for. Since, the above amount is paid on 08.08.2011 i.e., prior to the issuance of show-cause notice dated 06.12.2012, we do not find any reason to impose penalty on the appellant. Accordingly, all the penalties are set aside.
6. Appeal is partially allowed by setting aside the penalty imposed by the adjudicating authority. As regarding demand of duty, it is remanded to the adjudication authority for verification and redetermining duty after extending the benefit of Notification No.32/2007-ST dated 22.05.2007 and the amount paid by the appellant.
(Order pronounced in Open Court on 24.04.2026.)
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