Railway line modification work qualifies as Original Work under exemption notification 25/2012-ST, service tax demands rejected

CESTAT Kolkata allowed the assessee's appeal and rejected the Department's appeal regarding service tax demands totaling Rs. 3,99,33,158. The tribunal held that modification/renovation work of existing railway lines qualifies as "Original Work" under exemption notification 25/2012-ST, covering both new railway construction and alterations to abandoned/damaged structures. The demand of Rs. 3,27,841 for transportation and dumping of ash silo was set aside as this activity forms part of the production process, not a service activity. The tribunal upheld the adjudicating authority's decision to drop demands related to free issue materials and confirmed 60% abatement for supplementary work orders.

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Issues Involved:

1. Confirmation of demand of Rs. 3,99,33,158/-.
2. Dropping of demand of Rs. 1,68,64,976/-.
3. Demand of Service Tax of Rs. 3,27,841/-.

Summary:

Issue 1: Confirmation of demand of Rs. 3,99,33,158/-

The assessee argued that the service tax of Rs. 3,96,05,317/- related to Works Contract Services for 'Railways' is exempted u/s Notification No. 25/2012-ST dated 20.06.2012. The Tribunal observed that services for laying railway lines are exempted under this notification, including those for private companies, as per Mahendra Kumar Anchalia v Commissioner of CGST&CX, Kolkata. The Revenue contended that only 'Original Work' qualifies for exemption, but the Tribunal held that renovation and modification also fall under 'Original Work' as per Explanation 1 to Rule 2A(ii) of the Service Tax Determination of Value Rules 2006. Thus, the demand of Rs. 3,96,05,317/- was set aside.

Issue 2: Dropping of demand of Rs. 1,68,64,976/-

The dropped demand of Rs. 1,32,99,117/- was related to the addition of free issue materials in the assessable value, which the adjudicating authority dropped based on the Supreme Court's decision in Commissioner of Service Tax vs Bhayana Builders Pvt. Ltd. The remaining Rs. 35,65,859/- was dropped as the work orders were supplementary to earlier ones, qualifying for 60% abatement under Rule 2A(ii) of Service Tax Determination of Value Rules 2006. The Tribunal upheld the dropping of the entire demand.

Issue 3: Demand of Service Tax of Rs. 3,27,841/-

This demand related to the work order for 'Transportation and Dumping of Ash Silo to Specified Areas Inside the Plant.' The Tribunal, referencing Marshall Corporation Ltd. v Commissioner of C.G.S.T. and C.Ex., Kolkata, held this activity as part of the production process and not a 'service activity,' thus not liable for service tax. The collected service tax of Rs. 1,78,980/- was deposited and indicated in the return. The Tribunal set aside the demand of Rs. 3,27,841/-.

Order:

(i) The demand of service tax of Rs. 3,99,33,158/- is set aside.
(ii) Dropping of the demand of Rs. 1,68,64,976/- is upheld.
(iii) The appeal filed by the assessee is allowed, and the appeal filed by the Department is rejected.

(Order pronounced in the open court on 10.05.2024)

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