2015 (3) TMI 303 - AT - Service Tax

Border Outposts (BOP) construction not taxable under 'Erection Services' - Tribunal ruling.

The tribunal allowed the appeals, determining that the construction activities for Border Outposts (BOP), including border fencing, do not classify under ... Erection, commissioning or installation service - activity of construction of border-fencing with road along Indo-Bangladesh Border - there are two categories, namely (i) the Executive Agencies; and (ii) the contractors who had carried out the work - Held that:- Revenue has vehemently argued that after insertion of the expression, structure whether pre-fabricated or otherwise , the scope and scheme of levy of service tax under the category of Erection, Commissioning or Installation Service , has undergone a total change. In other words, his argument is that, even though the word structure is also mentioned in the definition of Commercial or Industrial construction service , but when erected, would fall under the scope of Erection, Commissioning or Installation Service after 01.05.2006, the effective date from which the expression structure-pre-fabricated or otherwise has been inserted. This argument, in our opinion, at the first blush though sounds attractive, but is devoid of merit when read with the object behind insertion of the word erection to the definition of Commissioning or Installation. It would be incorrect to interpret that after addition of the expression, structure-pre-fabricated or otherwise to the existing list of objects of levy of plant, machinery or equipment, it brought significant change in the said entry so as to result an interpretation that activity of erection of structure standing alone, would be leviable to service tax. On the contrary, the purpose for which the word erection was inserted continued to be the same as was applicable to plant, machinery or equipment even after addition of the expression structure-pre-fabricated or otherwise. Validity and enforceability of circular - Circular No 80/10/204-ST dated 17.09.2004 and 123/5/2010-TRU dt.24.05.2010 - Held that:- the circulars issued by the Board explaining/clarifying the meaning of Erection, Commissioning or Installation Service, cannot be ignored, while interpreting the same and applying it to the facts and circumstances of the present case - Decision in the case of Paper Products Ltd. Vs. Commissioner of Central Excise, [1999 (8) TMI 70 - SUPREME COURT OF INDIA] followed. - The Decision precludes the right of the Department to file an appeal against the correctness of the binding nature of the Circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the Circular which is in force at the relevant point of time. The activity/service of erection of border fencing-structure standing alone would not be subjected to service tax under clause (39a) of Sec.65, but ought to be along with the activity of commissioning or installation, in a composite contract, and no such finding is recorded in the impugned order that other activities of commissioning or installations are involved in the present Appeals, therefore, the other alternative arguments including the issue of limitation, raised by the Appellants become academic, hence, not delved into. - Demand set aside - Decided in favor of assessee. Issues Involved:1. Classification of services under 'Erection, Commissioning or Installation Services.'2. Interpretation of the term 'structure' within the context of service tax.3. Applicability of service tax on construction activities for Border Outposts (BOP).4. Invocation of extended period of limitation and imposition of penalties.5. Relevance and binding nature of CBEC circulars on service tax interpretation.6. Distinction between commercial and non-commercial construction services.Issue-wise Detailed Analysis:1. Classification of Services under 'Erection, Commissioning or Installation Services':The appeals challenge the classification of activities related to the construction of Border Outposts (BOP) under 'Erection, Commissioning or Installation Services' as defined under Section 65(39a) read with Section 65(105)(zzd) of the Finance Act, 1994. The appellants argue that their activities do not fall under this category, as they primarily involve civil construction rather than the erection, commissioning, or installation of plant, machinery, equipment, or structures. They contend that the term 'erection' should be read in conjunction with 'commissioning' and 'installation' and not as a standalone activity.2. Interpretation of the Term 'Structure' within the Context of Service Tax:The appellants argue that the term 'structure' in the context of 'Erection, Commissioning or Installation Services' should not include border fencing. They refer to various dictionary definitions and legal principles, such as 'ejusdem generis,' to support their claim that 'structure' should be interpreted in the context of plant, machinery, and equipment, and not civil structures like border fencing. The tribunal agrees with this interpretation, noting that the term 'structure' should be read in the context of the words it accompanies, and that border fencing does not fit within this context.3. Applicability of Service Tax on Construction Activities for Border Outposts (BOP):The tribunal examines whether the construction activities for BOPs, including border fencing, fall under the taxable category of 'Erection, Commissioning or Installation Services.' It concludes that these activities are primarily civil construction and should be classified under 'Commercial or Industrial Construction Services' as defined under Section 65(25b) read with Section 65(105)(zzq) of the Finance Act, 1994. Since the services rendered are non-commercial in nature, they are excluded from the scope of taxable commercial or industrial construction services.4. Invocation of Extended Period of Limitation and Imposition of Penalties:The appellants argue against the invocation of the extended period of limitation and the imposition of penalties, citing that they are public sector undertakings with no intent to evade tax. They also refer to clarifications from the Ministry of Home Affairs and the Department of Border Management, which indicate that the activities were part of a centrally sponsored scheme and not subject to service tax. The tribunal finds merit in these arguments, noting that the appellants' activities were non-commercial and part of government projects, thus not warranting the invocation of the extended period or penalties.5. Relevance and Binding Nature of CBEC Circulars on Service Tax Interpretation:The appellants rely on CBEC circulars (No. 80/10/2004-ST dated 17.09.2004 and No. 123/5/2010-TRU dated 24.05.2010) to argue that their activities do not fall under 'Erection, Commissioning or Installation Services.' The tribunal acknowledges the binding nature of these circulars on the department and uses them to interpret the scope of the taxable service. It concludes that the circulars support the appellants' position that their activities are not taxable under the disputed category.6. Distinction between Commercial and Non-Commercial Construction Services:The tribunal emphasizes the distinction between commercial and non-commercial construction services, noting that the appellants' activities were for national interest and not for commercial purposes. It refers to judgments and circulars that clarify the non-taxability of non-commercial construction services. The tribunal concludes that the appellants' activities, being non-commercial, are not subject to service tax under the disputed category.Conclusion:The tribunal sets aside the impugned orders and allows the appeals, concluding that the activities related to the construction of BOPs, including border fencing, do not fall under the taxable category of 'Erection, Commissioning or Installation Services' and are not subject to service tax. The tribunal also finds that the extended period of limitation and penalties are not applicable in this case.