Pipe laying services for government water scheme exempt from service tax as non-commercial activity

The CESTAT Ahmedabad dismissed the Revenue's appeal regarding service tax levy on pipe laying services provided to Government of Gujarat under Sujalam Sufalam Yojana. The tribunal held that since the services were not provided for commercial purposes, service tax was not applicable. Following the precedent in Larsen Toubro Ltd. case involving similar pipe laying activities for Gujarat Water Supply and Sewerage Board, where service tax demand was set aside, the tribunal found the facts identical and applied the same ratio. The original order was upheld and the service tax demand was deemed unsustainable.

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Issues Involved:
1. Liability to pay service tax on services of laying pipes provided to the Government of Gujarat under 'Sujalam Sufalam Yojana'.
2. Applicability of the Larsen & Toubro Ltd. judgment and its binding effect.
3. Determination of whether the pipeline constructed is used primarily for commerce or industry.
4. Invocation of the extended period for service tax and imposition of penalties.

Summary:

1. Liability to Pay Service Tax:
The core issue was whether the appellant was liable to pay service tax on the services of laying pipes for the Government of Gujarat under the 'Sujalam Sufalam Yojana'. The Revenue argued that the services of laying pipelines, erection, commissioning, and installation do not exclude non-commercial activities and thus should be taxable.

2. Applicability of Larsen & Toubro Ltd. Judgment:
The respondent argued that the issue was already covered by the Tribunal's decision in Larsen & Toubro Ltd. Vs. CST, 2011 (22) STR 459 (1), which the Revenue had appealed against but without a stay from the High Court. The Tribunal held that unless there is a stay, its decisions are binding on the department, as established by the Supreme Court in Union of India V. Kamlakshi Finance Corporation Ltd.- AIR 1992 SC 711.

3. Determination of Use for Commerce or Industry:
The Tribunal examined whether the pipeline constructed was used primarily for commerce or industry. It was determined that the purpose of the pipeline was to supply water to the needy citizens of the state, not for commercial sale. The Tribunal referenced the Nagarjuna Construction Co. Ltd. case, which held that laying pipelines for water supply projects is not a commercial activity.

4. Invocation of Extended Period and Penalties:
Given that the appeal was allowed on merit, the Tribunal did not find it necessary to discuss the applicability of the extended period for service tax or the imposition of penalties. The Tribunal also did not consider other issues raised or decisions cited.

Conclusion:
The Tribunal upheld the impugned order, finding that the demand for service tax was not sustainable. The appeal by the Revenue was dismissed, following the precedent set by the Larsen & Toubro Ltd. decision and other related judgments. The Tribunal pronounced the judgment in open court on 18.03.2024.

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