Waiver granted for service tax, interest, and penalty in Works Contract Service case

The Tribunal granted the waiver of pre-deposit of service tax, interest, and penalty in a case involving Works Contract Service for laying pipelines for a water supply project. The Tribunal found that the service was not executed for public benefit but for commercial consideration based on the contract terms with the non-commercial organization. Recovery was stayed during the appeal's pendency.

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Issues:
Waiver of pre-deposit of service tax on Works Contract Service for laying pipelines for water supply project.

Analysis:
The applicant sought waiver of pre-deposit of service tax amounting to Rs.3,13,552/- along with interest and penalty related to a Works Contract Service involving supply and laying of pipelines for a water supply project awarded by Tamil Water Supply and Drainage Board (TWAD) for the period from 1.11.2007 to 31.3.2009. The dispute arose as the tax was demanded under Works Contract Service without specifying the clause under which the activity is taxable. The Commissioner (Appeals) classified it under sub-clause (zzzza) of clause (105) of Section 65 of the Finance Act, 1994 and Explanation (ii) (b) based on the terms of the contract. The applicant, a private commercial organization, undertook the project on a profit motive basis, not free of cost to the public. The Revenue argued that the service was not executed for public benefit but for commercial consideration as per the contract terms with TWAD.

The Tribunal noted that in a previous case involving the same applicant, the Revenue had sought to classify the service under Erection, Commissioning, or Installation Service under section 65 (39a) of the Finance Act, 1994, which was set aside by the Tribunal. The Tribunal observed that the laying of pipelines for the water supply project of TWAD Board, a non-commercial organization, was not for commercial purposes. Therefore, the Tribunal found prima facie that the pre-deposit of tax, interest, and penalty should be waived, and recovery stayed during the pendency of the appeal. Consequently, the stay application was allowed, and the recovery was stayed.

In conclusion, the Tribunal granted the waiver of pre-deposit of service tax along with interest and penalty in the case of Works Contract Service for laying pipelines for a water supply project, considering the nature of the project and the commercial motive of the applicant.

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