Tribunal Rules Toll Collection for Road Construction Not Subject to Service Tax

The Tribunal held that the service tax demand on toll collection for road construction under Business Auxiliary Service was not sustainable. The judgment clarified that toll collection for road construction activities, specifically under a Public Private Partnership model by a Special Purpose Vehicle, does not attract service tax liability. The decision emphasized the exclusion of road construction activities from service tax purview and the necessity to align tax assessments with the government's intent to exempt such activities from service tax. The impugned order was set aside, and the appeal was allowed solely on this issue.

---

---

Issues:
Service tax liability on toll collection for road construction under "Business Auxiliary Service."

Analysis:
The judgment involves an appeal against an order demanding service tax on toll collection by a construction company engaged in widening highways. The company was authorized to collect tolls from road users by the Public Works Department. The tax authority issued a show-cause notice demanding service tax on the toll collection. The appellant argued that a circular clarified that toll collection under a Build-Own/Operate-Transfer basis does not attract service tax liability. The Board's circular stated that tolls collected under a Public Private Partnership model by a Special Purpose Vehicle are on the SPV's own account and not on behalf of the land provider. The circular also specified that if an SPV engages a third party to collect tolls, service tax liability arises on the commission. The Tribunal noted that road construction activities are excluded from service tax under various categories and that the intention is to keep such activities out of the tax purview. Consequently, the Tribunal held that the service tax demand on toll collection for road construction under Business Auxiliary Service was not sustainable. The impugned order was set aside, and the appeal was allowed without delving into other issues raised.

This judgment clarifies the tax liability concerning toll collection for road construction activities under the Business Auxiliary Service category. It emphasizes the significance of the Board's circular in determining service tax applicability based on the nature of toll collection arrangements. The Tribunal's analysis highlights the exclusion of road construction activities from service tax purview and the inconsistency in levying service tax on such activities under Business Auxiliary Service. The decision underscores the importance of aligning tax assessments with the government's intent to exempt road construction from service tax, as reflected in budgetary provisions and circulars issued by the tax authorities.

---