CESTAT, MUMBAI BENCH
Ideal Road Builders (P.) Ltd.
Commissioner of Service Tax, Mumbai
Order Nos. S/03/13/CSTB/C-I & A/04/13/CSTB/C-I
Application No. ST/S/2727 of 2012
Appeal No. ST/770 of 2012
Date of Pronouncement – 14.12.2012
P.R. Chandrasekharan, Technical Member
The appeal and stay application are directed against order-in-original No.11/ST-II/RS/2012 dated 31/08/2012 passed by Commissioner of Service Tax, Mumbai.
2. The appellant, M/s. Ideal Road Builders Pvt. Ltd., Andheri (East), Mumbai, are engaged in construction of highways i.e., widening of the existing two-lane carriageway from KM 0/115 to KM 23/509 of Thane-Bhiwandi bye-pass road. The Public Works Department (PWD) of Government of Maharashtra awarded the contract for this purpose. To compensate the appellant for undertaking the work they were authorised to collect tolls from the users of the road at various places. The appellant collected tolls from the users. The department was of the view that the appellant was required to discharge service tax liability on this activity under the category of “Business Auxiliary Service” and accordingly a show-cause notice dated 21/10/2011 was issued demanding a service tax of Rs. 30,30,07,734/- on the total toll collection of Rs. 264,06,80,930/- during the period 2006-07 to 2010-11. The notice was adjudicated and the demand was confirmed along with interest thereon and penalties were imposed on the appellant under Section 76 of the Finance Act, 1994 and a penalty of Rs. 5,000/- was imposed on the appellant under Section 77 of the Finance Act. It is against this order, the appellant is before us.
3. The Ld. Counsel for the appellant submits that videCircular NO.152/3/2012-ST dated 22/02/2012 the Board has clarified the tax liability in respect of construction of road where the finance is done through a Special Purpose Vehicle (SPV) and toll is collected by the SPV on their own accounts towards the cost of constructing the roads. An SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road does not come under the purview of the service tax. In view of the clarification issued by the Board, the order is not sustainable.
4. The Ld. AR appearing for the Revenue reiterates the findings of the adjudicating authority.
5. We have carefully considered the rival submissions.
5.1 As the issue lies in a narrow compass, we are of the view that the appeal itself can be disposed of at this stage. Therefore, after dispensing with the requirement of pre-deposit of the dues adjudged, we take up the appeal for consideration and disposal.
5.2 The Board Circular dated 22/02/2012 is re-produced below:-
“A representation has been received by the Board, seeking clarification regarding leviability of service tax on toll fee (hereinafter referred as ‘toll’) paid by users, for using the roads. The representation has been examined.
2. Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer arrangement). ‘Tolls’ is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV is collection on own account and not on behalf of the person who has made the land available for construction of the road.
3. However, if the SPV engages an independent entity to collect toll from users on its behalf and a part of toll collection is retained by that independent entity as commission or is compensated in any other manner, service tax liability arises on such commission or charges, under the Business Auxiliary Service [section 65(105)(zzb) read with section 65(19) of the Finance Act, 1994].
4. Further, an SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road and such construction do not attract service tax.
5. This Circular may be communicated to the field formations and service tax assessees, through Public Notice/ Trade Notice.”
5.3 From the above circular it is clear that if on the basis of an agreement between the State authority and the concessionaire for construction of roads, the contractor is authorised to collect the toll charges from the users of the roads for the services rendered and the entire activity is done on Build-Own/Operate-Transfer basis, there is no service tax liability.
5.4 Construction of roads has been specifically excluded from the scope of service tax levy both under “Commercial and Industrial Construction Service” and “Works Contract Service”. Further repair and maintenance of roads have also been exempted from service tax retrospectively in this year’s budget. Thus the intention of the Government is to keep out road construction activity from the purview of service tax. If that be so, how can service tax be levied on the very same activity under Business Auxiliary Service? Such a view does not appeal to any reason or logic.
5.5 In view of the clarification given by the Board, the impugned order does not sustain. Accordingly we set aside the impugned order and allow the appeal without going into the other issues raised in the appeal. The stay application is also disposed of.