Construction of Reservoir: Service Tax Liability & Works Contract Classification

The Tribunal determined that the construction of a reservoir qualifies as 'commercial or industrial construction services' for Service Tax liability and classified the contract as a 'works contract' under the Service Tax net from 1-6-2007. The Tribunal referred to the decision in Diebold Systems case and granted a waiver of pre-deposit for the Service Tax/interest/penalties until the appeal's disposal, scheduling a final hearing for 4th February 2009 due to the significant amount at stake.

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Issues involved: Determination of whether the construction of a reservoir qualifies as 'commercial or industrial construction services' for the purpose of Service Tax liability and the applicability of 'works contract' under the Service Tax net.

Issue 1: Construction of reservoir as 'commercial or industrial construction services'

The appellant, awarded a work contract by NTPC for reservoir construction, argued that the activity does not amount to 'commercial or industrial construction services' as claimed by the revenue. The appellant contended that the reservoir, similar to a dam, is exempt from the said service. The appellant highlighted that the contract is a 'works contract' and should be liable for Service Tax only from 1-6-2007. Citing the decision of the Chennai Bench in Diebold Systems (P) Ltd. v. CST, Chennai, the appellant emphasized that new services cannot be retroactively charged under a different service category for an earlier period.

Issue 2: Classification of the contract as a 'works contract'

Upon careful consideration, the Tribunal found that the contract between the appellant and the service receiver is indeed a 'works contract' based on the terms outlined in Para 5.1 of the contract. The Tribunal noted that the contract falls under the Service Tax net from 1-6-2007. Considering the Chennai Bench decision in Diebold Systems case, the Tribunal leaned towards waiving the pre-deposit of the entire amount of Service Tax/interest/penalties until the appeal's disposal. Acknowledging the substantial amount involved, an early hearing was granted with a scheduled final hearing on 4th February 2009.

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