Public utility water supply construction not taxable as commercial service; service tax demand and penalty were set aside.

Construction of RCC overhead water storage tanks and sewer-related work for government and civic authorities, used for public drinking water supply, was treated as a public utility activity rather than work primarily for commerce or industry. Relying on earlier Tribunal decisions and the setting aside of similar subsequent proceedings, the service tax demand was found unsustainable and was set aside. Because the tax demand failed, the associated penalty also could not survive and was set aside.

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Issues: Whether the demand of service tax on construction of water storage tanks and related work for public drinking water supply was sustainable, and whether the associated penalty could be upheld.

Analysis: The contracts were for construction of RCC overhead water storage tanks and sewer-related work for government and civic authorities, for distribution of drinking water to the public. The activity was treated as one serving a public utility and not as work primarily for commerce or industry. In view of the earlier Tribunal decisions relied upon, and the fact that similar subsequent proceedings had already been set aside in favour of the assessee, the demand was held to be unsustainable. Once the tax demand failed, the penalty could not survive.

Conclusion: The demand of service tax was set aside and the penalty was also set aside, in favour of the assessee.

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