a2z taxcorp llp - 2015-tiol-768-cestat-bang …2015-tiol-768-cestat-bang-lb in the customs, excise...
TRANSCRIPT
2015-TIOL-768-CESTAT-BANG-LB
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, BANGALORE
Service Tax Appeal Nos. 441, 606, 607, 898, 937 AND 211 of 2009
M/s LANCO INFRATECH LTD
M/s JAYAPRAKASH GAYATHRI PROJECTS LTD
M/s GAYATHRI BCBPPL
M/s RAMKY INFRASTRUCTURE LTD
M/s GAYATHRI PROJECTS LTD
Vs
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD
Service Tax Appeal Nos. 398, 425, 1210, 1850 AND 2148 of 2010
M/s NCC LTD
M/s L AND T KBL
M/s L AND T LTD
M/s RAMKY INFRASTRUCTURE LTD
M/s KOYA AND CO CONSTRUCTION PVT LTD
M/s GAYATHRI PROJECTS LTD
Vs
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD
Service Tax Appeal Nos. 918, 919, 920, 921, 922, 2818, 2819, 2820 AND 3174 of 2011
M/s IVRCL NAVAYUGA SEW JV
M/s IVRCL JL- JV
M/s IVRCL -KBL- MEIL-JV
M/s IVRCL -KBL-JV
M/s IVRCL SEW -PRASAD-JV
M/s GKC PROJECTS LTD
M/s MAYTAS NCC JV
Vs
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD
Service Tax Appeal Nos. 131, 177, 181, 182, 183, 221, 501, 967, 1676, 2290, 3311,
3348, 3349, 3394, 3413, 3432 AND 3563 of 2012
M/s PATEL ENGINEERING LTD
M/s AKR COASTAL JV
M/s IVRCL-JL- JV
M/s IVRCL -KBL-MEIL- JV
M/s IVRCL -KBL- JV
M/s PES-SEW-JV
M/s MEGHA ENGINEERING AND INFRASTRUCTURE LTD
M/s P V KRISHNA REDDY, MD OF M/s MEGHA ENGINEERING AND INFRASTRUCTURE
LTD
M/s LANDT KBL JV M/s SUDHAKAR POLYMERS LTD
M/s LANDT KBL JV
M/s IVRCL-KBL-MEIL-JV
M/s IVRCL-KBL-JV
M/s SCL INFRATECH LTD
M/s RAMKY INFRASTRUCTURE LTD -VSM JV
M/s MEGHA ENGG. AND INFRASTRUCTURE LTD
M/s PES-SEW-JV
Vs
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD
Service Tax Appeal Nos. 25019, 25358, 25369, 25529, 25532, 25725, 25754, 25802,
26382, 26428, 26452, 26453 AND 28834 of 2013
M/s BHOORATHNOM CONSTRUCTION CO PVT LTD
M/s MAYTAS NCC JV
M/s IVRCL-SEW-PRASAD JV
M/s RM MOHITE AND CO BHOORATNAM JV
M/s IVRCL-SEW-WPIL-JV
M/s KRUSHI INFRAS INDIA PVT LTD
M/s GH REDDY ASSOCIATES AND KK REDDY CO JV
M/s KVR CONSTRUCTIONS LTD
M/s NCC LTD
M/s VISWA INFRASTRUCTURES AND SERVICES PVT LTD
M/s KOYA AND CO CONSTRUCTION PVT LTD
M/s KOYA AND CO CONSTRUCTION PVT LTD
M/s PATEL ENGINEERING LTD
Vs
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD
Service Tax Appeal Nos. 20224, 20285, 20893, 20921, 20922 AND 21218 of 2014
M/s SRI VENKATESWARA PIPES LTD
M/s KIRLOSKAR BROTHERS LTD
M/s NAVAYUGA-IVRCL-SEW-JV
M/s NEC-NCC MAYTAS JV
M/s SEL-GKC PROJECTS JV
M/s CH VV SUBBA RAO
Vs
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD
Date of Hearing: 15.12.2014 to 19.12.2014
Date of Decision: 28.4.2015
Appellants Rep by: Shri V Sridharan, Shri S R Ashok, Sh S Ravi, Sr. Advs; Shri B V Kumar,
G Natarajan, MdShafi, K Vijay Kumar, R Murlidhar and Ms NishaBineesh, Advs
Respondents Rep by: Shri Govind Dixit and ShriAmresh Jain, ARs
CORAM: G Raghuram, President
Ms ArchanaWadhwa, Member (J)
Mr B S V Murthy, Member (T)
Service Tax - Taxability of contracts executed for water supply projects/ pipelines /
irrigation /canals for Government for non-commercial purposes - Five key issues
decided by the Larger Bench.
Issues referred:
A) Whether laying of pipelines for lift irrigation systems, transmission and distribution
of drinking water or sewerage, undertaken for Government/ Government undertakings
should be classified under ECIS as erection, commission or installation of plant,
machinery, equipment or structures, whether pre-fabricated or otherwise; or
installation of plumbing, drain laying or other installations for transport of fluids,
enumerated in Section 65(105)(zzd) and defined Section 65(39a), during 16.06.2005 to
31.05.2007; or must be classified under CICS, as amounting to construction of pipeline
or conduit; and if classifiable under the later provision, whether the activity is not
taxable since it is not used or to be used, engaged or to be engaged primarily for
industry or commerce;
B) Whether construction of canals for irrigation purposes and laying of pipelines
including as part of lift irrigation systems, undertaken for the Government/
Government undertakings is liable to service tax under WCS as turnkey projects,
including engineering, procurement and construction or commissioning projects under
clause (e) of Explanation (ii) in the definition of WCS or is excluded from the ambit of
WCS since it is in respect of a “Dam” and thus stands excluded from WCS, as defined;
C) Whether, turnkey projects, including engineering, procurement and construction or
commissioning (EPC) projects specified in clause (e) is merely an enumeration of the
mode of execution of taxable services specified in clauses (a) to (d) or is a wholly
distinct taxable service and is exigible to service tax as an independent species of works
contract service;
D) Whether, even if clause (e) in Explanation (ii) of WCS is considered a distinct and
independent service, where construction of canals for irrigation purposes and laying of
pipelines either as part of lift irrigation systems or for transport and distribution of
water is undertaken for Government/ Government undertakings, the same is more
appropriately covered under clause (b) of WCS i.e. construction of a new building or a
civil structure or a part thereof, or of a pipeline or conduit, by applying principles of
classification set out in Section 65A(2)(a) & (b) and thus fall outside the ambit of levy,
since the activity is not primarily for the purpose of commerce or industry; or whether a
contrary view that clause (e) being an independent entry, activities falling thereunder
would be taxable even if the rendition of service thereby or thereunder, was not
primarily for non commercial or non industrial purposes; and
E) Where execution of the whole or a part of the work is sub-contracted on back to
back basis by the main contractor (which is a joint venture) to sub contractors, in the
absence of any transfer of property in goods involved in the execution of such works,
from the main contractor to the Government/ Government undertakings, whether levy
of service tax in the hands of appellant (main contractor) is valid under WCS, in the light
of the judgment in State of A.P. vs. L & T Ltd.
Ruling:
(a) Issue (A): Laying of pipelines/ conduits for lift irrigation systems for transmission of
water or for sewerage disposal, undertaken for Government/ Government
undertakings and involving associated activities like trenching, soil preparation and
filling, supporting masonry work, jointing of pipes, electro-mechanical works or
pumping stations and like activity, is classifiable only under Commercial or Industrial
Construction Service (CICS) for the period upto 01.06.2007 and not under Erection,
Commissioning or Installation Service (ECIS);
(b) Issues (B); (C) and (D):
(i) Construction of canals for irrigation or water supply; construction or laying of
pipelines/ conduits for lift irrigation conceived and integrated into a dam project, must
be classified as works contract “in respect of dam” and is thus excluded from the scope
of “Works Contract Service” defined in Section 65(105)(zzzza) of the Act, in view of the
exclusionary clause in the provision;
(ii) Turnkey/ EPC project contracts, enumerated in clause (e), Explanation (ii) in Section
65(105)(zzzza) of the Act is a descriptive and ex abundant cautela drafting
methodology. In the light of the decision in Alstom Projects India Ltd., fortified by the
Special Bench decision (dated 19.03.2015) in Larsen & Toubro Ltd 2015-TIOL-527-
CESTAT-DEL-LB. reference, a turnkey/ EPC contract is taxable prior to 01.06.2007 as
well. On and since 01.06.2007, turnkey/ EPC contracts must be classified on the basis of
the essential character of the service provided thereby, with the aid of classification
guidelines set out in Section 65A(2) of the Act. Consequently, a turnkey/ EPC contract
must be classified under any of the clauses (a) to (d), Explanation (ii), Section
65(105)(zzzza). The bundled bouquet of services provided as turnkey/ EPC contract,
classifiable as Commercial or Industrial Construction Service (CICS) prior to 01.06.2007,
would be classifiable under clause (b), Explanation (ii), Section 65(105)(zzzza) on and
from 01.06.2007 and would not be exigible to service tax if the rendition of service
thereby is primarily for non-commercial, non industrial purpose, in view of the
exclusionary clause in clause (b) of the definition of WCS.
This is the only possible and harmonious interpretation possible of the several clauses
under Explanation (ii) of Section 65 (105)(zzzza), a distinct taxable service defined with
constituent elements thereof substantially drawn from elements of pre-existing taxable
services like ECIS, CICS or COCS; and other services when bundled to amount to
turnkey/ EPC;
(ii) Construction of canals/ pipelines/ conduits to support irrigation, water supply or for
sewerage disposal, when provided to Government/ Government undertakings would
be for non-commercial, non-industrial purposes, even when executed under turnkey/
EPC contractual mode and would fall within the ambit of clause (b), Explanation (ii) of
Section 65(105)(zzzza); and would consequently not be exigible to service tax, in view of
the exclusion enacted in clause (b); and
(c) Issue (E): Where under an agreement, whether termed as works contract, turnkey
or EPC, the principal contractor, in terms of the agreement with the employer/
contractee, assigns the works to a sub-contractor and the transfer of property in goods
involved in the execution of such works passes on accretion to or incorporation into the
works on the property belonging to the employer/ contractee, the principal contractor
cannot be considered to have provided the taxable (works contract) service
enumerated and defined in Section 65(105)(zzzza) of the Act.
Reference answered in favour of assessees
Case laws cited:
State of A.P. vs. L & T Ltd - 2008-TIOL-158-VAT-SC ....Para 7(e), 20
Indian Hume Pipe Co. Ltd. vs. Commissioner of C. Ex. Trichy - 2008-TIOL-1665-CESTAT-
MAD ...... Relied on (para 15 (i))
A. Sekar vs. CCE - 2010-TIOL-620-CESTAT-MAD ..... Relied on (para 15 (ii))
Trichy; Dinesh Chandra Agrawal vs. A. Infracon Pvt. Limited - 2010-TIOL-1413-
CESTAT-AHM .... Relied on (para 15 (ii))
Surindra Engineering Co. Limited vs. CC, Mumbai 2012 (27) STR 77 (Tri.Mumbai)....
Relied on (para 15 (ii))
Lalit Constructions vs. CCE, Raigad (Tribunal Decisions) 2012 (27) STR 138 (Tri.
Mumbai)..... Relied on (para 15 (ii))
Strategic Engineering Pvt. Ltd. vs. Additional Commr. C. Ex. Mumbai - 2011-TIOL-547-
HC-MAD-ST ......Relied on (para 15 (ii))
Bangalore Water Supply and Sewerage Board and Others vs. R. Rajappa and Others
AIR (1978) SC 548.... Para 17 (iii)
Alstom Projects India Ltd. vs. Commissioner of Service Tax, Delhi - 2011-TIOL-459-
CESTAT-DEL .... Relied on (Para 18(b))
Ramky Infrastructure Limited vs. CST, Hyderabad - 2012-TIOL-613-CESTAT-BANG ....
Overruled (Para 18(b))
Union of India (UOI) and Anr. Vs. Vijay Chand Jain (1977) 2 SCC 405.... Para 18(b)(iv)
Commissioner of Income Tax vs. Bharat Heavy Electrical Ltd. - 2012-TIOL-727-HC-DEL-
IT ..... Para 18(b)(vi)
Larsen & Toubro Ltd Vs CST Delhi – 2015-TIOL-527-CESTAT-DEL-LB … Relied on (Para
18 (b) & 18(h)
Commissioner of Customs, Bangalore vs. Spice Telecom - 2006-TIOL-146-SC-CUS-
LB ...... Para 18 (viii)
Radius Corporation Ltd. vs. CCE, Raipur 2014 (33) STR 416 (Tri. Del.).... Para 18 (s)
Dr.Lal Path Labs Pvt. Ltd. vs. CCE, Ludhiana - 2006-TIOL-1175-CESTAT-DEL … Para 18(t)
CCE, Ludhiana vs. Dr. Path Labs Pvt. Ltd. 2007 (8) STR 337 (P&H) = 2007-TIOL-533-HC-
P&H-ST .... Para 18 (t)
Infosys Limited vs. CST, Bangalore - 2014-TIOL-409-CESTAT-BANG ......Para 18 (t)
South Gujarat Roofing Tiles Manufacturers Association and Anr. Vs. The State of
Gujarat and Anr . (1976) 4 SCC 601 … Para 18(u)
Reserve Bank of India vs. Peerless General Finance and Investment Co. Ltd. and Ors .
(1987) 1 SCC 424 … Para 18(u)
Godfrey Phillips India Ltd. and Anr. Vs. State of U.P. and Ors . - 2005-TIOL-10-SC-LT-
CB … Para 18(u)
CBEC Circulars referred:
1. Circular No 123/5/2010 dated 24.05.2010 (para 18(b), 18(o)
2. Circular No 116/10/2009 ST dated 15.09.2009 (para 18(c)(vii)
3. Circular No 80/10/2004 ST dated 17.09.2004 (para 18(e)
INTERIM ORDER NOS.57 to 112/2015
Per: G Raghuram:
We have heard learned Sr. Counsel Shri V. Sridharan, Shri S. R. Ashok and Sh. S. Ravi;
learned Counsel Shri B.V. Kumar, G. Natarajan, MdShafi, K. Vijay Kumar, R. Murlidhar
and Ms. NishaBineesh, for the appellants - assessees; and Dr. Anil Nigam, Shri R.
Gurunathan, ShriMohd. Yusuf, Shri Govind Dixit and ShriAmresh Jain, learned ARs for
the respondent/ Revenue.
2. By the order dated 15.09.2014, Hon'ble Supreme Court in Civil Appeal Nos. 8847 to
8849 of 2014 directed 47 appeals (from a list submitted by ShriRadhakrishnan, ld. Sr.
Counsel appearing for the Revenue) alongwith other connected cases pending
adjudication before the regional Bench, CESTAT at Bangalore to be heard by a full
Bench, presided by the President and to be disposed of by 15.03.2015.
3. The full Bench assembled on 15.12.2014 to hear the appeals (in terms of the
direction of the Hon'ble Supreme Court), after issue of notices to parties concerned.
The appeals were heard during 15.12.2014 to 19.12.2014. 79 matters were listed on
the Board of the full Bench. Of these, in 19 appeals stay applications were pending
disposal and Revenue contended that these appeals be not disposed of without
considering waiver of pre-deposit and grant of stay. It was also urged that in ST Appeal
Nos. 03174/2011 and 26382/2013, stay applications are pending consideration. In ST
Appeal Nos. 3146/2011, 3147/2011, 254/2012 and 25302/2013, appellants Counsel
contended that some substantive issues and regarding quantum of pre-deposit to be
made, were pending before the Andhra Pradesh High Court. On behalf of Revenue, the
contention on behalf of assessees that some aspects of the issues involved in these
appeals were pending consideration before the Andhra Pradesh High Court, was not
contested. Shri B. V. Kumar, learned Counsel also pointed out that in S. T. Appeal No.
3394 of 2012, the liability is also confirmed on the basis that the appellant (SCL
Infratech Ltd.) had also provided Business Auxiliary Service and was the recipient of
Management and Business Consultancy Service wherefor the liability was confirmed on
reverse charge basis, erroneously.
4. Appellants are the assessees, who had provided construction related and other
categories of composite, bundled services, which inhered deemed sales (transfer) of
property in goods together with rendition of associated services involved in execution
of "works contract", as this expression has come to be recognized in the world of
commerce, in law and in jurisprudence. In some of the listed appeals, contracts/
agreements were entered into and the execution thereunder commenced prior to
01.06.2007 and continued thereafter as well. In other appeals constructions were
subsequent to 01.06.2007. In appeals involving execution which commenced prior to
01.06.2007 and continued thereafter the transactions were classified (in respective
adjudication orders impugned), as -Erection, Commissioning or Installation Service'
(ECIS) for the period prior to 01.06.2007; and as works contract service (WCS) [under
sub-clause (e) of Explanation (ii) in Section 65(105)(zzzza)] for the period subsequent to
01.06.2007.
5. Senior Counsel Shri V. Sridharan, S.R. Ashok and S. Ravi and other learned Counsel
contended that in some of the appeals a substantial issue involved is also whether
"works contract" is a taxable service only w.e.f. 01.06.2007 i.e. after introduction of
sub-clause (zzzza) in Section 65(105) of the Finance Act, 1994 (the Act) by the Finance
Act, 2007; and whether prior to 01.06.2007 works contract was not a taxable service
falling within the ambit of any of pre -existing taxable services pertaining to
construction such as ECIS; Commercial or Industrial Construction Service (CICS); or
Construction of Complex Service (COCS).
The issue whether works contract was taxable prior to 01.06.2007 was heard and
reserved for judgment by a special Bench (five Members) of the CESTAT. The judgment
on this issue was not pronounced (as on the date of conclusion of arguments in the
batch of appeals). We therefore informed the Bar that this issue and in the
circumstances cannot appropriately be decided by this Bench and must await the
decision by the special Bench.
6. Learned Counsel and learned ARs also submitted that there are several disputed
factual positions with regard to the nature and interpretation of the contracts/
agreements in issue (in the several appeals); with regard to other taxable services; and
other disputes with regard to valuation, which ought to be considered in each of the
appeals, separately.
7. In the above circumstances, we indicated that we would hear and dispose of issues
which are common, excluding the issue whether works contract was a taxable service
prior to 01.06.2007. All parties agreed to this course of action. On behalf of the several
Counsel, five issues were identified for disposition by this Bench. Revenue does not
demur. The issues presented for our consideration are:
Issues :
A) Whether laying of pipelines for lift irrigation systems, transmission and distribution
of drinking water or sewerage, undertaken for Government/ Government undertakings
should be classified under ECIS as erection, commission or installation of plant,
machinery, equipment or structures, whether pre-fabricated or otherwise; or
installation of plumbing, drain laying or other installations for transport of
fluids, enumerated in Section 65(105)(zzd) and defined Section 65(39a), during
16.06.2005 to 31.05.2007; or must be classified under CICS, as amounting
to construction of pipeline or conduit ; and if classifiable under the later provision,
whether the activity is not taxable since it is not used or to be used, engaged or to be
engaged primarily for industry or commerce;
B) Whether construction of canals for irrigation purposes and laying of pipelines
including as part of lift irrigation systems, undertaken for the Government/
Government undertakings is liable to service tax under WCS as turnkey projects,
including engineering, procurement and construction or commissioning projects under
clause (e) of Explanation (ii) in the definition of WCS or is excluded from the ambit of
WCS since it is in respect of a "Dam" and thus stands excluded from WCS, as defined;
C) Whether, turnkey projects, including engineering, procurement and construction or
commissioning (EPC) projects specified in clause (e) is merely an enumeration of the
mode of execution of taxable services specified in clauses (a) to (d) or is a wholly
distinct taxable service and is exigible to service tax as an independent species of works
contract service;
D) Whether, even if clause (e) in Explanation (ii) of WCS is considered a distinct and
independent service, where construction of canals for irrigation purposes and laying of
pipelines either as part of lift irrigation systems or for transport and distribution of
water is undertaken for Government/Government undertakings, the same is more
appropriately covered under clause (b) of WCS i.e. construction of a new building or a
civil structure or a part thereof, or of a pipeline or conduit, by applying principles of
classification set out in Section 65A(2)(a) & (b) and thus fall outside the ambit of levy,
since the activity is not primarily for the purpose of commerce or industry; or whether a
contrary view that clause (e) being an independent entry, activities falling thereunder
would be taxable even if the rendition of service thereby or thereunder, was not
primarily for non commercial or non industrial purposes; and
E) Where execution of the whole or a part of the work is sub-contracted on back to
back basis by the main contractor (which is a joint venture) to sub contractors, in the
absence of any transfer of property in goods involved in the execution of such works,
from the main contractor to the Government/ Government undertakings, whether levy
of service tax in the hands of appellant (main contractor) is valid under WCS, in the light
of the judgment in State of A.P. vs. L & T Ltd - 2008-TIOL-158-VAT-SC.
8. In view of submissions by respective parties adverted to above (of not hearing
appeals where stay applications are pending and where substantive issues involved are
pending consideration before the A.P. High Court), 56 appeals are left for
consideration. In view of the submission that disputed questions of fact; of issues
pertaining to other taxable service; of interpretation of terms of the agreements in
issue; valuation disputes; and issue of taxability of WCS prior to 01.06.2007 are
involved, we take up the five issues set out in the preceding paragraph, for
consideration and determination. After recording our conclusions on the five issues we
shall remit the appeals for determination on merits, to the appropriate Bench, to be
disposed of, in accordance with law and the conclusions recorded by this Bench, on the
five issues we pronounce our conclusions on.
9. Ld. Counsel for appellants furnished a consolidated list of appeals, setting out the
respective appeal numbers; description of the appellant; the period involved; the
quantum of service tax and penalties confirmed; the nature of the work undertaken,
specifying whether the confirmed demand is on the appellant as the main contractor,
while the actual work was wholly executed by a sub-contractor. From the consolidated
tabulated list provided by ld. Counsel we have retabulated the appeals into those
where works were executed entirely by a sub-contractor while the demand is
confirmed against the main contractor as WCS; other appeals where the WCS was
provided by the appellant itself without sub contracting. There are also certain appeals
where ld. Counsel contended that the majority of the works were sub contracted and
only some of the works were executed by the appellant, a Joint Venture. We have
tabulated this category of appeals separately.
10. In the following appeals the works are claimed to have been wholly sub contracted
by the appellant and executed exclusively by the sub-contractor.
TABLE – A
Appeal No. & Name of
the Appellant
Period
involved
Nature of the work
undertaken
Whether the
demand is
on the main
contractor
and the
actual work
was
executed by
the sub-
contractor
ST/606/2009,
M/s JayaprakashGayathri
Projects Ltd. JV
6/2007 to
6/2008
(i)Veligonda Project-
Closing of Sunkesula
Gap, Excavation of
feeder canal and
Teegaleru canal (ii)
Polavaram project -
Right main canal-
Earthwork excavation,
forming embankment
(iii) Flood flow canal -
SRSP - earthwork
excavation, forming
embankment (iv) Rajiv
Sagar Lift Irrigation
Project - Laying pressure
mains (pipeline) (v)
GNSS main canal -
earthwork excavation.
Yes
ST/607/2009
M/s Gayathri BCBPPL JV
4/2008 to
9/2008
Work executed for
Narmada Valley
Development
Department towards
execution of canal
system for Indira Sagar
Project.
Yes
ST//898/2009
M/s Ramky
Infrastructure Ltd. WPIL
JV.
6/2007 to
5/2008
Execution of pumping
station.
Yes
ST/398/2010 6/2007 to
9/2008
iv) Govt. of MP - PHE
Dept. Lashkar -Gwalior
zone 90 MLD Sewage
Yes
pumping station. v)
Govt. of WB- Dte. Of
PHE - Nadia District -
Surface water based
water supply schemes
for arsenic affected
areas. Vi) Govt. of
Rajasthan- PHE Dept.
Bisalpur Water supply
project, Phase II, Ajmer
vii) Govt. of Jharkhand -
Drinking water and
Sanitation Dept. Giridih
Drinking Water Supply
Scheme. Viii) Govt. of
Jharkhand - Drinking
Water and Sanitation
Dept. - Dhanbad Water
Supply scheme, Phase-I.
Ix) Govt. of Jharkhand -
Drinking water and
Sanitation Dept.
Dhanbad Water Supply
Scheme, Phase-II.
ST/1210/2010
M/s Ramky
Infrastructure Ltd. - WPIL
JV.
6/2008 to
3/2009
Execution of Pumping
Station.
Yes
ST/918/2011
M/s IVRCL - Navayuga
SEW JV
6/2007 to
9/2008
Execution of
SripadaSagar Project -
Phase-I. The work
involves investigation,
soil exploration, design,
supply installation,
testing and
commissioning of
pumping machinery,
transformer sub-
Yes
stations, raising mains,
construction of pump
houses and other civil
structures, channels
without lining and
deliver cistern, etc.
ST/919/2011
M/s IVRCL-JL-JV
6/2007 to
9/2008
Execution of HNSS Lift
Irrigation scheme and
the work involves
pipelines/ conduits. The
scope of the work
involves investigation,
designs, construction of
pumping stations,
erection, commissioning
and testing of
mechanical and
electrical accessories,
civil works, pump house
including sumo,
pumping mails, etc.
HNSS main canal and
Branch canal. These
works are part of the
pipeline construction
works.
Yes
ST/920/2011
M/s IVRCL-KBL-MEIL-JV
6/2007 to
9/2008
Execution of HNSS Lift
Irrigation scheme
&Kalleswaram Lift
Irrigation scheme. The
work involves laying of
pipelines.
Yes
ST/921/2011 6/2007 to
9/2008
i) Pilot Micro Irrigation
scheme under
Gandikota Reservoir;
and ii) Pada Lift
Irrigation scheme -
Gandikota Reservoir.
Yes
The scope of work
involves laying of
pipelines as part of lift
irrigation work, drawing
water from Gandikota
Reservoir.
ST/922/2011
M/s IVRCL -SEW- Prasad
JV
6/2007 to
9/2008
A total 15 projects are
involved, which are
canal work / lift
irrigation works.
Yes
ST/177/2012
M/s AKR Coastal JV
6/2007 to
9/2009
Survey, detailed
Investigation of Lower
Level Canals and
DistributorySystem
including fixing
alignment, preparation
of HPs, excavation and
formation of
embankment and
construction of whole
distributor system i.e.
majors, minors and sub
minors in respect of
various lift irrigation
projects like
Nettempadu Lift
Irrigation, Rajiv Sagar
Lift Irrigation,
SriramSagar Project,
AliminetiMadhava
Reddy Project and
modernisation of
Kanupur Canal system.
Yes
ST/181/2012
M/s IVRCL-JL-IV
10/2008
to 9/2009
Execution of HNSS Lift
Irrigation scheme and
the work involves
pipelines/ conduits. The
scope of the work
Yes
involves investigation,
designs, construction of
pumping stations,
erection, commissioning
and testing of
mechanical and
electrical accessories,
civil works, pump house
including sumo,
pumping mails, etc.
HNSS Main Canal and
Branch Canal. These
works are part of the
pipeline construction
works.
ST/182/2012
M/s IVRCL-KBL-MEIL-JV
10/2008
to 9/2009
Execution of HNSS Lift
Irrigation scheme
&Kalleswaram Lift
Irrigation scheme. The
work involves laying of
pipelines and other
associated electro
mechanical works.
Yes
ST/183/2012
M/s IVRCL-KBL-JV
10/2008
to 9/2009
The projects involved: i)
Pilot Micro Irrigation
scheme under
Gandikota Reservoir;
and ii) Pada Lift
Irrigation sceheme -
Gandikota Reservoir.
The scope of work
involves laying of
pipelines as part of lift
irrigation work, drawing
water from Gandikota
Reservoir.
Yes
ST/221/201M/s PES- 3/2008 to Supply, design,
fabrication,
Yes
SEW-JV 9/2008 transportation &
erection of steel liner,
penstock and
appurtenant works of
MyntduLeshka Hydro
Electrical Project (2x24
MV) for the State
Electricity Boad.
ST/1676/2012
M/s L&T KBL JV
10/2008
to 9/2009
Package No. L104/06-
07- investigation,
design, supply and
erection of necessary lift
systems with all
electrical and
mechanical
components, surge
protection systems and
all control valves for
lifting 7.50 TMC in 45
days from storage
Reservoir-3 (+260.00M)
including improvements
to GoddumarriAnicut to
provide a capacity of
0.07 TMC in Anantapur
District.
Yes
ST/3311/2012
M/s L&T KBL JV
10/2009
to 9/2010
Package No. L104/0607-
investigation, design,
supply and erection of
necessary lift systems
with all electrical and
mechanical
components, surge
protection systems and
all control valves for
lifting 7.50 TMC in 45
days from storage
Reservoir-3 (+248.00M)
near Goddamvaripalli
Yes
Village to
GoddumarriAnicut
(+260.00M) including
improvements to
GoddumarriAnicut to
provide a capacity of
0.07 TMC in Anantapur
District.
ST/3348/2012
M/s IVRCL-KBL- MEIL-JV
10/2009
to 9/2010
Execution of HNSS Lift
Irrigation scheme
&Kalleswaram Lift
Irrigation scheme. The
work involves laying of
pipelines and other
associated electro
mechanical works.
Yes
ST/3349/2012
M/s IVRCL-KBL-JV
10/2009
to 9/2010
i) Pilot Micro Irrigation
scheme under
Gandikota Reservoir;
and ii) Pada Lift
Irrigation scheme -
Gandikota Reservoir.
The scope of work
involves laying of
pipelines as part of lift
irrigation work, drawing
water from Gandikota
Reservoir.
Yes
ST/3413/2012
M/s Ram Infrastructure
Ltd. VSM JV
4/2009 to
3/2010
Addanki Canal; GKN
canal - Package No. 32;
GNSS Flood flow canal;
Rejeev Augmentation
(diversion) scheme; and
Vamsadhara Project.
Pulichinthala Project
and lower Tapi project.
Yes
ST/3563/2012
M/s PES-SEW-JV
10/2009
to 9/2010
Supply, design,
fabrication,
transportation &
erection of steel liner,
penstock and
Appurentant works of
MyntduLeshka Hydro
Electrical Project (2x24
MV) for the State
Electricity Board.
Yes
ST/25369/2013
M/s IVRCL-SEW- Prasad
JV
10/2008
to 3/2011
In this appeal, a total 15
projects are involved,
which are either canal
work or lift irrigation
works.
Yes
ST/25532/2013
M/s IVRCL-SEW-WPIL-JV
5/2008 to
3/2011
Execution of AVR HNSS
Lift Irrigation scheme -
Phase-II. The project is
aimed at transporting
water from Srisailam
Reservoir for irrigation
purpose.
Yes
ST/25754/2013
M/s GH Reddy
Associates & KK Reddy &
Co. JV
6/2007 to
1/2009
The works pertain to
"package No. 19-
investigation, design,
estimation and
excavation of right main
canal, distribution
system including
construction of CM &
CD works from
ShankaraSamudram
balancing reservoir,
Kanaipally (v) Kothakota
(M) Mahaboobnagar
District to feed 8000
acres.
Yes
ST/20893/2014
M/s Navayuga-IVRCL-
SEW-JV
6/2007 to
9/2011
Execution of pumping
station
Yes
ST/20921/2014
M/s NEC-NCC Maytas JV
6/2007 to
9/2011
Bheema Lift Irrigation
Project - Civil works for
pumping stations.
Yes
ST/20922/2014
M/s SEL-GKC Projects JV
2008-2012 Flood Flow Canal
Project
Yes
11. In the following appeals the execution was undertaken by the appellant itself, not
sub-contracted.
TABLE – B
Appeal No. &
Name of the
Appellant
Period
involved
Nature of the work undertaken Whether
the
demand is
on the
main
contractor
and the
actual
work was
executed
by the
sub-
contractor
ST/441/2009
M/s
LancoInfratech
Limited
6/2007 to
7/2008
Construction of canal - HNSS scheme No
ST/937/2009
M/s Gayathri
Projects Limited
12/2007 to
6/2008
The work involved is package II of
Nagavalli - Formation of flood bank on
Nagavalli River.
No
ST/211/2010 6/2007 to - Indore Municipal Corporation - Urban No
M/s NCC
Limited
9/2008 water supply and environmental
improvement project ii) Govt. of A.P. -
CAD Deptt. Pushkara Lift Irrigation
scheme. Iii) Govt. of A.P. -CAD Deptt.
Mugoladoddi Lift Irrigation Scheme.
ST/425/2010
M/s L&T
Limited
6/2007 to
9/2008
1) Polavaram Project right main canal-
West Godavari District including (a)
"Conducting detailed investigation of
Polavaram Project right main canal
including subsoil exploration
preparation of hydraulic particulars,
design of CM&CD works, fixing B.M.
stones along main canal, preparation
of LP schedules, excavation of main
canal and can lining, construction of
CM & CD works, plantation along the
main canal, formation of service roads
on left bank of main canal complete
excluding cost of land acquisition in
package No. PPRMC-7 from km. 156.50
to km. 174.00,"and (b) Lining of the
above canal either with cement
concrete or any modern techniques
such as geomembrane, geo textiles or
combination of one or two of the
above (EPC - turnkey contract) 2)
Veligonda project "closing of
Gottipadia Gap and Excavation of
Gottipadia canal including.
No
ST/1850/2010
M/s Koya& Co.
Construction
Pvt. Ltd.
6/2007 to
9/2008
Venkatanagaram Pumping scheme,
Guthpa Lift Irrgation scheme, Telugu
Ganga project, Narmada canal project,
water supply pipeline laying work in
various municipal cities.
No
ST/2148/2010
M/s Gayathri
Projects Limited
7/2008 to
3/2009
Package-II of Nagavalli - formation of
flood bank on NagavalliRibber.
No
ST/2818/2011
M/s GKC
Projects Limited
2007-08 Formation of flood banks. No
ST/2819/2011
M/s GKC
Projects Limited
2008 -09 Formation of flood banks. No
ST/2820/2011
M/s GKC
Projects Limited
2009-10 Formation of flood banks. No
St/131/2012
M/s Patel Engg.
Ltd.
12/2005 to
9/2009
i) Bhima Lift Irrigation Project (ii)
Nattampadu Lift Irrigation Project
Stage-I, II (iii) Kalwakurthy Lift Irrigation
project (iv) Modernisation of Krishna
Delta System Package-I, IV, VII, X, XI,
XIV.
No.
ST/501/2012
M/s Megha
Engg. &
Infrastructure
Ltd.
6/2005 to
3/2010
Various lift irrigation projects and
water supply projects, all involving
laying of pipelines and other associated
works (The demand has been made
under ECIS from 16.6.2005 to
31.5.2007).
No
ST/2290/2012
M/s Sudhakar
Polymers Ltd.
01.06.2007
to
03.05.2011
Laying of pipelines. No
ST/3394/2012
M/s SCL
Infratech
Limited
10/2005 to
12/2010
- No
ST/3432/2012
M/s Megha
Engg. &
Infrastructure
4/2010 to
3/2011
Various lift irrigation projects and
water supply projects, all involving
laying of pipelines and other associated
works.
No
Ltd.
ST/25019/2013
M/s
Bhoorathnom
Construction
Co. Pvt. Limited
1/2006 to
12/2010
Construction of pipelines for drinking
water supply, irrigation; seweage
disposal; construction of reserviour
with cannals and distribution channels.
No
ST/25369/2013 10/2008 to
3/2011
15 projects are involved, which are
either canal work or lift irrigation
works.
Yes
ST/25725/2013
M/s IVRCL-SEW-
WPIL -JV
5/2008 to
3/2011
Execution of AVR HNSS Lift Irrigation
scheme - Phase-II. The project is aimed
at transporting water from Srisailam
Reservoir for irrigation purposes.
Yes
ST/25802/2013
M/s KVR
Constructions
Ltd.
2006-08 to
2010-11
1. Whether services relating to
erection, commissioning, and
installation services for 132/33 KV,
25MVA, 3 phase, 50Hz ONAN/ONAF on
load tap changer power transformer
with all standard fittings, with all leads
and lifts for the work of KurhaVadoda
not provided by KNR (Appellants) are
liable to pay Service Tax? Lift irrigation
scheme of two numbers.
No
ST/26382/2013
M/s NCC
Limited
10/2003 to
9/2011
i) Indore Municipal Corporation -
Urban water supply and environmental
improvement project ii) Govt. of A.P. -
CAD Deptt. Pushkara Lift Irrigation
scheme. iii) Govt. of A.P. -CAD Deptt.
Mugoladoddi Lift Irrigation Scheme.
No
ST/26428/2013
M/s Viswa
Infrastructures
& Services Pvt.
Ltd.
6/2007 to
3/2012
iv) Govt. of MP-PHE Dept. Lashkar -
Gwalior zone 90 MLD Sewage Pumping
station. v) Govt. of W.B. - Dte. Of PHE-
Nadia District - Surface water based
water supply schemes for arsenic
affected areas. Vi) Govt. of Rajasthan-
PHE Deptt. Bisalpur Water supply
No
project, Phase-II, Ajmer. Vii) Govt. of
Jharkhand - Drinking water and
Sanitation Deptt. Giridih drinking water
supply scheme. Viii) Govt. of Jharkhand
- Drinking water and Sanitation Deptt. -
Dhanbad Water Supply scheme, Phase-
I. Ix) Govt. of Jharkhand - Drinking
water and Sanitation Deptt. Dhanbad
Water Supply Scheme, Phase-II.
ST/26452/2013
M/s Koya& Co.
Constructions
Pvt. Ltd.
6/2007 to
3/2011
Venkatanagaram Pumping Scheme,
Guthpa Lift Irrgation scheme, Telugu
Ganga Project, Narmada Canal Project,
Water supply pipeline laying work in
various municipal cities.
No
ST/26453/2013
M/s Koya& Co.
Constructions
Pvt. Ltd.
10/2009 to
9/2010
Venkatanagaram Pumping Scheme,
Guthpa Lift Irrgation scheme, Telugu
Ganga Project, Narmada Canal Project,
Water supply pipeline laying work in
various municipal cities.
No
ST/28834/2013
M/s Patel Engg.
Ltd.
10/2009 to
9/2010
i) Bhima Lift Irrigation Project, (ii)
Nattampadu Lift Irrgation project
Stage-I, II (iii) Kalwakurthy Lift Irrgation
project (iv) Modernisation of Krishna
Delta System Packages-I, IV, VII, X, XI,
XIV
No
ST//20224/2014
M/s Sri
Venkateswara
Pipes Limited
4/2007 to
3/
Supply, delivery, laying and jointing of
pipelines of Asbestos cement pipes, DI
pipes, PVC/HDPE pipes, pumping
mains, Construction of sump, pump
houses, filteration plants storage
reservoirs for Public Health Engineering
and Panchayat Raj Depts. Of Govt. of
A.P. for safe drinking water supply. (For
one project, prior to 01.06.2007,
demand has been made under CICS).
No
ST/20285/2014
M/s Kirloskar
6/2007 to
3/2012
Various projects in respect of water
supply, canals, lift irrigation for the AP
No
Brothers
Limited
Govt. including construction of
pumping stations on dams, canals and
reservoirs at various places and
installation of electromechanical
equipment in the pumping station with
testing and commissioning, thereof. In
some projects civil works for
construction of pump house and piping
work is also undertaken.
ST/21218/2014
M/s Ch V
VSubbaRao
6/2007 to
3/2012
Supply, delivery, laying and jointing of
pipelines of Asbestos cement pipes, DI
pipes, PVC/HDPE pipes, pumping
mains, construction of sump, pump
houses, filteration plants storage
reservoirs for Panchayati Raj RWSS
(Rural Water Supply and Sanitation)
deptt. of Govt. of A.P.
No
12. In the following appeals (according to ld. Counsel) the majority of the several works
undertaken were sub-contracted on back to back basis and only few of the works were
executed by the appellant itself.
TABLE – C
Appeal No. &
Name of the
Appellant
Period
involved
Nature of the work undertaken Whether
the
demand is
on the
main
contractor
and the
actual
work was
executed
by the sub-
contractor
ST/25358/2013
M/s Maytas
NCC JV
October
2009
i) GNSS - Package 29 (ii) SRBC
Nandyal - Package 26 (iii) SRSP
Flood Flow canal - package 16 (iv)
Gundalakama (v) Indira Sagar -
(majority
of the
work sub
contracted.
Package 4 (vi) Thotapally Package-2
(vii) Lingala (viii) GNSS - Package 10
(ix) PranahithaChevella Package -
all projects are for drawal of water
from various dams for irrigation
purposes.
Some part
of the
work
executed
by the JV).
ST/25529/2013
M/s R.M.
Mohite& Co.
Bhooratnam JV
6/2007 to
7/2009
10.09.2009
Bhima Lift Irrigation Project -
Package No. 13 - Investigation
design estimation and excavation
of high level RIGHT MAIN CANAL,
distributor system including
construction of CM & CD works etc.
to feed ayacut of 28,400 acres
under Sangambanda balancing
reservoir, Sangambanda (V)
Makhthal (M) Mahboobnagar
District on EPC Turnkey basis.
Section 105(zzzza) Explanation
(ii)(b).
Some were
executed
by the
appellant
and some
were sub-
contracted.
13. Since we are not disposing of the appeals on merits, we have recorded assertions by
ld. Counsel as to the nature of works executed, the period stated to be involved, and
whether the execution was wholly sub-contracted, executed by the appellant itself or
partly by the appellant and partly sub-contracted, as per the information furnished in
the consolidated list. In its written submissions Revenue does not contest these
assertions by ld. Counsel for the appellants, presumably since appeals are not being
finally disposed of by this Bench. In the circumstances, all contested issues of fact
including as to the nature of the works executed and whether some of them were sub-
contracted or otherwise and other issues not determined by this Bench, will be
determined by the appropriate Bench which hears the appeals substantively. The
determination by this Bench is, in the circumstances, confined to consideration of the
five issues set out in para 7 (supra).
ANALYSES :
14. ISSUE (A) :
In view of the issue framed for determination we set out relevant provisions of the Act
defining ECIS and CICS and provisions enumerating these to be taxable services. The
period covering the transactions in issue (prior to 01.06.2007) is 16.06.2005 to
30.05.2007. During this period laying of pipelines for lift irrigation, transmission and
distribution of drinking water or sewerage was undertaken by appellants for
Government/ Government undertakings and were classified in the adjudication orders
under appeal as ECIS, while negating claims by appellants that these transactions be
classified as CICS. In view of the dispute as to classification of the works undertaken by
appellants during the above period, we set out the relevant provisions including
amendments made thereto from time to time.
ECIS
W.e.f. 01.07.2003, a service provided or to be provided to a customer by a
commissioning or installation agency, in relation to commissioning or installation was
enumerated to be a taxable service in Section 65(zzd). Section 65(28) defined:
'Commissioning or Installation' to mean:
Any service provided by a commissioning or installation agency in relation to
commissioning or installation of a plant, machinery or equipment.
Section 65(29) defined "commissioning and installation agency" as:
any agency providing service in relation to commissioning or installation.
W.e.f. 10.09.2004 Section 65(zzd) was amended as: any service provided or to be
provided to a customer, by a commissioning or installation agency, in relation to
erection, commissioning or installation. Section 65(28) was omitted w.e.f. this date and
Section 65(29) amended to insert the word "erection" before "commissioning or
installation". Also from this date, Section 65(39a) defined "erection, commissioning or
installation" to mean:
Any service provided by a commissioning or installation agency in relation to erection,
commissioning or installation of plant, machinery or equipment.
W.e.f. 16.06.2005 Section 65(39a) was again amended. Since the transactions in issue
fall on and since this date, we extract definition of ECIS as it stands w.e.f. 16.06.2005.
From 16.06.2005:
Section 65(39a) : "erection, commissioning or installation" means any service provided
by a commissioning and installation agency in relation to,-
(i) Erection, commissioning or installation of plant, machinery or equipment; or
(ii) Installation of-
(a) Electrical and electronic devices, including wirings or fittings therefor; or
(b) Plumbing, drain laying or other installations for transport of fluids; or
(c) Heating, ventilation or air-conditioning including related pipe work, duct work and
sheet metal work; or
(d) Thermal insulation, sound insulation, fire proofing or water proofing; or
(e) Lift and escalator, fire escape staircases or travelators; or
(f) Such other similar services;"
The definition was further amended w.e.f. 01.05.2006. It now reads:
From 01.05.2006:
Section 65 (39a): "erection, commissioning or installation" means any service provided
by a commissioning and installation agency, in relation to,-
(i) Erection, commissioning or installation of plant, machinery, equipment or structures,
whether pre fabricated or otherwise; or
(ii) Installation of -
(a) Electrical and electronic devices, including wirings or fittings therefor; or
(b) Plumbing, drain laying or other installations for transport of fluids; or
(c) Heating, ventilation or air-conditioning including related pipe work, duct work and
sheet metal work; or
(d) Thermal insulation, sound insulation, fire proofing or water proofing; or
(e) Lift and escalator, fire escape staircases or travelators; or
(f) Such other similar services;"
CICS
"Construction Service" was introduced w.e.f. 10.09.2004. Section 65(105) (zzq) provided
that this taxable service means any service provided or to be provided to a person by a
commercial concern in relation to construction service. Section 65(30a) defined
"construction service" to mean:
(a) Construction of new building or civil structure or a part thereof; or
(b) Repair, alteration or restoration of, or similar services in relation to, building or civil
structure,
Which is-
(i) Used, or to be used, primarily for; or
(ii) Occupied, or to be occupied, primarily with; or
(iii) Engaged, or to be engaged, primarily in,
Commerce or industry, or work intended for commerce or industry, but does not include
road, airport, railway, transport terminal, bridge, tunnel, long distance pipeline and
dam ;"
W.e.f. 16.06.2005 Section 65 (30a) was substituted to insert therein a new service
termed: "construction of complex" service (COCS), on relocating and redesignation of
the extant "construction service" as "commercial or industrial construction" service and
incorporating this service in Section 65(25b). W.e.f. this date CICS is defined in Section
65(25b) as:
From 16.06.2005:
Section 65(25b): "Commercial or industrial construction service "means-
(a) Construction of a new building or a civil structure or a part thereof; or
(b) Construction of pipeline or conduit; or
(c) Completion and finishing services such as glazing, plastering, painting, floor and wall
tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing
and railing, construction of swimming pools, acoustic applications or fittings and other
similar services, in relation to building or civil structure; or
(d) Repair, alteration, renovation or restoration of, or similar services in relation to,
building or civil structure, pipeline or conduit,
Which is-
(i) Used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for commerce or industry, but does not include
such services provided in respect of roads, airports, railways, transport terminals,
bridges, tunnels and dams;"
W.e.f. 16.6.2005, Section 65(105)(zzq) was also amended to reflect the re-designation
and re-definition of "construction service" as "commercial or industrial construction
service". An Explanation was added to sub-clause (zzq) w.e.f. 01.07.2010, which is
however not relevant to this lis.
Counsel for the appellants point out that w.e.f. 16.06.2005 a service known as "site
formation" service was introduced and specified to be a taxable service in Section
65(105)(zzza); defined in Section 65(97a) to mean a service provided or to be provided
to any person, by any other person, in relation to site formation and clearance,
excavation and earthmoving and demolition and such other activities.
Section 65 (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;".
From the definition of CICS (as amended from time to time) it is apparent that a service
falling under this definition was taxable only if it is primarily used for or is engaged in
commerce or industry or work intended for commerce or industry. This service when
provided in relation to roads, airports, railways, transport terminals, bridges, tunnels,
long distance pipeline and dams is however wholly excluded from the purview of the
definition itself. In the definition of ECIS however (as amended from time to time),
there was no exclusionary clause specifying that it is taxable only when it is primarily
for commerce or industry or intended for commerce or industry. The definition of ECIS
does not also exclude the rendition of this service even if it be in respect of road,
airport, railway, transport terminal, bridge, tunnel and dam. By exemption Notification
No. 17/2005-ST, dated 07.06.2005, Government exempted levy of service tax on ECIS
provided in the course of construction of roads, airports, railways, transport terminals,
bridges, tunnels, dams, ports or other ports.
It is therefore essential to examine the contours of ECIS and CICS, as these services are
defined and to normatively ascertain in what circumstances and which category of
transactions fall within either ECIS or CICS.
To the extent relevant for the analyses on issue (A), it requires to be noticed that w.e.f.
16.06.2005 the definition of ECIS enjoins that this service means any service provided
by a commissioning and installation agency in relation to:
(a) erection, commissioning or installation of plant, machinery or equipment; or
(b) installation - plumbing, drain laying or other installations for transport of fluid.
W.e.f. 16.06.2005, CICS is defined to mean (to the extent relevant for our purposes)
(a) construction of a new building or a civil structure or a part thereof; or
(b) construction of a pipeline or conduit; or
(c) completion and finishing services such as glazing, plastering, painting, floor and wall
tiling, wall covering and well papering, wood and metal joinery and carpentry, fencing
and railing, construction of swimming pools, acoustic applications or fittings and other
similar services, in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of, or similar services in relation to,
building or civil structure, pipeline or conduit, which is used or to be used; engaged or
to be engaged, primarily in commerce or industry or work intended for commerce or
industry. There is however exclusion of CICS when provided in respect of roads,
airports, railways, transport terminals, bridges, tunnels and dams.
From the several decisions cited before us (covering the period prior to 01.06.2007), it
is seen that Revenue had not adopted a uniform approach to classification of laying of
pipelines for lift irrigation, supply of drinking water or sewerage purposes undertaken
for Government/ Government undertakings. In some instances Revenue adopted the
position that such activities fall within CICS and in others that these fall within the
ambit of ECIS. We shall shortly advert to the relevant rulings.
Though, we are not deciding the appeals finally, we shall briefly refer to the nature of
the contract in issue in Service Tax Appeal No. 501 of 2012 [enumerated in Table -B' in
para 11 (supra)] since the period of the transaction involved in this appeal is June 2005
to March 2010 (part of the period falling prior to 01.06.2007). The activity was classified
(in the adjudication order impugned in this appeal) as ECIS, for the period upto
31.05.2007. The appellant was apparently required to lay pipelines for several lift
irrigation and water supply projects of State Government and the work involved laying
of pipelines and associated works such as preparing and digging the soil, trenching,
laying of pipes, closing the trenches, construction of pumping houses and other related
electro-mechanical works. The basic designs pertaining to the project were provided by
the Government. The appellant's claim that the contract considered as a whole falls
outside the scope of ECIS (during the period prior to 01.06.2007), was rejected by the
adjudicating Authority.
15. ANALYSES OF CASE LAW :
Now we advert to decisions where the scope of ECIS and CICS, in the context of works
involving laying of pipelines, was considered.
(i) In Indian Hume Pipe Co. Ltd. vs. Commissioner of C. Ex. Trichy 2008 (12) STR 363 (Tri.
Chennai) = 2008-TIOL-1665-CESTAT-MAD, the appellant was a manufacturer of pre-
stressed concrete pipes (PSC) which were cleared to the Tamil Nadu Water Supply and
Drainage Board for use in a water supply project. The appellant also undertook laying of
pipelines and associated works and was assessed to service tax for having provided
commissioning or installation during 01.07.2003 to 09.09.2004 and ECIS during
10.09.2004 to 30.09.2006. Appellant preferred an appeal to CESTAT against the
adjudication order. Revenue contested the appellant's claim as under:
7. The ld. Consultant for the Revenue argued that the pipelines supporting machinery
like pumps etc., sumps and other supporting civil structures built by the assessee could
very well be called a plant. The erection, commissioning or installation service and the
corresponding entry since 1.7.03. Argument that the pipeline was not installed or
commissioned by IHPL was misleading. The activity involved laying, jointing, testing and
commissioning of PVC pipes which resulted in emergence of a pipeline. The works
contract between IHPL and its clients against the turnkey contracts prescribed
completing the entire work satisfactorily and commissioning within the stipulated
period and maintaining the scheme for the specified period. Pipes were used for
transporting water for distribution and hence fell within the definition of equipment.
Equipment was a set of necessary tools, clothing etc. for a particular purpose. The
exclusion of long distance pipeline from construction service did not mean that same
item could not be charged to tax under another heading. Clause (30a) underwent a
change in 2005 budget omitting this exclusion. The impugned service was not in the
course of commerce and had to be classified under erection, installation or
commissioning service. The Daelim Industrial Company (supra) was not relatable to the
present case. The Daelim Industrial Company case decided that a works contract could
not be vivisected and the service portion subjected to tax. SLP filed against this order
was dismissed by the Apex Court without assigning reasons. Order of the CESTAT in the
case of L&T Ltd. vs. CCE, Cochin reported in 2006 (3) STR 223 (Tribunal) = 2004 (174) ELT
322 (Tri. Del.) = 2003-TIOL-209-CESTAT-DEL, was made following the ratio of Daelim
Industrial Co. Ltd. The Apex Court admitted SLP against this order. Therefore, ratio of
Daelim Industrial Co. Ltd. was no longer binding on the Tribunal. In Asian Techs vs. CCE
[2005 (189) ELT 420 (Tri. LB)], it was held that though the appellant in that case had
supplied PSC girders to M/s Konkan Railway Corporation for construction of bridges
under a works contract, excise duty was leviable on PSC girders. It is submitted that in
principle, in the face of specific charging provision to levy service tax on certain specified
services, the mechanism of agreement to provide and receive services in the form of a
composite contract or works contract could not vitiate levy itself, Erection, installation
or commissioning was already leviable to service tax.
Repelling Revenue's contention and allowing the appeal, the Tribunal held:
8. We have considered the rival arguments. The dispute involves the meaning of the
expression and legislative intent behind scope of the levy of erection, commissioning or
installation. The impugned order found that up to 16.6.95, the assessee had rendered
the taxable activity of erection, commissioning or installation of a plant. The
Commissioner found that "plant represented a fixed investment for carrying out certain
institutional activity for business". The water supply system involving pipelines is
therefore seen as a plant. The activity undertaken by IHPL is construction of pipeline by
earthwork excavation, conveying and lowering of PSC/MS pipes and MS specials, AC
pipes, PVC pipes, CI/GI pipes and jointing materials into the trench; laying to proper
grade and alignment; refilling the trenches with excavated soil after laying of pipes,
construction of sluice valve pits, scour valve pits, air valve pits, thrust blocks, etc.
8.1 We find ourselves in agreement with the appellants' reading of the expressions
contained in the relevant entry, namely, -erection, commissioning or installation'. We
find it elementary that -erection' connotes construction of building of a structure and
laying of pipeline does not involve erection. We find no ambiguity in the expression
installation. It applies to machinery already made which are formally made ready to
operate at the site. Installation implies setting up the machinery ready for use, like
giving power connections or installing driver software in the case of a machine run with
the aid computer software. Commissioning involves the operationalisation of the
machinery after which it starts functioning regularly. In laying of long distance pipeline,
earth is dug and pipes laid and jointed, and the pipes pass through sumps with boosters
at intervals, if necessary. This activity will not involve erection.
8.2 As rightly argued by IHPL, the CBEC Circular No. 62/11/2003-ST., dated 21.8.2003,
inter alia, clarified the levy to the same effect as follows:
1.2 As commonly understood, the activity of installation means the act of putting an
equipment, machinery or plant into its place and making it ready for use. The activity of
installation will start after erection which would refer to putting up civil structures,
commissioning of a plant would mean operationalising an installed plant/ equipment/
machinery.
Whereas erection became part of the entry only from 10.09.2004, from 16.6.05
onwards meaning of -erection, commissioning or installation' [Section 65(39a)] was
enlarged to include installation of various devices and equipments. An entry "plumbing,
drain laying, or other installation for transport of fluids" was introduced under sub-
section (ii)(b). The impugned order found that the service involved was specifically
covered from 16.6.05 under the same head by the entry "plumbing, drain laying, or
other installation for transport of fluids. We are inclined to agree with the appellants
that this entry covers such facility provided in a building as it appears in the company of
air-conditioning system, lifts, electronic devices including wiring etc. which are installed
in a building. The Commissioner found that "plant represented a fixed investment for
carrying out certain institutional activity for business". The ld. Consultant for the
department has tried to defend the interpretation of the Commissioner of the
expression plant. The Commissioner's interpretation of a plant would cover a long
distance pipeline. We find it difficult to accept the above reading of the word plant in
the context it is used. It is an inappropriate selection of the various meanings of this
simple word. Plant in popular usage means a cluster of buildings or a building in which
machinery are installed usually for manufacture of goods. Long distance pipeline is not
even remotely associated with this common understanding of the word plant. We also
find that a water supply project is an infrastructure facility and a civic amenity the State
provides in public interest and not an activity of commerce or industry. The impugned
order also did not hold it to come under a service of commercial or industrial nature as
submitted by the ld. Consultant for the Revenue. Therefore, the impugned order
demanding duty on the activity of laying of pipeline interpreting it to be erection,
commissioning and installation of a plant is totally misconceived and unacceptable.
(ii) The decision in Indian Hume Pipe Co. Ltd. (supra) was followed in A. Sekar vs. CCE
2010 (19) STR 82 (Tri. Chennai) = 2010-TIOL-620-CESTAT-MAD, Trichy; Dinesh Chandra
Agrawal vs. A. Infracon Pvt. Limited 2011 (21) STR 41 (Tri. Ahm.) = 2010-TIOL-1413-
CESTAT-AHM; in an interim order in Surindra Engineering Co. Limited vs. CC, Mumbai
2012 (27) STR 77 (Tri.Mumbai), and in Lalit Constructions vs. CCE, Raigad (Tribunal
Decisions) 2012 (27) STR 138 (Tri. Mumbai). The Madras High Court in Strategic
Engineering Pvt. Ltd. vs. Additional Commr. C. Ex. Mumbai 2011 (24) STR 387 (Mad.)
= 2011-TIOL-547-HC-MAD-ST allowed the writ petition against an adjudication order
classifying pipeline laying as ECIS.
During 10.09.2004 to 16.06.2005, "construction service" defined in Section 65(30a)
excluded service when provided in relation to "long distance pipeline", from the scope
of the definition. W.e.f. 16.06.2005 "construction of pipeline of conduit" was included
in the definition of CICS, defined in Section 65(25b). Apart from the decisions referred
to above which consistently ruled that construction of a pipeline for transmission of
water or sewerage falls outside the scope of ECIS, it requires to be noticed that
construction of pipelines involves associated works such as digging trenches,
construction of supporting masonary structures, jointing of pipes; and in cases of
construction of pipelines for lift irrigation, pumping / booster stations and other
electro-mechanical works as well. Therefore construction of a pipeline does not
amount to "other installations for transport of fluids", a clause in Section 65(39a)(ii)(b),
but is more appropriately classifiable under CICS, falling within the ambit of Section
65(25b)(b) i.e., "construction of pipeline or conduit"; and that is also the purport of the
rulings above.
We also note the several shades of meaning of "conduit", as revealed from dictionaries.
According to Merriam-Webster, the word means "someone or something that is used
as a way of sending something from one place or person to another". According to
Macmillan Dictionary - "A pipe or passage that water flows through, to go from one
place to another. According to Collins Dictionary - "a pipeline or channel for carrying
fluid". According to the Dictionary of Civil Engineering by John S. Scott, "conduit" means
- "Any open channel pipe, etc. for flowing liquid". Water Works Engineering - Planning,
Design and Operation (Ed. Syed R. Qasim, Edward M. Motley and Guang Zhu) states
that various types of conduits are used for transporting water. Topography, available
head, construction materials and practices, economics and water quality are primary
considerations in selecting suitable conduits for water conveyance systems. Water
conduits are classified as open channels or pressure conduits. Open channels have a
free water surface in contact with the atmosphere, while pressure conduits have a
confined water surface. Under each of these general classifications there are several
types of conveyance systems in common use. Pressure Conduits are enclosed pipes
where water flows at a pressure higher than the atmospheric pressure. S. B.
Sarkar's Words and Phrase of Customs and Excise (4th Edition) states that "conduit" is
a channel, pipe, tube or duct through which a fluid, liquid or gas may pass; a channel for
conveying water or other fluid or liquids.
Section 65A enacts provisions for classification of taxable services. This provision reads:
65A. Classification of taxable services
(1) For the purposes of this Chapter, classification of taxable services shall be
determined according to the terms of the sub-clauses of clause (105) of section 65.
(2) When for any reason, a taxable service is, prima facie, classifiable under two or more
sub-clauses of clause (105) of section 65, classification shall be effected as follows:-
(a) The sub-clause which provides the most specific description shall be preferred to sub-
clauses providing a more general description;
(b) Composite services consisting of a combination of different services which cannot be
classified in the manner specified in clause(a), shall be classified as if they consisted of a
service which gives them their essential character, insofar as this criterion is applicable;
(c) When a service cannot be classified in the manner specified in clause (a) or clause
(b), it shall be classified under the sub-clause which occurs first among the sub-clauses
which equally merit consideration.
The Board addressed a communication dated 07.01.2010 forwarding a clarification on
an advice sought from the Commissioner of Central Excise, Mysore with regard to
leviability of service tax on construction of integrated structures by KSRTC, which were
to serve as a commercial complex and a bus terminal. The Board after stating that a
single construction contract for construction of a commercial complex as well as a
transport terminal cannot be vivisected for the purpose of levy of service tax, added
that a solution must be found as laid down in Section 65A(2) of the Act. The Board
clarified: Though, this provision is intended to be applied to cases where two distinct
taxable services are provided in a composite manner, the principle laid down therein can
nonetheless be extended to different portions of a single taxable service as well; and
that the part (of the contract) that gives the essential character to the entire project will
determine its nature and this would be determinative of its classification. We consider
this a salutary clarification. Provisions of Section 65A are applicable to composite
agreements comprising, integrated services which cannot and ought not to be
vivisected for identifying each constituent component as a distinct taxable service. The
transaction, considered as a whole must be ascertained and a composite agreement
comprising a combination of different services must be classified as if they consisted of
the service which gives them the essential character, in so far as this criterion is
applicable, vide Section 65A(2)(b).
Considered in the light of the precedents referred to herein above; the definitions of
ECIS and CICS; the Board clarification dated 07.01.2010; the Dictionary meanings
ascribed to the word "conduit"; and provisions of Section 65A(2)(a) and (b), we
conclude that construction of a pipeline / conduit for transmission of water/ sewerage
and involving associated works like digging of the earth, supporting masonry structures,
refilling the earth, jointing of different lengths of pipes for laying the pipeline/ conduit,
construction of pumping stations together with associated machinery and other
construction works, including for transmission of water in lift irrigation projects, cannot
be classified under ECIS. These services are only classifiable as CICS. Where the
pipeline/ conduit laying is executed for Government or Government undertakings as
part of irrigation, water supply, or sewerage projects, the works are not exigible to
service tax under CICS (prior to 01.06.2007), since these are not primarily for
commercial or industrial purposes and are excluded from the scope of the taxable
services qua the exclusionary clause definition of CICS, in Section 65(25b) of the Act.
16. ISSUES (B); (C) and (D) :
These issues overlap and invite integrated analyses. W.e.f. 01.06.2007 (by the Finance
Act, 2007) sub-clause (zzzza) was inserted in Section 65(105) to bring "works contract"
within the ambit of service tax. This provision reads:
(zzzza) to any person, by any other person in relation to the execution of a works
contract excluding works contract in respect of roads, airports railways, transport
terminals, bridges, tunnels and dams.
Explanation: For the purposes of this sub-clauses, "works contract" means a contract
wherein,-
(i) Transfer of property in goods involved in the execution of such contract is leviable to
tax as sale of goods, and
(ii) Such contract is for the purposes of carrying out,-
(a) erection, commissioning or installation of plant, machinery, equipment or structures,
whether pre-fabricated or otherwise, installation of electrical and electronic devices,
plumbing, drain laying or other installations for transport of fluids, heating, ventilation
or air-conditioning including related pipe work, duct work and sheet metal work,
thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator,
fire escape staircases or elevators; or
(b) Construction of a new building or a civil structure or a part thereof, or of a pipeline
or conduit, primarily for the purposes of commerce or industry; or
(c) construction of a new residential complex or a part thereof; or
(d) completion and finishing services, repair, alteration, renovation or restoration of, or
similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering, procurement and construction or
commissioning (EPC) projects.
17. Contentions on behalf of assessees -
(a) The legislative intention underlying introduction of "works contract" as a taxable
service is to bring to tax, service components of specified composite contracts. This is
evident from the Budget speech by the Hon'ble Finance Minister (while introducing the
Finance Bill, 2007-2008); the relevant portion reads:
154. State Governments levy a tax on the transfer of property in goods involved in the
execution of a works contract. The value of services in a works contract should attract
service tax. Hence, I propose to levy service tax on services involved in the execution of a
works contract. However, I also propose an optional composition scheme under which
service tax will be levied at only 2 per cent of the total value of the works contract.
The legislative intention is reinforced by Board Circular No. 123/5/2010 dated
24.05.2010, which reads:
(i) Commercial or industrial construction services', in brief, cover construction of and the
completion, finishing, repair, alteration, renovation, restoration or similar activities
pertaining to buildings, civil structures, pipelines or conduits. Therefore, only such
electrical works that are parts of (or which result in emergence of a fixture of) buildings,
civil structures, pipelines or conduits, are covered under the definition of this taxable
service. Further, such activities undertaken in respect of roads, railways, transport
terminals, bridges, tunnels and dams are outside the scope of levy of service tax under
this taxable service.
(ii) Under -Erection, commissioning or installation services', the activities relevant to the
instant issue are (a) the erection, commissioning and installation of plant, machinery,
equipment or structures; and (b) the installation of electrical and electronic devices,
including wiring or fitting therefor. Thus, if an activity does not result in emergence of
an erected, installed and commissioning plant, machinery, equipment or structure of
does not result in installation of an electrical or electronic device (i.e. a machine or
equipment that uses electricity to perform some other function) the same is outside the
purview of this taxable service.
(iii) Works contract incorporates the inclusions and exclusions of the aforementioned
two taxable services (amongst others) and it is the nature of the contract (i.e. a contract
wherein the transfer of property in goods involved is leviable to a tax as sale of goods)
rather than the nature of activities undertaken, that distinguishes it from the previously
stated taxable services. Thus, even in the case of -works contract' if the nature of the
activities is such that they are excluded from aforesaid two services then they would
generally remain excluded from this taxable service as well. (emphasis added).
(b) Section 65(105)(zzzza) Explanation (ii)(e) specifies "turnkey projects including
engineering, procurement, construction or commissioning (EPC) projects", as a works
contract. The terms "EPC / Turnkey" denote the mode of and the integers embedded in
execution of large projects. There is no statutory definition provided of these terms.
The following are the definitions of EPC / turnkey contracts as per technical
Dictionaries.
(a) Dictionary of Civil Engineering - John S. Scott (4 th Ed.). Turnkey contracts/ design
and build contract/ design and construct contract / package deal contract -
An agreement between client and a trusted contractor for the contractor to both design
a job and build it. The best work is done by contractors who have all consultants on their
staff: architects, civil, structural, mechanical and electrical engineers, and quantity
surveyors. It may be a lump-sum contract. One real advantage for the client, especially
one whose professional staff are overloaded, is the need to speak to only one
responsible person, not to four or five consultants. So the turnkey contractor must be
both trustworthy and competent.
(b) Duncan Wallace - Building and Engineering Contracts - "Turnkey" is a contract
where the essential design emanates from, or is supplied by the Contractor and not the
owner, so that the legal responsibility for the design, suitability and performance of the
work after completion will be made to rest with the contractor. Turnkey is treated as
merely signifying the design responsibility of the contractor.
(c) Campbell R. Harvey Dictionary - Turnkey Construction contract: A type of
construction contract under which the construction firm is obligated to complete a
project according to prescribed criteria for a price that is fixed at the time the contract is
signed.
(d) Farlex Financial Dictionary - A construction contract in which the price is fixed at the
time the contract is signed. As a result, the construction company is held responsible for
exceeding the budget. Turnkey construction contracts reduce the risk to the buyer of the
construction services and provide an incentive for the company to stay within the
budget.
(e) International Federation of Consulting Engineers ; Extract from "applicability of
different patterns of General Conditions of Contract".
(i) "EPC / Turnkey Contract
1. Is it a Process Plant or a Power Plant (or a factory or similar) where the Employer -
who provides the finance - wishes to implement the project on a Fixed-Price Turnkey
Basis?
When the Employer wishes the Contractor to take total responsibility for the design and
construction of the process or power facility and hand it over ready to operate "at the
turn of a key".
- and the Employer wishes a higher degree of certainty that the agreed contract price
and time will not be exceeded
- and the Employer wishes - or is used to - the Project being organized on a strictly two
party approach, i.e. without an "Engineer" being involved.
- and the Employer does not wish to be involved in the day-to-day progress of the
construction work, provided the end result meets the performance criteria he has
specified
- and the Employer is willing to pay more for the construction of his Project (than would
be the case if the Conditions of Contract for Plant and Design-Build were used) in return
for the Contractor bearing the extra risks associated with enhanced certainty of final
price and time".
(ii) EPC - Engineering Procurement Construction
EPC stands for Engineering, Procurement, Construction and is a prominent form of
contracting agreement in the construction industry. The engineering and construction
contractor will carry out the detailed engineering design of the project, procure all the
equipment and materials necessary, and then construct to deliver a functioning facility
or asset to their clients. Companies that deliver EPC Projects are commonly referred to
as EPC Contractors.
The EPC phase of the project is also known as the Execution phase which normally
follows what is know as a FEED or Front End Engineering Design phase. The FEED is a
basic engineering design used as the basis for the EPC phase. The FEED can be divided
into separate packages covering different portions of the project. The FEED packages
are used as the basis for bidding on when the client offers the EPC work to the market.
Normally the EPC Contractor has to execute and deliver the project within an agreed
time and budget, commonly known as a Lump Sum Turn Key (LSTK) Contract. An EPC
LSTK Contract places the risk for schedule and budget on the EPC Contractor.
The Project Owner or client to the EPC Contractors will normally have a presence in the
EPC Contractors offices during the execution of the EPC Contract. The client places what
can be termed a Project Management Team or PMT to overlook the EPC Contractor. The
client PMT may require specialist help and bring on board Project Management
Consultants or PMC's to assist. The PMT/ PMC will ensure the EPC Contractor is carrying
out the works in accordance with the agreed scope of works and in accordance with the
Contract. It is quite common for the Engineering and Construction Contractor which
delivered the FEED to be offered to Project Management Consultancy (PMC) Contract.
In some instances which can be related to the time a project owner would like the
project delivered, and engineering and construction company can be given work on a
direct reimbursable basis to start with followed by conversion to LSTK once sufficient
time and resources can be allocated to quantifying and pricing the scope of works. One
method to convert from a reimbursable to LSTK Contract is called an Open Book
Estimate or OBE in which the Contractor will open all their working documentation or
books for representatives of the client to assess what the total scope of works for
delivering the project will be. An agreed LSTK scope of works and price will be
negotiated and agreed between EPC Contractor and Project Owner during the execution
of EPC activities.
(f) Extracts from "Understanding and Negotiating Turnkey and EPC
Contracts", by Joseph A. Huse (2002)
Under an EPC agreement, the contractor provides all of the engineering, procurement
and construction. Under a turnkey contract, the contractor supplies the final design of
the project. From the perspective of the author these terms are largely interchangeable.
Design Build, EPC and Turnkey.
The "turnkey" arrangement (also known as the "package deal", "design and build", "cle-
en main", "design and construct" or "EPC") places the duty to design and construct
solely on the contractor. The term "turnkey" tends to mean the most extreme form of
placing design and construction responsibility on the contractor, such that after
completion the employer need only to turn the key. Notwithstanding this, the term
"turnkey" will be used here to describe the more general global arrangement of placing
all design, procurement and construction responsibilities on one contractor. The turnkey
system generally uses the lump sum pricing method".
(g) Distinction between "EPC" and "Turnkey" contracts - Wikipaedia -
EPC is a contract comprising Engineering, Procurement and Construction. Turnkey is a
contract comprising Engineering, Procurement and Construction. If you look at the
definition, you may find no difference between two concepts, but there are some
differences between the two concepts, as follows.
1. In EPC, there is an employer who will provide basic engineering to contractor and the
later shall perform detailed design based on received basic design.
2. In turnkey, employer only will provide certain technical specifications of the project
and that is the responsibility of the contractor to prepare basic and detail design of the
project.
3. In turnkey, contractor is responsible to perform construction and commissioning, start
up and take over of the plant to the employer but in EPC, may be it is responsibility of
the other third person to do commissioning and start up.
(c) From the above meanings of "EPC/ Turnkey", it is apparent that these are modes of
execution of contracts involved in large, complex projects, where the scope of the
contract commences from the engineering or design stage on to completion of the
project in its entirety and is normally for a lumpsum, with full responsibility on the
contractor for effective execution of all stages thereof. Thus, clause (e) The definition of
WCS cannot, on a true and fair construction of the clause in the definition considered as
a whole, be considered as a distinct taxable service component. Clause (e) must be
interpreted as effectuating the legislative intention to cover several components of
"works contract" service enumerated in sub-clauses (a) to (d) i.e. even when more than
one of these services and associated with other services are provided by way of turn
key projects including EPC.
(d) While clauses (a) to (d) in the definition of WCS are drawn from pre-existing
definitions of taxable services such as ECIS, CICS and COCS - defined in Section 65(39a)
and (91a), 65(25b) and Section 65(30a) clause (e) is intended to cover all modes of
executing works contract falling within sub-clauses (a) to (d) including when executed
as EPC/ Turnkey projects. The legislative intention is to tax all genres of services
comprised in composite contracts involving deemed transfer of property in goods and
rendition of associated services involved in the execution of works contract. Thus,
EPC/Turnkey projects may comprise not merely services falling within the ambit of ECIS,
CICS or COCS but other taxable services such as Architect Service (clause 6), Consulting
Engineer Service - (clause 31) Design Services - (clause 36b) Intellectual Property Service
- (clause 55b); Interior Decorator Service - (clause 59) Real Estate Consultant Service -
(clause 89), Site Formation and Clearance, Excavation and Earth Moving and Demolition
Service (clause 97a), Technical Testing and Analyses Service - (clause 106); Technical
Inspection and Certification Service - (clause 108), as well.
One of more of the above services, apart from defined components of ECIS, CICS or
COCS would invariably be bundled into an "EPC/ Turnkey mode of execution of a works
contract defined in Section 65(105)(zzzza).
(v) Sub-clause (e) is introduced to avoid interpretational complexities and classification
of complex and bundled services which are integers of agreements involving transfer of
property in goods coupled with rendition of several varieties of services, involved in a
works contract in execution of major infrastructure or development projects.
(vi) In many of the appeals, earth excavation, forming embankment and construction of
channels, excavation of feeder canals, flood flow canals, canal systems, canal lining with
either cement concrete, geo-membrane or geo textiles etc. for irrigation, lift irrigation,
water supply, or sewerage purposes, is involved. Clause (b) of the definition of "works
contract" includes "a pipeline or conduit, primarily for the purpose of commerce or
industry". The words "pipeline" and "conduit" are not defined. "Conduit", according to
general and technical Dictionaries means a passage for water or any other liquid; and a
conduit can be either closed like a pipeline or open as a canal. Water Works
Engineering, - Planning, Design and Operation by Syed R. Qasim etc. (referred to supra)
observes that water canals are classified either as open channels (canal) or pressure
channels (like pipelines). The statutory definition adopted these two methods of water/
fluid conveyance systems. Long distance water transportation may involve digging of
canals where the water could flow by gravity and laying pipelines and associated
supporting masonary and mechanical works, for pumping the fluids/ water to higher
elevation. If "conduit" were not given the pluri-signative meaning as considered in
general and technical Dictionaries and its commercially accepted purport, it would lead
to the absurd consequence where a contractor engaged in pipeline laying work would
fall outside the ambit of tax when the work is not for commercial or industrial purpose
while a contractor executing canals for critical irrigation projects of the State would be
liable to tax. Wherever the gradient /contours enable flow of water by gravity open
channels/ canals are constructed but where water has to be lifted to higher altitudes
pipelines are used, as in "lift irrigation". All these works are comprised within the
meaning of "pipeline" or "conduit". Where these are constructed (in the agreements in
issue in the appeals) for Government / Government undertakings for irrigation, water
supply or sewerage disposal purposes, the works are not for commercial or industrial
purposes and would fall outside the scope of the definition in clause (b) of WCS. The
residual entry in clause (e) is an enactment ex abundant cautela. Further, in terms of
Section 65A, the specific description/ definition of a taxable service must prevail over
the generic description, which describes a mode of execution, as in clause (e).
(vii) The definition of "works contract" excludes works contract in respect of a "dam".
"Dam" is not defined. We may notice the several meanings of "dam" as provided in
dictionaries:
(i) Merriam Webster Dictionary - Barrier built across a watercourse for impounding
water. Barrier built across a stream, river, or estuary to conserve water for such uses as
human consumption, irrigation, flood control and electric power generation. Modern
dams are generally built of earth fill, rock fill, masonry or monolithic concrete. Earth-fill
(or embankment) dams, are usually used across broad rivers to retain water. Concrete
dams may take various forms;
(ii) Cambridge Dictionary - a wal l built across a river that stops the river's flow and
collects the water, especially to make a reservoir (an artificial lake) that provides water
for an area" ;
(iii) Oxford Dictionary - a barrier constructed to hold back water and raise its level,
forming a reservoir used to generate electricity or as a water supply;
(iv) Collins Dictionary - a barrier of concrete, earth etc., built across a river to create a
body water, as for domestic water supply; a reservoir of water created by such a barrier
something that resembles or functions as a dam"; and
(v) Wikipaedia - a dam is a barrier that impounds water or underground streams. Dams
generally serve the primary purpose of retaining water, while other structures such as
floodgates or levees (also known as dikes) are used to manage or prevent water flow
into specific land regions. A dam can also be used to collect water or for storage of
water which can be evenly distributed between locations
(e) From the above meanings of "dam" it is clear that it is a barrier erected for
impounding water and serves the primary purpose of retaining water in the reservoir
appurtenant thereto, to provide water for irrigation or drinking purposes and for supply
to nearby villages /towns, by way of canals, feeder channels etc. Without construction
of channels / canals which are inlets/ outlets for conveying water to and from the dam,
a dam would be wholly dysfunctional. Construction of channels /canals is integral to a
dam project and must therefore be treated as a work "in respect of" a dam and is thus
excluded from the levy, in terms of the definition itself.
(f) The definition of "works contract" in sub-clause (zzzza) excludes works contract in
respect of dams. The expression "in respect of" has been interpreted in several
Dictionaries and judicial pronouncements as having the widest meaning and being
wider in its connotation than the word "in" or "on". Hence, execution of channels/
canals not only amounts to construction of a conduit but is also covered by the
exclusion clause in the definition of "works contract", as a works contract -in respect of'
dam.
(g) An "EPC / Turnkey" Project refers to a contract where the entire responsibility for
execution, from the stage of design is on the contractor and on completion the project
is handed over to the client in a ready to use condition. In the several contracts in issue
in the several appeals, Governments/ Government undertakings have used the term
EPC/ Turnkey in a loose manner. All the works are only for specified packages i.e. each
package pertaining to a segment of the whole project and each package is awarded to a
different contractor. Under such agreements, each of the appellants would be
constructing only a portion (reach) of the entire stretch of the channel/ canal/ pipeline,
awarded under the specified package. Unless the entire length of the channel/ canal/
pipeline is constructed, the project is incomplete. In the circumstances, works executed
by each of the appellants comprising only a part / segment of the entire project cannot
be considered EPC/ turnkey. In some of the appeals, only preparatory work such as
execution or strengthening of embankment of the canal work is awarded but is yet
called as EPC / turnkey. Such works cannot under any circumstances be considered as
EPC/ turnkey projects. It requires to be noticed that while clause (b) of the definition of
WCS, covers "part of a building or civil construction", clause (e) dealing with EPC/
turnkey projects does not specify a part of EPC/turnkey projects as the taxable service.
In all appeals, since the appellants executed only a part/ package of the overall project,
for a limited distance of the whole, the work cannot be considered as EPC/ Turnkey,
notwithstanding its description as such in the relevant agreements.
(h) Section 65(97a) defines "Site Formation and Clearance, Excavation Earthmoving and
Demolition", which service is defined to include-
(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".
The various activities awarded in agreement in issue in some of the appeals include
earthmoving, excavation during construction of canals, strengthening of embankment
etc. The definition of this taxable service excludes the activity when it is provided in
relation to agriculture, irrigation, watershed development and drilling, digging,
repairing, renovating or restoring of water sources or water bodies. In the EPC / turnkey
mode of execution of construction services, site formation and clearance components
would also be included as part of the bundled services provided. It would lead to
absurd and legislatively unintended consequences if site formation and clearance
services provided in respect of agriculture, irrigation etc. are excluded from the levy but
are included by treating clause (e) as a distinct service. Similarly services provided
under clause (b) for non-commercial, non industrial purposes stand excluded from the
levy but when provided under the EPC/ turnkey mode would be liable to tax, an
interpretation reductio ad absurdum.
17. CONTENTIONS ON BEHALF OF REVENUE :
(i) In several of the appeals under consideration the works executed comprise a bundle
of services including construction of a new building or a civil structure or a part thereof;
a pipeline; irrigation, commissioning or installation of plant, machinery, equipment or
structures; and plumbing, laying of drains or other installations for transport of fluids.
Other activities involved are in the nature of designing of structures to be executed;
Design and Engineering, Procurement and Installation; Commissioning and like works.
Taken together, the several activities can not be classified in anyone of the clauses (a)
to (d) of WCS. T he several categories of works executed under the agreements
considered as a whole fall specifically under clause (e), since this is the comprehensive
sub-clause which enumerates activities of Engineering Procurement and Construction
or Commissioning (EPC) or turnkey;
(ii) exhypothesi even if assumed that the activities are classifiable under clause (b), it
would not be excluded from the levy since the activities are for industrial purposes.
One of the works involves lifting 4.50 TMC of water from Godavari river near
Kannepally (v) near Kaleswaram of Karimnagar District to feed an ayacut of 45,000
acres. This work is not only for the of the population residing in these areas but also to
farms, industrial areas, commercial establishments, complexes, malls etc., of those
areas;
(iii) In view of the decision in Bangalore Water Supply and Sewerage Board and Others
vs. R. Rajappa and Others AIR (1978) SC 548, whether a particular body is an industry is
not dependent on whether the activity thereunder is undertaken by corporate body in
the discharge of its statutory functions or even by the State itself. It is only the process
involved in the activity, objectively viewed which is the determinative factor in deciding
whether the activity is an industry. Hence, it cannot be said that supply of water or
creation of an irrigation distributory scheme or a lift irrigation project is not for
industrial purposes.
(iv) "Dam" (which is excluded from the scope of the taxable service in the definition of
WCS), means only the civil construction and installation of gates extending to the
stretch of the river or stream. A "Dam" is confined to that portion of the structure
which obstructs the natural flow of water in a river or a stream. No civil construction,
structure or installation extending beyond the main Dam structure would fall within the
meaning of the word "Dam". Thus, canal systems which originate beyond the main
"Dam" structure cannot be considered as part of the "Dam". "Dams" and "Canal
systems" are independent species and the exclusionary clause in the definition of WCS
is inapplicable to canal systems.
(v) It is an established principle of interpretation that where the language of the statute
is clear, the Court must give effect to the legislative intention as expressed. Only if
there is an ambiguity in the language of a provision may the Court adopt purposive
construction; or if the legal construction leads to an absurdity is it permissible to resort
to external aids. The Act excludes "Dam" from the scope of WCS in the definition. In
defining "Site Formation Service" the Act employs a different exclusionary formula and
excludes from this service works provided in relation to irrigation, water shed
development etc. Since the Act consciously excludes "Dams" from the purview of WCS
and in "Site Formation Service" works provided in relation to Irrigation, Water shed
Development etc. while defining the later taxable service, this distinction must be
noticed and given effect to. Consequently, the meaning of "Dam" cannot be extended
to canal systems under a Dam, as these would pertain to irrigation, which is excluded
only under "Site Formation Service".
(vi) In respect of "Site Formation Service" Government issued exemption Notification
No. 17/2005/ST dated 16.03.2005, exempting the said service when provided "in
respect of dams". Similarly, in respect of WCS, Notification No. 41/2009/ST dated
23.10.2009, granted exemption in respect of works contract provided in respect of
canals. These Notifications, issued under Section 93 of the Act, establish that works
contract in respect of canals is otherwise included within the scope of the taxable
service and that execution of canals is outside the purview of "Dam", which alone is the
excluded component.
(vii) The definition of WCS uses both the expressions - "In relation to" and "in respect
of ". "In relation to" means "in the context of", "in connection with". On the other
hand, "in respect of" means "as regards", "with reference to". Thus, the expression "in
relation to" has a wider connotation than "in respect of". Consequently, since works
contract "in respect of" "Dam" is excluded from the scope of the definition, it must be
given a narrow construction and irrigation and canal systems fall outside the scope of
exclusion.
(viii) Assessees contention that where contracts involve only a package or a specified
distance out of the overall project, it would not constitute an EPC/ Turnkey Project and
only when the entirety of the larger project is executed by one entity it would amount
to EPC/ Turnkey project, is misconceived. The definition of WCS, in clause (e) under
Explanation (ii) thereof does not specify any such requirement. Even if a portion,
package or a reach of the entire and larger project is awarded to a contractor and that
portion, package or reach answers the description of EPC/ turnkey, the same would be
taxable under clause (e). In each of the contracts in issue, the terms thereof stipulate
that it is an EPC / turnkey project. All these contracts therefore fall within the ambit of
EPC turnkey projects, under clause (e) under Explanation (ii) of WCS.
18 . ANALYSES OF ISSUES (B); (C) and (D) :
(a) WCS was introduced by the Finance Act, 2007 w.e.f. 01.06.2007 by insertion of sub-
clause (zzzza) in Section 65(105) of the Act. The provision reads:
Section 65 (105) (zzzza) : to any person, by any other person in relation to the execution
of a works contract, excluding works contract in respect of roads, airports, railways,
transports terminals, bridges, tunnels and dams.
Explanation.- For the purposes of this sub-clause, "works contract" means a contract
wherein,-
(i) transfer of property in goods involved in the execution of such contract is leviable to
tax as sale of goods, and
(ii) such contract is for the purposes of carrying out, -
(a) Erection, commissioning or installation of plant, machinery, equipment or structures,
whether pre-fabricated or otherwise, installation of electrical and electronic devices,
plumbing, drain laying or other installations for transport of fluids, heating, ventilation
or airconditioning including related pipe work, duct work and sheet metal work, thermal
insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire
escape staircases or elevators; or
(b) Construction of a new building or a civil structure or a part thereof, or of a pipeline
or conduit, primarily for the purposes of commerce or industry; or
(c) Construction of a new residential complex or a part thereof; or
(d) Completion and finishing services, repair, alteration, renovation or restoration of, or
similar services, in relation to (b) and (c); or
(e) Turnkey projects including engineering, procurement and construction or
commissioning (EPC) projects ;
From the definition of WCS, it is clear that only specified categories of works contract
are considered for levy of service tax. These are enumerated in clauses (a) to (d) of
Explanation (ii) in the definition. Clause (e) refers to -
Turnkey projects including engineering, procurement and construction or commissioning
(EPC) projects.
The question is whether clause (e) signifies a distinct category of service, distinct from
those enumerated in clauses (a) to (d); or is merely descriptive of the mode of
execution of taxable services comprised in clauses (a) to (d). Assessees contend that
clause (e) merely describes the mode of execution of taxable services enumerated in
clauses (a) to (d) and is intended to cover works contracts involving bundled services
which may comprise more than one component of the taxable services enumerated in
each of the clauses (a) to (d) and contracts where in addition to one or more of the
taxable services enumerated in clauses (a) to (d), there are other services / activities
bundled into the agreement, which may or may not be taxable services elsewhere
enumerated in the Act to be so.
b. Before proceeding to a detailed analyses of these issues, it is necessary to consider
whether EPC/ turnkey projects were taxable prior to 01.06.2007 and if so how such
projects ought appropriately be classified amongst the several taxable services that
were in force prior to 01.06.2007.
In Alstom Projects India Ltd. vs. Commissioner of Service Tax, Delhi 2011 (23) STR 489
(Tri.Del) = 2011-TIOL-459-CESTAT-DEL; a Division Bench of this Tribunal concluded that
EPC contracts are chargeable to service tax even prior to 01.06.2007. The following
observations in para 6.2 of this judgment are relevant:
(2) The entry "Service in relation to execution of work contract" as defined in Section
65(105) (zzzza) is different from services defined in other sub-clauses of Section
65(105).In fact, as discussed above, Section 65(105)(zzzza) read with Rule 2A of
Service Tax (Determination of Value) Rules, 2006 and work Contract (Composite
Schemes for Payment of Service Tax) Rules, 2007 only provide a new machinery
provision for assessment of service tax on "Erection, installation or Commissioning
Contracts", "Commercial or industrial construction contracts", "Residential
Construction Service Contracts" and "EPC Contracts" involving transfer of property in
goods on which Sales Tax/ VAT is chargeable. But it does not mean that these
contracts were not liable to Service Tax prior to 01.06.2007 as, as discussed above,
"erection, installation or commissioning services", "commercial or industrial
construction service", Residential constructions services were taxable even prior to
01.06.2007, even if the same involved use/ supply of goods on which Sales Tax/ VAT
was payable. Similarly in respect of EPC contracts which are divisible contracts for
design & engineering, procurement of goods, erection, installations & commissioning,
service tax was chargeable even prior to 01.06.2007 on these taxable service
component. The taxable services covered by Section 65(105)(zzq) (Commercial or
industrial construction service) and Section 65(2105)(zzzh) [residential construction
service] are overlapping. While w.e.f. 01.06.2007, following the principle of harmonious
construction, it can be said that while Section 65(105)(zzzza) would cover the services
defined by Section 65(105)(zzd), Section 65(105)(zzq), Section 65(105)(zzzh) and EPC
contracts which involve transfer of property is goods on which tax as sale of goods is
leviable, and Section 65(105)(zzd), 65(105)(zzq) and Section 65(105)(zzzh) will cover
erection, installation or commissioning service, 'commercial or industrial construction
services' and 'residential construction services' respectively not involving transfer of
property in goods, but it does not mean that prior to 01.06.2007, the services covered
by Section 65(105)(zzd), 65(105)(zzq) and 65(105)(zzzh) involving transfer of property of
goods were not taxable.
(emphasis added)
In view of Alstom Projects India Limited, since an EPC/ turnkey contract (which is also a
works contract) is taxable prior to 01.06.2007 as well, bundled services in a composite,
indivisible contract of this nature require to be classified under any one of the extant
(prior to 01.06.2007) taxable services, by employing classification guidelines set out in
Section 65A of the Act. Normally, since the dominant intention underlying such a
contract would be the construction of a civil structure such as a "Dam" or a canal
system under a dam (and not merely the designing or planning etc., thereof), an EPC/
turnkey contract must be classified (prior to 01.06.2007), under CICS. The special Bench
decision in the recent Larsen & Toubro Limitedreference ruled that works contract is
taxable prior to 01.06.2007 as well. Earlier, in Indian Hume Pipe Co. Limited (supra
considered in para 15(i)], Revenue contended that the contract in issue was a turnkey
contract. We concur with the ruling in Alstom Projects India Limited that turnkey/ EPC
contracts were taxable prior to 01.06.2007 as well, on classification under the
appropriate taxable service applicable. Where such construction is for Government /
Government undertakings, for providing irrigation, water supply, sewerage disposal or
lift irrigation facilities, the activity being not primarily for commercial or industrial
purposes but for delivering the affirmative obligations of the State or a State
instrumentality under the Constitution, the transaction would stand excluded from
liability to tax under CICS, as not being primarily for commercial or industrial purposes.
We notice that another Division Bench, in Ramky Infrastructure Limited vs. CST,
Hyderabad 2013 (29) STR 33 (Tri. Bang) = 2012-TIOL-613-CESTAT-BANG expressed a
contrary view to that expressed in Alstom Projects India Ltd. (supra) on the aspect
whether turnkey/ EPC contracts were chargeable to service tax prior to 01.06.2007.
Para 8.4 of Ramky Infrastructure Limitednotes Revenue's contention that turnkey /EPC
contracts per se were not chargeable to service tax prior to 01.06.2007. Revenue did
advert to the decision in Alstom Projects India Limited . In para 10.10, Ramky
Infrastructure Limited concludes that transfer of property in goods exigible to sales tax
is not involved in rendition of services defined under clauses (25b) and (97a) of Section
65 i.e. CICS and ECIS, whereas such transfer is necessarily involved in execution of
works contract. This conclusion is clearly contrary to the decision of the special Bench
of CESTAT in the Larsen & Toubro Limited reference (dated 19.03.2015) = 2015-TIOL-
527-CESTAT-DEL-LB. In para 10.6, Ramky Infrastructure Limited concludes, based on the
premise that only where dams were built by an appellant in execution of an EPC
contract and along therewith construction of canals etc. is also undertaken, the
exclusionary clause in the definition of WCS excluding works contract "in respect of
dams" would come into play. For the reasons earlier recorded herein and for the
reasons to follow, this conclusion in Ramky Infrastructure Limited is erroneous. Works
contract "in respect of dams" is excluded from the purview of WCS. A true and fair
construction of the definition of WCS and the exclusionary clause "works contract in
respect of dams", indicates no requirement that works contract executions of
structures ancillary or integrated into a dam project should be taken up along with
construction of the main dam structure and by the same contractor, to come within the
exclusionary clause. This conclusion in Ramky Infrastructure Limited is therefore, with
respect, erroneous and is overruled. In para 10.8, Ramky Infrastructure Limited negated
plea of the appellants therein that where a works contract is assigned to sub-
contractors and the transfer of property in goods used in the execution of such contract
was only from the sub-contractors to the Government and not from the appellants, the
same would not be covered under the definition of WCS. The Tribunal held that the
definition of "works contract" does not so stipulate and proceeded to hold "it is enough
if transfer of property in goods is involved in the execution of the contract and the
same is exigible to sales tax as is the case under consideration". This conclusion is per
incurium the judgment of the Supreme Court in Larsen & Toubro Limited (SC.2008),
which we shall advert to in detail, later herein.
In view of the special (5 member) Bench decision in the Larsen & Toubro
Limited reference, it follows that a works contract is exgibile to service tax even prior to
01.06.2007. In view ofIndian Hume Pipe Co. Limited ; and Alstom Projects India
Limited it follows that a turnkey / EPC contract is exigible to service tax prior to
01.06.2007, under the appropriate taxable service such as ECIC, CICS or COCS. From this
position it inexorably follows that clauses (a) to (e) of the definition of WCS in
Explanation (ii) thereof are enumerations of taxable services drawn substantially from
definitions and integers of existing taxable services such as ECIS, CICS and COCS. From
the decision in Indian Hume Pipe Co. Limited and other decisions [referred to in paras
15(i) and (ii) (supra)], it is clear that laying of pipelines/ conduits for transmission of
water or for disposal of sewerage falls within the ambit of CICS and not ECIS; and where
provided to Government/ Government undertakings and for supply of water for
irrigation or consumption or for disposal of sewerage, the activity is non-commercial,
non-industrial, is covered by the exclusionary clause in the definition of CICS and is not
exigible to service tax. Since a turnkey/ EPC contract would inhere elements of several
services, consisting of combination of different services, the service which gives such
contract its essential character would be laying of pipelines or conduits. A turnkey/ EPC
contract for laying of pipeline/ conduit should therefore logically be classified under
clause (b), Explanation (ii) of Section 65(105)(zzzza), on and from 01.06.2007 as well.
This is the consequence of applying Section 65A(2)(b) of the Act and this position is
clarified in Board Circular No. 123/5/2010-TRU dated 24.05.2010 (considered in detail
in sub-para (o) infra].
For the same reasons as recorded in the preceding sub-para construction of canals for
transmission of water or sewerage disposal would also be classifiable under clause (b)
of the definition of WCS.
Revenue, apart from relying on Ramky Infrastructure Limited has also adverted to an
interim order passed in Patel Engineering Limited vs. CCE, Hyderabad-II 2014 (35) STR
235 (Tri. Bang.). Suffice to notice that this interim order records only prima
facie conclusions in respect of the various aspects dealt with therein. In para 5 of the
above order, Tribunal observes that whether in enacting distinct taxable services such
as CICS w.e.f. 2004 and WCS w.e.f. 01.06.2007, works contract is a distinct and stand
alone taxable entity or is carved partly or wholly from the earlier CICS, is inappropriate
for a detailed analysis at an interim stage of the proceedings.
We are also informed at the Bar that against the pre-deposit ordered in Patel
Engineering Limited (supra), the appellant preferred an appeal which is pending before
the High Court of A.P. wherein an interim order was passed modifying the quantum of
pre-deposit to be made, reported in 2014 (35) STR 297 (A.P.) . It is also urged that an
appeal is preferred against the judgment (final order) in Ramky Infrastructure
Limited which is also pending before the High Court, though no particulars were
provided, of the appeal preferred. We are only stating these facts for completion of the
narrative at the Bar.
(c). The definition of WCS in sub-clause (zzzza) of Section 65(105) of the Act, to the
extent relevant for this part of our analyses, defines the service as one provided or to
be provided "in relation to" the execution of a works contract, excluding works
contract "in respect of , ...... Dams". On its text, the definition of WCS excludes works
contract " in respect of " dams . The expression "in respect of" means:
(i) P. RamanathaAiyar's - The Law Lexicon :
In respect of . The words 'in respect of' convey some connection or relation between the
plaintiff's claim and the personal injuries that he sustained. Paterson vs. Chandwick
(1974) 2 All ER 772, 775 (QBD). (Administration of Justices Act, 1970, S.32 (1)).
Giving the words 'in respect of' 'their widest meaning viz. 'relating to' or 'with reference
to' it is plain that this relationship must be predicated of the grant, renewal or
continuance of a lease and a lease must come into existence simultaneously or
nearabout the time that the money is received. TularamRelumlal v. State of Bombay,
AIR 1954 SC 496. (Bombay Rents, Hotel and Lodging House Rates (Control) Act (57 of
1947) S. 18 (1)).
"The expression "in respect of" is wider in its connotation than the word "in" or "on".
Therefore a class of municipal tax, though not a tax on the premises or buildings will
nevertheless be a tax in respect of the premises or building used for the business. I.T.
Commissioner vs. Chunilal, AIR 1968 Pat 364 at 367.
[Constitution of India preamble]
The words "in respect of" are wide enough to permit charges being made as terminals
so long as any of these things, viz, station, sidings, wharves, depots, warehouses, cranes
and other similar matters have been proved and are being maintained. The words "in
respect of" used in S.3 (14) mean "for the provision of" and not "for the user of".
Sahadasa Saharanpur Light Railway Co. Ltd. v. Upper doab Sugar Mills Ltd. AIR 1960 SC
695, 701, 702 (Railways Act 1890, S.3.(14)).
In Respect of Any Employment The words "in respect of any employment" used in Art.
16(2) must include all, matters relating to employment as specified in Art. 16(1).
General Manager Southern Railway v. Rangachari, AIR 1962 SC 36, 41 [Constitution of
India Art.16(2)].
(ii) S. B. Sarkar's Words & Phrases of Excise & Customs -
In respect of - (Canada). "The words 'in respect of' are, in my opinion, words of the
widest possible scope. They import such meanings as 'in relation to', 'with reference to',
or 'in connection with'. The phrase 'in respect of' is probably the widest of any
expression intended to convey some connection between two related subject-matters".
Nowegijick v. Canada [1983] 1 SCR 29, (Words & Phrases Legally Defined. Butterworths.
3 rd edition. 1997 Supplement).
"it cannot be said to have a precise legal meaning. Fowler's Modern English Usage' does
it justice by recommending that it be used as seldom as possible". (New Zealand Court
of Appeal in - Phonographic Performances (NZ) Ltd. v. Lion Breweries Ltd.- (1980) PSR
383 (1979). (Garner).
(iii) Mitra's- Legal & Commercial Dictionary -
In respect of . The words 'in respect of' used in s. 3(14) of the Indian Railways Act, may
be taken to mean 'for the provision of' and 'for the user of'. Therefore, irrespective of
the actual user by any particular consignor of the stations, sidings and other things
mentioned therein, terminal charges are leviable by reason of the mere fact that these
things have been provided by the Railway Administration. Sahadara (Delhi) Saharanpur
Light Railway v. Upper Doabs Sugar Mills Ltd. AIR 1960 SC 695: (1960) 2 SCR 926.
The words in respect of are of very wide amplitude and the suit must have relation to or
must have reference to an act purporting to be done by a public officer in his official
capacity. State v. VenkataDurga AIR 1957 AP 675.
(iv) The expression "in respect of ", occurring in Section 23(1b) of the Foreign Exchange
Regulation Act, 1947 was considered in Union of India (UOI) and Anr. Vs. Vijay Chand
Jain (1977) 2 SCC 405, the Court explained:
The words "in respect of" admit of a wide connotation; Lord Greene M1, in Canard's
Trustees v. Inland Revenue Commissioners 174 L.T. Rep. 133 calls them colourless
words. This Court in S.S. Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. and Anr.
MANU/SC/0011/1960: 1983 CriLJ1044 construing these words in Section 3(14) of the
Indian Railways Act, 1890 has held that they are very wide. It seems to us that in the
context of Section 23(1B) 'in respect of' has been used in the sense of being 'connected
with', and we have no difficulty in holding that the currency in respect of which there
has been contravention covers the sale proceeds of foreign currency, sale of which is
prohibited under Section 4(1). The intention of the legislature is clear from the
explanation to Sub-section (1B) of Section 23 which provides that "for the purposes of
the Sub-section (1B) of Section 23 which provides that "for the purposes of the Sub-
section property in respect of which contravention has taken place shall include deposits
in a bank, where such property is converted into such deposits". If for this sub-section
any property in respect of which a contravention has taken place includes deposits into
which the property may be converted and can be reached even where the deposits are
in a bank, it is not reasonable to think that the sale proceeds in Indian currency of any
foreign exchange would be outside the scope of Section 23(1B0 and therefore not liable
to be confiscation. In our opinion the High Court was wrong in quashing the order of
confiscation which we consider valid and lawful.
(v) In S. S. Light Railway Co. Ltd. vs. Upper Doab Sugar Mills Ltd. & Another AIR 1960 SC
695, the expression " in respect of " in 3(14) in Indian Railways Act, 1890 was explained.
The Court held:
A further question thus arises as regards the interpretation of the phrase "in respect of".
Does it mean charges for the mere provision and maintenance of stations, sidings,
depots, wharves, warehouses, cranes and other similar matters are the terminals or
does it, contemplate charges only for use of sidings, stations, wharves, warehouses,
cranes and other similar matters? The wide enough to permit charges being made as
terminals so long as any of these things, viz., stations, sidings, wharves, depots,
warehouses, cranes and other similar matters have been provided and are being
maintained. The question is whether the import of this generality of language should be
cut down for any reason. It is well-settled that a limited interpretation has to be made
on words used by the legislature in spite of the generality of the language used where
the literal interpretation in the general sense would be so unreasonable or absurd that
the legislature should be presumed not to have intended the same. Is there any such
reason for cutting down, the result of the generality of the language used present here?
The answer, in our opinion, must be in the negative. It is true that in many cases
stations, sidings, wharves, depots, warehouses, cranes and other similar things will be
used and it is arguable that in using the words "in respect of" the legislature had such
user in mind. It is well to notice however that the legislature must have been equally
aware that whereas in some cases accommodation provided by stations will be used, in
some cases sidings will be used, in other wharves, in other warehouses and in other
cases cranes, and in certain cases several of these may be used, in most cases there will
be no use of all of these. From the practical point of view it is impossible to regulate
terminal charges separately in respect of user of each of these several things
mentioned. When therefore the legislature authorised the Central Govt., to fix terminals
leviable would not depend on how many of these things would be used. It is also worth
noticing that the user of a depot, warehouse and cranes would necessarily mean some
service rendered "thereat". If terminals did not include charges in respect of the
provisions of depots, warehouses and cranes unless these were used, there would be no
need of including these in the first portion as they would be covered by the second part
of the definition, viz., "of any services rendered thereat". Far from there being any
reason to cut down, the consequence of the generality of language used viz., "in respect
of", there is thus good ground for thinking that the legislature used this language
deliberately to cut across the difficulty of distinguishing in a particular case as to which
of these things had been used or whether any of them had been used at all.
Innumerable people carry goods over the Railways and many of them, for the purpose
of the carriage make use of the stations, sidings, wharves, depots, warehouses, cranes
and other similar matters, while many do not. Though at first sight it might seem
unreasonable that those who had not used would have to pay the same charge as those
who had made use of these, it is obvious that the interminable disputes that would arise
between the Railway Administration and the Railway users, if the fact of user of
stations, sidings and other things mentioned had to determine the amount payable,
would be unhelpful not only to the Railway Administration but also to the using public.
The sensible way was therefore to make a charge leviable for the mere, provision of
these things irrespective of whether any use was made thereof. That was the reason
why such wide words "in respect of" was used. We are therefore of opinion that the
words "in respect of" used in S. 3(14) means "for the provision of" and not "for the user
of". It is worth considering in this connection that the definition of "terminal charges" in
the Indian Act is a verbatim reproduction of the definition appearing in the English
Railway and Canals Traffic Act, 1888 and that only three years before the English
Parliament passed that Act an English Court had held in Hall & Co. v. London, Brighton
and South Coast Rly., Co. (2), that for the purposes of interpretation of section 51 of the
London, Brighton, and South Coast Rly. Act, 1863 which did not include such a definition
of terminal charges, the words "any service incidental to the duty or business of a
carrier", does comprise providing such station accommodation and such sidings, and
such weighing, checking and labelling as is incidental to the duty which they undertake,
of collecting and dealing with the goods as carriers". It is reasonable to think that the
English Parliament in defining "terminal charges" in the Railway and Canals Act, 1889
intended to give effect to this view that provision of station accommodation and sidings
entitled the Railway Administration to levy "terminal charges". When the Indian
Legislature adopted the same definition in its own Act it is proper to think that it also
was aware of the view taken in Hall's case (2). This consideration fortifies the conclusion
which we have already reached on an examination of the scheme of our own Act, apart
from authorities, that the words "in respect of" used in s.3(14) in the definition of (2)
(1885) 15 K.B. 505 .
(vi) The Orissa High Court in Godavaris vs. Nandkisore Das AIR 1953 Ori 111; The
Madras High Court in State of Madras vs. ChitturiVenkataDurgaPrasadarao and Ors. AIR
1957 A.P. 675; the Patna High Court in Commissioner of Income Tax vs.
ChunilalRameshwarLal AIR 1968 Pat 364; the Allahabad High Court in Har vs. Hans Ram
and Ors. AIR 1966 All 124; and the Delhi High Court in Commissioner of Income Tax vs.
Bharat Heavy Electrical Ltd. AIR 1953 Ori 111 - 2012-TIOL-727-HC-DEL-IT, uniformly
interpreted the phrase "in respect of" as a comprehensive expression, to be construed
in a broad sense and as bearing a wider connotation and compass.
The Canadian Supreme Court in Nowegijick v. The Queen [1983] 1 SCR 29 explained that
" in respect of " are words of the widest possible scope and import such meanings as "in
relation to", "with reference to" or "in connection with; and that "in respect of" is
probably widest of any expression intended to convey some connection between two
related subject matters .
(vii) Board Circular No. 116/10/2009-ST dated 15.09.2009 clarified the issue regarding
leviability of service tax on construction of canals for Government projects. Paras 1 and
2 of this Circular dealt with the leviability of service tax under CICS, defined in Section
65(25b) of the Act. The Board clarified that since canal systems built by Government or
as Government projects would not be for industrial or commercial purposes, the
activity is not exigible to service tax. Para 3 of this Circular dealt with the position under
clause (e) in Explanation (ii) of the definition of WCS. The Board clarified:
3. The second issue is about Government taking up construction activity of dams,
irrigation projects, buildings or infrastructure construction etc. through EPC
(Engineering Procurement & Construction) mode. The said service is covered under
section 65(105)(zzzza) of Finance Act, 1994. The said section itself excludes works
contract in respect of dams, road, airports, railways, transport terminals, bridges &
tunnels executed through EPC mode. Hence works contract in respect of above works
even if done through EPC mode are exempt from payment of service tax.
The above Board circular represents the executive construction of the scope of EPC/
turnkey contracts in the light of the exclusionary clause in the definition which excludes
works contract in respect of Dams, from the purview of the definition itself.
(viii) Notification No. 41/2009-ST dated 23.10.2009 (issued under Section 93 of the Act)
exempts the taxable WCS in respect of canals, other than those primarily used for the
purposes of commerce and industry, from the whole of the tax leviable thereon under
Section 66 of the Act. This being an exemption Notification and not having been made
specifically retrospective cannot be given a retrospective connotation vide
Commissioner of Customs, Bangalore vs. Spice Telecom 2006 (203) ELT 538 (SC) = 2006-
TIOL-146-SC-CUS-LB. However, an exemption Notification per se cannot be a legitimate
guide to interpretation of the scope of provisions in an Act. Revenue's contention, that
since Notification No. 41/2009-ST (prospectively) exempts execution of works contract
in respect of canals, other than those primarily used for the purposes of commerce and
industry from the levy of tax, it must be presumed that but for this exemption,
construction of canals is taxable under WCS, is misconceived. Whether construction of
canals is excluded from the levy of tax under WCS must be considered independent of
an exemption Notification, on primary analysis of the relevant provision; and if on such
construction this activity is found to be excluded from the purview of the definition of
WCS, an exemption Notification cannot negate the proper interpretation to be put
upon the definition of WCS.
(ix) With introduction of the negative list regime w.e.f. 01.06.2012, Section 66B of the
Act is the charging provision and enjoins levy of service tax on the value of all services,
other than those specified in the negative list, provided or agreed to be provided. The
negative list of services is specified in Section 66D. Clause (h) of Section 66E
(enumerating Declared services) specifies "service portion in the execution of the works
contract" to be a declared service. "Declared Service" is defined in Section 65B, to mean
any activity carried on by a person for another for consideration and declared as such
under Section 66E. As a consequence of the above provisions, construction of canals,
dams or other irrigation works, pipeline, conduit or plant for (i) water supply (ii) water
treatment; or (iii) sewerage treatment or disposal also fall within the service tax net.
Notification No. 25/2012-ST dated 20.06.2012 was issued (w.e.f. 01.06.2012), under
Section 93 of the Act (as a mega Notification), exempting a variety of taxable services
from the levy of tax charged under Section 66B. Paragraph 12(d) and (e) of this
Notification specify canal, dam or other irrigation works; and pipeline, conduit or plant
for (i) water supply; (ii) water treatment; and (iii) sewerage treatment or disposal, as
exempted from levy.
(d) Revenue's contention that a canal system could also be for servicing industries
within the territory of the system and would therefore be ineligible for exclusion, on
the basis of the Supreme Court decision in Bangalore Water Supply and Sewerage
Board (supra), is a contention that is stated to be rejected. The exclusionary clause does
not exclude the rendition of CICS if it be even incidentally or also for industrial purpose.
The exclusionary clause would be inapplicable only when the activity is primarily for
industrial purposes.
(e) Board Circular No. 80/10/2004-ST dated 17.09.2004 (issued to clarify the scope of
construction services introduced w.e.f. 10.09.2004) clarifies about the non taxability of
civil constructions used inter alia for providing civic amenities by the Government or
Government agencies - vide para 13.2 and 13.4 thereof.
(f) The position then would be (if Revenue's contentions are accepted), (a) EPC /
turnkey project for civil constructions in respect of dams, canal systems for irrigation
and pipeline/ conduit laying for water supply or sewerage disposal, is not taxable (prior
to 01.06.2007) under CICS; (b) Canal systems executed as turnkey/ EPC projects are not
taxable even under WCS w.e.f. 01.06.2007 in view of para 3 of the Board Circular dated
15.09.2009, but would be taxable if the Board Circular is contrary to the true
interpretation of WCS; (c) Works contract in respect of canals, other than those
primarily used for the purposes of commerce or industry (even under turnkey /EPC
mode) is specifically exempted from levy qua Notification No. 49/2009-ST dated
23.10.2009; and (d) w.e.f. 01.06.2012, on introduction of the negative list, construction
of canals, dams or other irrigation works, pipeline conduit or plant for water supply,
water treatment or sewerage treatment or disposal is exempt w.e.f. 01.06.2012 itself,
vide exemption Notification No. 25/2012-ST dated 20.06.2012.
(g) Nevertheless, Revenue would argue, construction of canals under EPC/ turnkey
mode of execution is leviable to tax under sub-section (e) to Explanation (ii) of Section
65(105)(zzzza).
(h) EPC/ turnkey projects for construction of dams and canal systems for irrigation,
water supply or sewerage disposal, laying of pipelines for transmission of water as in
the case of lift irrigation systems or for transmission of sewerage, clearly fall within the
ambit (prior to 01.06.2007) of CICS, in view of the decision in Alstom Projects India
Limited. A Larger (special) Bench of this Tribunal in the reference in the case of Larsen &
Toubro Limited 2015-TIOL-527-CESTAT-DEL-LB (vide the majority judgment dated
19.03.2015) ruled that a works contract is taxable even prior to 01.06.2007 under
appropriate existing taxable services identified by applying the relevant classification
guidelines. Laying of pipelines for transmission of water or sewerage does not amount
to ECIS but falls within the ambit of CICS, is the principle settled by the Tribunal
decisions in Indian Hume Pipe Co. Limited; A. Sekar; Dinesh Chandra Agarwal;Lalit
Constructions; Strategic Engineering Pvt. Limited and the interim order in Surindra
Engineering Co. Limited [vide the analyses in para 15(i) and (ii) (supra)]. Turnkey/ EPC
projects executed for Governments / Government undertakings in respect of
construction of dams, canal systems, laying of pipelines for transmission of water for
irrigation, human consumption or for disposal of sewerage would be an activity not
liable to tax (prior to 01.06.2007) in view of the exclusionary clause in Section 65(25b),
defining the scope of CICS, since the activity would not primarily be for industrial or
commercial purposes.
(i) W.e.f. 01.06.2007 the question then arises, whether turnkey / EPC projects for
execution of canals under dams for transmission of water for irrigation of drinking
water purposes or laying of pipelines again for transmission of water for irrigation of
drinking water purposes as in the case of lift irrigation systems or for sewerage disposal
is taxable under clause (e), Explanation (ii) in Section 65(105)(zzzza). W.e.f. 23.10.2009,
exemption Notification No. 41/2009-ST exempted works contract in respect of canals
other than those primarily used for the purposes of commerce or industry from the levy
of service tax, by specifically referring to WCS defined in Section 65(105)(zzzza). The
only issue that survives is therefore whether turnkey/ EPC projects pertaining to
execution of works contract for canal systems in respect of dams is taxable during
01.06.2007 to 23.10.2009.
(j) Para 3 of Board Circular No. 116/10/2009 dated 15.09.2009 clarified that works
contract in respect of dams, roads, airports, railways, transport terminals, bridges &
tunnels even if executed through the EPC mode is exempt from tax in view of the
definition of WCS in Section 65(105)(zzzza). Whether construction of canals or
pipelines/conduits for transmission of water by gravity or in lift irrigation systems as the
case may be ought be interpreted as a works contract "in respect of dams" is the
question. If so, construction of canals or laying of pipelines/ conduits would not be
taxable in view of the exclusionary clause in the definition of WCS. Section
65(105)(zzzza) defines WCS (in the pre ambular portion) as an activity " in relation to
the execution of a work contract excluding works contract in respect of dam , road,
airports, railways, transport terminals, bridges, tunnels and dams ".
(k) Is construction of canal systems under works contract not a works contract in
respect of dams?
On a true and fair construction of the definition of WCS (extracted in the preceding sub
para), the provision employs the expression "in respect of ........ dams" as an activity
excluded from the scope of the levy. Earlier in the analyses herein we have noticed that
the expression "in respect of" is an expression having a wider connotation and bears
the widest possible scope. The decision in S.S. Light Railway Co. Ltd. (supra) rules that
the expression "in respect of" may be taken to mean "for the provision of". Supreme
Court in Vijay Chand Jain ruled that the expression "in respect of" admits of a wide
connotation and has been used in the sense of "being connected with". The Orissa,
Madras, Patna, Allahabad and Delhi High Courts also interpreted the phrase "in respect
of" as a comprehensive expression to be constructed in the widest sense and as having
a wide connotation and compass. The Canadian Supreme Court inNowegijick (supra)
explains that "in respect of" are words of widest possible scope and import such
meaning as "in relation to", "with reference to", or "in connection with".
(l) Canals construction, in particular for transmission of water for irrigation or drinking
water purposes including where such canals are under a dam; or the laying of pipelines
for conveyance of water for irrigation or drinking purposes or transmission of
sewerage, even when executed under turnkey/ EPC mode is classifiable under CICS
during the period upto 01.06.2007.
(m) From the structural arrangement of the definition of works contract set out in
Explanation (ii) of Section 65(105)(zzzza), it is apparent that the several species of
activities brought within the scope of this taxable service were drawn from pre-existing
taxable services. Thus, clause (a) substantially reproduces the integers of the taxable
service ECIS defined in Section 65(39a). Clause (b) is drawn from essential elements of
CICS defined in section 65(25b), in particular, sub-clauses (a) and (b) thereof. Clause (c)
under Explanation (ii) of the WCS definition is drawn from the definition of COCS, in
particular sub-clause (a) thereof. Clause (d) of WCS is substantially an extract of clauses
(c) & (d) of the definition of CICS and COCS in Section 65 (25b) and (30a), respectively.
(n) In view of the decision in Alstom Projects India Limited , it is clear that turnkey/ EPC
projects were taxable even prior to 01.06.2007 and turnkey/ EPC contracts ought to be
classified either as ECIS, CICS or COCS depending upon the dominant intent or
objectives for which the relevant agreements are entered into. Construction of canal
systems or construction of pipelines/ conduits for transmission of water or sewerage
would be classifiable under CICS prior to 01.06.2007; this is the law declared in CESTAT
decisions. Could Parliament have intended, when introducing clause (e) in Section
65(105)(zzzza), to treat EPC/ turnkey projects as a new species of work contract after
01.06.2007?
(o) To clarify and resolve disputes that had arisen in several parts of the country
regarding taxability of the different activities, taking into account the scope of related
taxable services such as site formation, CICS, ECIS or WCS as well as new services
introduced by Finance Act, 2010, the Board issued a clarificatory Circular
No. 123/5/2010-TRU dated 24.05.2010. In para 2 of the circular the scope of CICS and
ECIS were clarified in clauses (i) and (ii). Clause (iii) in para 2 deals with WCS. Clause (iii)
sets out the following clarification:
(iii) Works Contract' incorporates the inclusions and exclusions of the aforementioned
two taxable services (amongst others) and it is the nature of the contract (i.e. a contract
wherein the transfer of property in goods involved is leviable to a tax as sale of goods)
rather than the nature of activities undertaken, that distinguishes it from the previously
stated taxable services. Thus, even in the case of 'works contract' if the nature of the
activities is such that they are excluded from aforesaid two services then they would
generally remain excluded from this taxable service as well.
From this clarification, it follows that since construction of canals is for irrigation, water
supply or pipelines/ conduits for lift irrigation, water supply or sewerage disposal, such
contracts are classifiable under CICS prior to 01.06.2007 (in view of the several
decisions of the Tribunal and of the Madras High Court adverted to earlier herein) . The
services are however excluded from the levy since these are not primarily for
commercial or industrial purposes (in view of the exclusionary clause in the definition
of CICS), even when executed under a turnkey/ EPC mode (in view of the decision
in Alstom Projects India Limited). We consider the above Board clarification to be
consistent with the legislative intention underlying the enactment of WCS as a distinct
taxable service, with elements drawn from pre-existing taxable services such as ECIS,
CICS and COCS. Revenue has not contended before us that this clarification by the
Board is inconsistent with the provisions of the Act and therefore of no legal
consequence or force.
(p) As earlier noted, prior to 01.06.2007 construction of canal systems or pipelines/
conduits for Government/ Government undertakings for transmission of water or
sewerage would be in the nature of infrastructure projects to provide civic amenities or
to augment irrigation and this being a non industrial, non commercial purpose would
be outside the scope of CICS. Since 23.10.2009, vide Notification No. 41/2009-ST works
contract in respect of canals, other than those primarily used for the purposes of
commerce or industry is exempt from the levy under WCS. Since works contract in
respect of dams is excluded from the definition of WCS by the provision itself,
exemption Notification No. 41/2009-ST should be considered as issued under a
misconception that construction of canals under a dam though not primarily for
purposes of commerce or industry is nevertheless taxable, which it is not.
(q) We are thus left with the activity of construction of pipelines/ conduits under the
turnkey / EPC mode. When the construction is for Government/ Government
undertakings and for water supply or sewerage disposal purposes, prior to 01.06.2007
this activity is classifiable under CICS and is excluded from the purview of the definition.
Under clause (b) under Explanation (ii) of the definition of WCS, construction of a
pipeline or a conduit primarily for the purposes of commerce or industry is an activity
falling within the definition of WCS. This provision in the definition of WCS is extracted
from the definition of CICS, in parimateria . Construction of pipeline or conduit
(otherwise than under a turnkey/EPC mode), when executed for Government/
Government undertakings for transmission of water or sewerage would be outside the
ambit of levy of tax, in terms of the definition itself, since this would undisputedly fall
within the ambit of sub-clause (b) of WCS.
(r) What then could be the legislative intention in not excluding levy on construction of
a pipeline or conduit when executed under a turnkey/ EPC mode. Revenue does not
explain this incongruity while contending that works contract executed under turnkey/
EPC project mode even in respect of canals, pipelines conduits for Government/
Government undertakings is taxable even if for non commercial, non industrial
purposes!
(s) In Radius Corporation Ltd. vs. CCE, Raipur 2014 (33) STR 416 (Tri. Del.); the issue was
whether pre-construction work undertaken by an assessee like levelling of ground,
construction of culverts, earthen bunds, stone pitching of reservoir bund, construction
of pumping station, staff quarters and the activities are covered under the definition of
CICS or under site formation and clearance, excavation earthmoving & demolition
service. The Tribunal ruled that such activity undertaken by the assessee was
preparatory to construction of a reservoir and other civil works and is therefore outside
the purview of site formation service. The relevant paragraph of this decision reads:
"6. We find that Engineering, procurement and Construction contracts were signed by
the appellant for construction of Major Ground Balancing Reservoir, for raising the
height of existing major ground reservoir and for protection work of existing major
ground reservoir and extension of secondary reservoir. Activities undertaken in relation
to these contracts neither fit in the definition of site formation and clearance,
excavation and earthmoving and demolition service nor these relate to repairing/
renovating water sources as water sources in present case is river. Some part of site
formation, excavation and earthmoving done by the appellant was for preparing of
further construction of reservoir and other civil works. We therefore are of the view
that these activities undertaken by the appellant are out of purview of Site
Formation, and Clearance Excavation and Earthmoving and Demolition Service as
defined under Section 65(97a) of the Act".
(emphasis supplied)
(t) In Dr.Lal Path Labs Pvt. Ltd. vs. CCE, Ludhiana 2006 (4) STR 527 (Tri. Del.) = 2006-
TIOL-1175-CESTAT-DEL; it was held that once there is a specific entry for an item in the
tax code, the same cannot be taken out of such specific entry and taxed under any
other entry. This principle is enacted in Section 65A of the Act and as per clause (2)(b)
of this provision, in case of composite services the classification must be on the basis of
a service which gives them their essential character, insofar as this criterion is
applicable. The decision in Dr. Path Lab Pvt. Ltd.was confirmed by the Punjab &
Haryana High Court in CCE, Ludhiana vs. Dr. Path Labs Pvt. Ltd. 2007 (8) STR 337 (P&H)
= 2007-TIOL-533-HC-P&H-ST. The principle that what is excluded under one entry
(category) cannot be taxed under another was reiterated in respect of outbound
roaming service under Telecommunication Service. The issue was whether services
provided by a foreign telecom service provider could be taxed under Business Auxiliary
Service (BAS) since it is not taxable as Telecommunication Service as a foreign telecom
service provider is not a Telegraphic Authority as per Indian law. Board circulars dated
15.07.2011 and 19.12.2011 clarified that telecommunication service provided by a
foreign telecom service provider could not be taxed under BAS. The Tribunal in Infosys
Limited vs. CST, Bangalore - 2014-TIOL-409-CESTAT-BANG; also ruled that service
provided by a foreign telecom service provider cannot be classified under BAS.
(u) In the several appeals before us proceedings were initiated on the basis that
contracts awarded to appellants are "Engineering Procurement and Construction and
Commissioning (EPC)/ turnkey" contracts. The expression "EPC/ turnkey" was used in
the relevant contracts. Revenue assumed that "EPC" is a species of the genus "turnkey".
This assumption by Revenue is predicated on the basis of clause (e) in the definition of
WCS, which reads:
Turnkey projects including Engineering, Procurement and Construction or
Commissioning (EPC) projects.
Neither "turnkey" nor "Engineering, Procurement and construction or Commissioning
EPC" is defined. We therefore refer to lexicographic assistance for definition of "turnkey
projects".
i)Law Lexicon by P. RamanathaAiyar (2010: Lexis Nexis)
Turnkey contract: A contract under which the contractor assumes responsibility to the
client for constructing productive installations and ensuring that they operate effectively
before turning them over to the client.
Contract, found especially in the computer and construction industries, in which a
supplier provides a complete customised package to a client (who has merely to "turn
the key" and take over the package) .
ii) MacGraw - Hill-Dictionary of Scientific and Technical Terms -
Turnkey contract: A contract in which an independent agent undertakes to furnish for a
fixed price all materials and labour, and to do all the work needed to complete a project
.
iii) Black's Law Dictionary (Fifth Edition) -
Turnkey contract: Term used in building trade to designate those contracts in which
builder agrees to complete work of building and installation to point of readiness for
occupancy. It ordinarily means that builder will complete work to certain specified point,
such as building a complete house ready for occupancy as a dwelling and that builder
agrees to assume all risk .
iv) Understanding & Negotiating Turnkey and EPC Contract, 2 nd Ed. By Joseph A.
Huse:
'The Turnkey' arrangement (also known as the 'package deal', 'design and build', 'cle-
en-main', 'design and construct' or 'EPC)' places the duty to design and construct solely
on the contractor. There is no accepted definition for each of these terms in the
construction field .
v) Black's Law Dictionary (Eighth Edition) -
Engineering, Procurement and Construction Contract (EPC) contract -
A fixed price, schedule - intensive construction contract - typically used in the
construction of single -purpose projects, such as entry plants - in which the contractor
agrees to a wide variety of responsibilities, including the duties to provide for the
design, engineering, procurement and construction of the facility, to prepare start-up
procedures; to conduct performance tests; to create operating manuals; and to train
people to operate the facility - Also termed turnkey contract.
vi) Major Law Lexicon of P. RamanathaAiyar (2010: Lexis Nexis)
EPC Contract : Engineering, Procurement and Construction contract (i.e. turnkey
construction contract)
From the guidance derived from the above expositions, it is clear that EPC contracts are
synonymous and are referred to as turnkey contracts as well.
Now we consider whether the word "including" employed in clause (e) under
Explanation (ii) of the definition of WCS must be construed in an expansive or a
restrictive sense.
(i) The word "includes" is generally used in interpretation or definition provisions in
order to enlarge the meaning of words or phrases occurring in the body of the
provision. When so used these words or phrases ought to be construed as
comprehending not only such things as they signify according to the natural import but
those things as well which the interpretation clause declares that they shall "include".
(ii) However, the word "includes" is susceptible to another construction which is equally
compelling. If the context of the Act indicates that it was not employed merely for the
purpose of adding to the natural significance of the words or expressions defined, the
word "includes" must be interpreted as indicating "mean and include"; and in such a
case the word indicates an exhaustive explanation of the meaning of the words and
phrases in the provision which, for the purposes of the provision must invariably be
attached to those words or phrases. Ordinarily "includes" indicates that what follows
this word is comprised or is contained in the whole of the words or phrases preceding
and the nature of the included terms would not only partake the character of the whole
but may be construed as clarificatory of the whole.
(iii) In South Gujarat Roofing Tiles Manufacturers Association and Anr. Vs. The State of
Gujarat and Anr . (1976) 4 SCC 601; the word "include" in Entry 22 in Part I of the
Schedule to the Minimum Wages Act, 1978, fell for consideration. The Court explained
the circumstances in which the word "include" which is generally used as a word of
enlargement, in appropriate cases suggests a different intention, restrictive and
exhaustive. The Court observed:
Though 'include' is generally used in interpretation clauses' as a word of enlargement, in
some cases the context might suggested a different intention. Pottery is an expression
of very wide import, embracing all objects made of clay and hardened by heat. If it had
been the legislature's intention to bring within the entry all possible articles of pottery, it
was quite unnecessary to add an Explanation. We have found that the Explanation
could not possibly have been introduced to extend the meaning of potteries industry or
the articles listed therein added ex abundant cautela. It seems to us therefore that the
legislature did not intend every thing that the potteries industry turns out to be covered
by the entry. What then could be the purpose of the Explanation? The Explanation says
that, for the purpose of entry 22, potteries industry 'includes" manufacture of the nine
articles of pottery named therein. It seems to us that the word 'includes' has been used
here in the sense of 'means', this is the only construction that the word can bear in the
context. In that sense it is not a word of extension, but limitation; it is exhaustive of
the meaning which must be given to potteries industry for the purpose of entry 22.
The use of the word 'includes' in the restrictive sense is not unknown. The observation
of Lord Watson in Dilworth v. Commissioner of Stamps (1899) A.C. 105, which is
usually referred to on the use of 'include' as a word of extension, is followed by these
lines: "But the word 'include' is susceptible of another construction, which may
become imperative, if the context of the Act is sufficient to show that it was not
merely employed for the purpose of adding to the natural significance of the words or
expressions defined. It may be equivalent to 'mean and include', and in that case it
may afford an exhaustive explanation of the meaning which, for the purposes of the
Act, must invariably be attached to these words or expressions". It must therefore be
held that the manufacture of Mangalore pattern roofing tiles is outside the purview
of entry 22.
(emphasis added)
(iv) The significance of the word "includes" was again considered in the context of Prize
Chits and Money Circulation Schemes (Banning) Act, 1978, 1978, in Reserve Bank of
India vs. Peerless General Finance and Investment Co. Ltd. and Ors . (1987) 1 SCC 424
The following passage in the judgment elucidates the different significations of
"includes", depending on the context of the provision in issue and the legislative
intention of the relevant enactment read as a whole:
35. Much argument was advanced on the significance of the word 'includes' and what
an inclusive definition implies. Both sides relied on Dilworth's case. Both sides read out
the well known passage in that case where it was stated ,
The word "include" is very generally used in interpretation clauses in order to enlarge
the meaning of words or phrases occurring in the body of the statute; and when it is so
used these words or phrases must be construed as comprehending, not only such things
as they signify according to their natural import, but also those things which the
interpretation clause declares that they shall include. But the word "include" is
susceptible of another construction, which may become imperative, if the context of the
Act is sufficient to show that it was not merely employed for the purpose of adding to
the natural significance of the words or expressions defined. It may be equivalent to
"mean and include", and in that case it may afford an exhaustive explanation of the
meaning which, for the purposes of the Act, must invariably be attached to these words
or expressions.
Our attention was also invited to ArdeshirBhiwandiwala v. State of Bombay
MANU/SC/0236/1971; C.I.T. Andhra Pradesh v. TajMahal Hotel [1971] 82 ITR 44 (SC)
=2002-TIOL-642-SC-IT and S.K. Gupta v. K.P. Jain [1979] 4 SCC 54.
36. We do not think it necessary to launch into a discussion of either Dilworth's case or
any of the other cases cited. All that is necessary for us to say is this: Legislatures resort
to inclusive definitions (1) to enlarge the meaning of words or phrases so as to take in
the ordinary, popular and natural sense of the words and also the sense which the
statute wishes to attribute to it, (2) to include meanings about which there might be
some dispute, or, (3) to bring under one nomenclature all transactions possessing
certain similar features but going under different names. Depending on the context, in
the process of enlarging, the definition may even become exhaustive. We do not think
that by using the word 'includes' in the definition in Section 2(a) of the Act, the
Parliament intended to so expand the meaning of prize chit as to take in every scheme
involving subscribing and refunding of money. The word 'includes', the context shows,
was intended not to expand the meaning of 'prize chit' but to cover all transactions or
arrangements of the nature of prize chits but under different names .
(iv) In the context of Entry 62 of List II of the Seventh Schedule of the Constitution, the
Supreme Court in Godfrey Phillips India Ltd. and Anr. Vs. State of U.P. and Ors . (2005) 2
SCC 515 = 2005-TIOL-10-SC-LT-CB considered whether "includes" could in certain
contexts be a word of limitation. The Court explained:
69. It has also been held that the word 'includes' may in certain contexts be a word of
limitation (South Gujarat Roofing Tiles Manufacturers v. MANU/SC/0314/1976 State of
Gujarat): [1977) 1 SCR 878. In the context of Entry 62 of List II this would not mean that
the word 'luxuries' would be restricted to entertainments, amusements, betting and
gambling but would only emphasise the attribute which is common to the group. If
luxuries is understood as meaning something which is purely for enjoyment and beyond
the necessities of life, there can be no doubt that entertainments, amusements, betting
and gambling would come within such understanding. Additionally, entertainments,
amusements, betting and gambling are all activities. 'Luxuries' is also capable of
meaning an activity and has primarily and traditionally been defined as such. It is only
derivatively and recently used to connote an article of luxury. One can assume that the
coupling of these taxes under one entry was not fortuitous but because of these
common characteristics .
70. Where two or more words are susceptible of analogous meaning are clubbed
together, they are understood to be used in their cognate sense. They take, as it were,
their colour from and are qualified by each other, the meaning of the general word
being restricted to a sense analogous to that of the less general. As said in Maxwell on
the interpretation of Statues 12 thEdn. P.289.
"Words, and particularly general words, cannot be read in isolation; their colour and
their content are derived from their context, A-G v Prince Ernest Augustus of Hanover
(1957) AC 436, per Viscount Simonds, at 461."
71. Put in other words the included words may be clarificatory or illustrative of the
general word.
Thus in U.P. State v. MANU/SC/0273/1966: Raja Anand; [1967] 1 SCR 362, while
construing Article 31A (2) as enacted by the Constitution (Seventeenth Amendment) Act,
1964 the relevant excerpt of which read as:-
"31A(2) in this article-
(a) the expression 'estate' shall in relation to any local area, have the same meaning as
that expression or its local equivalent has in the existing law relating to land tenures in
force in that area and shall also include -
(i) xxx xxxxxx
(ii)xxx xxxxxx
(iii) any land held or let for purposes of agriculture or for purposes ancillary thereto,
including waste land, forest land, land for pasture or sites of buildings and other
structures occupied by cultivators of land, agriculture labourers and village artisans;
this Court said:-
"In our opinion the word "including" is intended to clarify or explain the concept of land
held or let for purposes ancillary to agriculture. The idea seems to be to remove any
doubt s on the point whether waste land or forest land could be held to be capable of
being held or let for purposes ancillary to agriculture".
72. In the present context the general meaning of 'luxury' has been explained or clarified
and must be understood in a sense analogous to that of the less general words such as
entertainments, amusements, gambling and betting, which are clubbed with it . This
principle of interpretation known as 'noscitur a sociis' has received approval in Rainbow
Steels Ltd. MANU/SC/0408/1981: CST [1981] 2 SCR 727.
(vi) In Karnataka Power Transmission Corpn. And Anr. Vs. Ashok Iron Works Pvt. Ltd .
(2009) 3 SCC 240 = 2009-TIOL-136-SC-MISC; the Court reiterated the principle that
interpretation of a word or expression must depend on the word and the context. The
resort to the word "includes" often indicates intention of the Legislature that it wanted
to give an expansive and enlarged meaning to such expression. Sometimes, however,
the context may suggest that the word "includes" may have been designed to mean
"means". The setting, context and object of an enactment would provide sufficient
guidance for interpretation of the word "includes" for the purposes of such enactment.
(vii) The above exposition of the meaning of the words "includes" i.e. that it could have
a restrictive connotation, was reiterated in CC, New Delhi vs. Caryaire Equipment India
Pvt. Ltd. 2012 (278) ELT 30 (SC) = 2012-TIOL-17-SC-CUS;
(v) From the guidance provided by the above precedents and in view of the fact that in
the commercial world and practice, in legal and technical Dictionaries, "EPC contracts"
are synonymously known and referred to as "turnkey contracts" as well, we conclude
that in clause (e) under Explanation (ii) of the definition of WCS, turnkey projects and
EPC projects are employed to signify similar, not dissimilar transactions, to indicate
contracts in which a builder agrees to execute the whole of the enterprise awarded to
him and if the agreement so provides from the stage of design and planning till
execution and completion of the whole work entrusted; and undertakes wide variety of
other responsibilities which may include design, engineering, procurement,
construction of the facility, conduct of performance tests and other associated activities
pre or post construction.
(w) Counsel for the appellants/ assessees further contended that in most of the
agreements in issue the work entrusted to each appellant was not the whole of the
canal or pipeline but only certain packages (segments) of a specified length or "reach".
On this basis it is contended, since the entirety of a canal or pipeline project is not
entrusted, the transaction does not amount to a "turnkey or EPC project". Counsel
further contended that unlike works contract services enumerated in clauses (b) and (c)
in the definition of WCS, clause (e) does not indicate that a part of a turnkey or EPC
project would also be taxable. The textual basis of this contention is not in dispute.
While clauses (b) and (c) enumerate certain types of WCS (specified therein) and enact
that the specified service or a part thereof would also amount to the taxable service,
this is however not the language in clause (e). Revenue does not, specifically address
this contention.
The above contention on behalf of assesses does not however, in our considered view,
exclude them per-se from the liability to service tax. Earlier in our analyses (on the
present issues), we concluded that clause (e) in the definition of WCS is not indicative
of a distinct works contract service but is an ex abundanticautela and descriptive
provision, intended to embrace genres of works contract which contain elements other
than those indicated in each of the clauses (a) to (d) and which may include elements of
other services as well, bundled into a comprehensive contractual exertion, agreed
between the parties to be executed. We have also ruled that even an EPC /turnkey
contract must be classified to identify the services embedded therein which gives the
contract its essential character; and on such ascertainment of the essential character,
the contract must be classified as falling within any of the enumerated works contract
services set out in clauses (a) to (d), by application of the principles set out in Section
65A(2)(a) and (b). Consequently, if an EPC/turnkey contract falls to be classified under
clause (b) or (c), it cannot be contended that since only a part of the whole or a larger
project is executed by a particular appellant, there is no liability to tax.
(x)
(i) Before recording our conclusions on these issues [Issues (B), (C) & (D)], we advert to
other contentions advanced by Shri V. Sreedharan. Counsel contends that the contracts
in issue are single, indivisible agreements whereby the transfer of property in goods
involved in the execution thereof does not pass to the employer as soon as goods are
brought to the site by the contractor. The transfer property in the goods takes place
only when these are incorporated into the construction and get transformed as
immovable property i.e. the property in the goods involved passes by accretion. In this
class of works contract there is neither a separate agreement for the sale of goods
involved in the execution of the works nor does the transfer of property in such goods
takes place prior to the construction. The transfer takes place only at the time of
construction by incorporation and as and when immovable property is constructed.
On the basis of this assertion, Counsel contends that the phraseology of Section
65(105)(zzzza) would apply only to
(i) a divisible works contract (where distinct and separate contracts are entered into),
whether in one or more instruments, one for the transfer of the goods qua goods, for
consideration and the other for rendition of services or work done; or
(ii) to an indivisible works contract with a material vesting clause (where no separate
agreement for the sale of material exists but there is a term in the composite
agreement that the title to the material or goods would pass to the employer as soon
as these are brought to the site by the contractor). Counsel contends in elaboration,
that the relevant provision of the Act does not employ the phrase "whether as goods or
in some other form" in Explanation (i) of the definition. This provision in the definition
of WCS reads:
"65(105)(zzzza) ........ Explanation (i): For the purposes of this clause "works contract"
means a contract wherein, transfer of property in goods involved in the execution of
such contract is leviable to tax as sale of goods .
According to Counsel since there is no transfer of property in goods qua goods but in
some other form i.e. by accretion or transformation as immovable property on
incorporation, such transactions are not intended to fall within the scope of WCS.
(ii) Revenue has not responded to this contention of ShriSreedharan, either in its oral or
written submissions. We are however of the view, for the analyses to follow, that this
contention does not merit acceptance.
(iii) Sub clause (b) of Article 366 (29A), inserted in the Constitution by the 46 th
Amendment authorises levy of tax on the sale or purchase of goods by expanding the
definition of "tax on the sale or purchase of goods", to include: (b) a tax on transfer on
property in goods (whether as goods or in some other form), involved in the execution of
a works contract .
(iv) What then is the position of a works contract involving accretion sale of goods as
regards sales tax; in the case of a composite contract where the title in the goods
passes to the employer on incorporation / accretion to the immovable property (i.e.
does not pass as soon as goods are brought to the site by the contractor but only on
incorporation / accretion), would such a transaction be exigible to sales tax?
(v) This question is no longer res-integra . It stands concluded by the decision in Larsen
& Toubro Limited vs State of Karnataka (2014) 1 SCC. 708.
(vi) One of the issues considered by the Supreme Court in the above decision was
whether an agreement for sale of a constructed building preceded by the construction
thereof is an agreement to transfer the immovable property as an indivisible whole, by
execution of a conveyance or whether there is in such a transaction a works contract as
well. The Court summarised the legal position (to the extent relevant for our purposes),
as under:
(i) For sustaining the levy of tax on the goods deemed to have been sold in execution of
a works contract, three conditions must be fulfilled: (one) there must be a works
contract, (two) the goods should have been involved in the execution of a works
contract and (three) the property in those goods must be transferred to a third party
either as goods or in some other form.
(ii) For the purposes of article 366 (29A)(b), in a building contract or any contract to do
construction, if the developer has received or is entitled to receive valuable
consideration, the above three things are fully met. It is so because in the performance
of a contract for construction of building, the goods (chattels) like cement, concrete,
steel, bricks, etc . , are intended to be incorporated in the structure and even though
they lost their identity as goods but this factor does not prevent them from being goods.
(ii) Where a contract comprise of both a works contract and a transfer of immovable
property, such contract does not denude it of its character as works contract. The term
"works contract" in article 366 (29A)(b) takes within its fold all genre of works contract
and is not restricted to one specie of contract to provide for labour and services alone.
Nothing in article 366 (29A)(b) limits the terms "works contract".
(vii) In view of the above ruling in Larsen & Toubro Limited, it is clear that even where
goods are procured by a contractor and incorporated into a construction whereupon
such goods get transformed into immovable property and the property in such goods
passes to the employer only thereafter, the bundling of goods and services into the
construction of a building / structure would nevertheless amount to a works contract
and be leviable to sales tax as such. If there could be no escape from the liability to
sales tax on such an activity the question is whether the liability to service tax is
excluded in the light of the definition of works contract in Explanation (i) of Section 65
(105)(zzzza).
(viii) In our considered view, works contract service, as we have noticed, is inter
alia defined to mean "a contract wherein transfer of property in goods involved in the
execution of such contract is leviable to tax as sale of goods". In drafting the definition
of WCS and in structuring the aforesaid definition the draftsman is seen to have
employed a shorthand incorporating the post 46 th amendment accretion of legislative
powers in Entry 54 of List II, expanding States power to levy sales tax on deemed/
accretion sale of goods as well. The mere omission of the phrase "whether as goods or
in some and other form" in the definition of WCS does not denude the provision of its
vitality to reach out to works contract (of the non material vesting clause variety) where
property or goods passes by accretion or incorporation into a construction. It is
axiomatic that even in works contract of the above category the transfer of property in
goods involved therein, is leviable to sales tax. This is what the definition of WCS clearly
enacts.
On the above analyses, contentions of ShirShreedharan do not commend acceptance.
We reject the same. We hold that even in works contract where the transfer of
property in goods involved in the construction of a building or civil structure passes by
accretion, the transaction is exigible to service tax under Section 65(105)(zzzza).
19. On the aforesaid analyses we hold [on issues (A), (B) & (C)] that construction of
canals under a dam for transmission of water or sewerage; or construction of pipelines
or conduits for conveyance of water for irrigation, domestic consumption or sewerage
disposal even where executed as turnkey/ EPC contracts; (i) would be classifiable under
clause (b), Explanation (ii) of Section 65(105) (zzzza); (ii) construction of canals,
pipelines or conduits for Government/ Government undertakings for augmentation of
irrigation, water supply or sewerage disposal would be for a non-commercial, non-
industrial purpose or user and thus excluded in view of the exclusionary clause in clause
(b) of WCS definition; and (iii) construction of canals, pipelines or conduits for
transmission of water including by lift irrigation would be, when these works are
conceived as integrated to a dam project, works contract "in respect of a dam" and
thereby excluded from the purview of WCS.
20. Issue (E) :
To recapitulate, the issue is, where the whole of the work is sub-contracted; and in the
hands of the main contractor there occurs no transfer of property in goods involved in
the execution of such work, to the principal employer, whether the transaction would
be works contract as defined in Section 65(105)(zzzza).
In State of A.P. and Others vs. Larsen & Toubro Ltd. and Ors . 2008 (17) VST 1 (SC) 2008-
TIOL-158-SC-VAT, the respondent - contractor entered into agreements for civil
constructions. The contracts authorised the contractor, with the consent of the
principal employer (contractee) to assign the work to sub-contractors. In terms of the
agreement, the contractor placed orders on sub-contractors and the overall work was
done by sub-contractors. The sub-contractors purchased goods and chattel like bricks,
cement and steel and erected the structures.
An assessment order was passed against the contractor for levy of sales tax in respect
of goods deemed to have been sold by it to the contractee. The adjudicating authority
concluded that there were two deemed sales, one from the assessee (contractor) to
the principal employer (contractee) and the other from the sub-contractor to the
assessee, in the event of the principal employer not having any privity of contract with
the sub-contractor. The Supreme Court analysed the position obtaining consequent on
the 46th Amendment and insertion of Article 366 (29A) (b), the several precedents
governing the field; and explained the position as follows:
In this case we are concerned with the Andhra Pradesh Value Added Tax Act, 2005.
Section 4 is the charging section. It comes in Chapter III which deals with "incidence, levy
and calculation of tax". In this case, we are concerned with the taxability of works
contract. That subject is dealt with by section 4(7) of the said 2005 Act. In our view,
section 4(7) is a code by itself. It begins with a non obstante clause. It, inter alia, states
that every dealer executing a works contract shall pay tax o the value of goods at the
time of incorporation of such goods in the works executed at the rates applicable to the
goods under the Act. The point to be noted is that section 4(7)(a) of the 2005 Act
indicates that the taxable event is the transfer of property in goods involved in such
goods takes place when the goods are incorporated in the works, the value of the goods
which constitutes the measure for the levy of the tax is the value of the goods at the
time of the incorporation of the goods in the works. What is stated hereinabove also
finds place in Rule 17(1)(a) of the APVAT Rules, 2005, quoted hereinabove. It is
important to note that each of the sub- contractors of L & T is registered dealer. None of
them are unregistered. Under section 4(7)(a) read with rule 17(1)(c), quoted above,
where a VAT dealer awards any part of the contract to a sub-contractor, such sub-
contractor shall issue a tax invoice to the contractor for the value of the goods at the
time of incorporation in such sub-contract. The tax charged in the tax invoice issued by
the sub-contractor shall be accounted by him in his returns. Therefore, the scheme
indicates that there is a "deemed sale" by the dealer executing the work i.e., the sub-
contractor. It is only the sub-contractor who effects transfer of property in goods as
no goods vest in the respondent-company (contractor) so as to be subject-matter of a
retransfer. By virtue of article 366(29A)(b) of the Constitution once the work is
assigned by the contractor (L&T), the only transfer of property in goods is by the sub-
contractor(s) who is a registered dealer in this case and who claims to have paid taxes
under the Act on the goods involved in the execution of the works. Once the work is
assigned by L & T to its sub-contractor(s)., L & T ceases to execute the works contract
in the sense contemplated by article 366 (29A)(b) because property passes by
accretion there is no property in goods with the contractor which is capable of a
retransfer, whether as goods or in some other form.
The question which is raised before us is whether the turnover of the sub-contractors
(whose names are also given in the original writ petition) is to be added to the turnover
of L & T. In other words, the question which we are required to answer is whether the
goods employed by the sub-contractors occur in the form of a single deemed sale or
multiple deemed sales. In our view, the principle of law in this regard is clarified by this
court in the case of Builders Association of India [1989] 73 STC 370 as under (at page
400):
"Ordinarily unless there is a contract to the contrary in the case of works contract the
property in the goods used in the construction of a building passes to the owner of the
land on which the building is constructed, when the goods used are incorporated in the
building".
(emphasis supplied by us)
As stated above, according the Department, there are two deemed sales, one from the
main contractor to the contractee and the other from sub-contractor(s) to the main
contractor, in the event of the contractee not having any privity of contract with the
sub-contractor(s).
If one keeps in mind the above quoted observation of this court in the case of Builders
Association of India [1989] 73 STC 370 the position becomes clear, namely, that even if
there is no privity of contract between the contractee and the sub-contractor, that
would not do away the principle of transfer of property by the sub-contractor by
employing the same on the property belonging to the contractee. This reasoning is
based on the principle of accretion of property in goods. It is subject to the contract to
the contrary. Thus, in our view, in such a case the work executed by a sub-contractor,
results in a single transaction and not multiple transactions. This reasoning is also
borne out by section 4(7) which refers to value of goods at the time of incorporation in
the works executed. In our view, if the argument of the Department is to be accepted
it would result in plurality of deemed sales which would be contrary to Article 366
(29)(b) of the Constitution as held by the impugned judgment of the High Court.
Moreover, it may result in double taxation which may make the sale 2005 Act
vulnerable to challenge as violative of articles 14, 19(1)(g) and 265 of the Constitution
of India as held by the High Court in its impugned judgment .
(emphasis added)
The above authoritative ruling concludes the issue. Even where an appellant had
entered into a turnkey/ EPC project agreement or other works contract but had sub-
contracted the whole or part of the works awarded (under terms of the agreement
which authorised such sub-contracting); and the incorporation of goods into the
construction/ structures was by the sub-contractor and not by an appellant, there is no
rendition of WCS by such appellant, which is taxable under Section 65(105)(zzzza). In
Table (A) in para 10 (supra) we have set out particulars of appeals where (according to
appellants) the works was assigned wholly to sub-contractors and there was no
rendition of works contract by these appellants. In Table (C) in para 12 (supra) we have
set out appeals wherein (according to appellants), part of the works entrusted to them
were sub-contracted. Since we are not disposing of the appeals on merits, we avoid an
analyses and determination of whether in fact the whole of the works in table (A) or
part of the works in Table (C) were sub-contracted by the appellants concerned. This
fact must be determined on an analyses of the relevant facts on record in each of the
relevant appeals by the appropriate Bench dealing with them on merits.
On issue (E) we conclude, on the basis of the judgment in Larsen and Toubro Ltd. (SC-
2008) that where under an agreement (whether termed as a works contract, turnkey or
EPC project contract), the principal contractor, in terms of the agreement with the
employer/ contractee assigns the works to a sub-contractor and the transfer of
property in goods involved in the execution of such contract passes from the sub
contractor by accretion to or incorporation into the works, the principal contractor
cannot be considered as having provided the taxable (works contract) service,
enumerated and defined in Section 65 (105)(zzzza) of the Act.
21. In the light of the foregoing analyses, we record our conclusions on the several
issues framed, as follows:
(a) Issue (A): Laying of pipelines/ conduits for lift irrigation systems for transmission of
water or for sewerage disposal, undertaken for Government/ Government
undertakings and involving associated activities like trenching, soil preparation and
filling, supporting masonry work, jointing of pipes, electro-mechanical works or
pumping stations and like activity, is classifiable only under Commercial or Industrial
Construction Service (CICS) for the period upto 01.06.2007 and not under Erection,
Commissioning or Installation Service (ECIS);
(b) Issues (B); (C) and (D) :
(i) Construction of canals for irrigation or water supply; construction or laying of
pipelines/ conduits for lift irrigation conceived and integrated into a dam project, must
be classified as works contract "in respect of dam" and is thus excluded from the scope
of "Works Contract Service" defined in Section 65(105)(zzzza) of the Act, in view of the
exclusionary clause in the provision;
(ii) Turnkey/ EPC project contracts, enumerated in clause (e), Explanation (ii) in Section
65(105)(zzzza) of the Act is a descriptive and ex abundant cautela drafting
methodology. In the light of the decision in Alstom Projects India Ltd ., fortified by the
Special Bench decision (dated 19.03.2015) in Larsen & Toubro Ltd. reference, a turnkey/
EPC contract is taxable prior to 01.06.2007 as well. On and since 01.06.2007, turnkey/
EPC contracts must be classified on the basis of the essential character of the service
provided thereby, with the aid of classification guidelines set out in Section 65A(2) of
the Act. Consequently, a turnkey/ EPC contract must be classified under any of the
clauses (a) to (d), Explanation (ii), Section 65(105)(zzzza). The bundled bouquet of
services provided as turnkey/ EPC contract, classifiable as Commercial or Industrial
Construction Service (CICS) prior to 01.06.2007, would be classifiable under clause (b),
Explanation (ii), Section 65(105)(zzzza) on and from 01.06.2007 and would not be
exigible to service tax if the rendition of service thereby is primarily for non-
commercial, non industrial purpose, in view of the exclusionary clause in clause (b) of
the definition of WCS.
This is the only possible and harmonious interpretation possible of the several clauses
under Explanation (ii) of Section 65 (105)(zzzza), a distinct taxable service defined with
constituent elements thereof substantially drawn from elements of pre-existing taxable
services like ECIS, CICS or COCS; and other services when bundled to amount to
turnkey/ EPC;
(iii) Construction of canals/ pipelines/ conduits to support irrigation, water supply or for
sewerage disposal, when provided to Government/ Government undertakings would
be for non-commercial, non-industrial purposes, even when executed under turnkey/
EPC contractual mode and would fall within the ambit of clause (b), Explanation (ii) of
Section 65(105)(zzzza); and would consequently not be exigible to service tax, in view of
the exclusion enacted in clause (b); and
(c) Issue (E): Where under an agreement, whether termed as works contract, turnkey
or EPC, the principal contractor, in terms of the agreement with the employer/
contractee, assigns the works to a sub-contractor and the transfer of property in goods
involved in the execution of such works passes on accretion to or incorporation into the
works on the property belonging to the employer/ contractee, the principal contractor
cannot be considered to have provided the taxable (works contract) service
enumerated and defined in Section 65(105)(zzzza) of the Act.
22 . We record our appreciation and gratitude to the several learned Counsel and
learned ARs who assisted us with their painstaking presentation of the several shades
of possible interpretations of the relevant provisions considered herein. We remit all
the appeals to be disposed of on merits by the appropriate Bench, in accordance with
law and in conformity with conclusions recorded on the five issues framed and
determined herein.
(Pronounced on 28.04.2015 at Principal Bench, New Delhi.)