2025 (7) TMI 1714 - AT - Service Tax

Urgent Repairs to Municipal Pumping Mains Classified as Non-Taxable MMRS Under Service Tax Rules

M/s Chaitanya Constructions Versus Commissioner of Central Excise & Service Tax, Visakhapatnam - I

The CESTAT Hyderabad held that services rendered for urgent repairs to municipal pumping mains fall under management, maintenance, and repair services ... Classification of services - works contract services or not - services rendered by the assessees to Municipal Corporation VSP viz., Urgent repairs to 500 mm dia GRP pumping main (HLR) at Opp Sita towers and Balaji Harmonium Apartment in Factories layout - classifiable under manamgement, maintenance and repair services or not - Construction of water distribution system irrespective of whether it has been provided as contractor or as sub-contractor - Demand of service tax on services provided to APIIC, in their capacity as SEZ developer - Demand on construction of water supply facilities at the industrial growth center for APIIC - Services rendered to Military Engineering Services (MES). Services rendered by the assessees to Municipal Corporation VSP viz., ‘Urgent repairs to 500 mm dia GRP pumping main (HLR) at Opp Sita towers and Balaji Harmonium Apartment in Factories layout’, are classifiable under MMRS as defined under section 65(105)(zzq) of the Finance Act, 1994 - HELD THAT:- As far as the issue of laying of pipelines and shifting of pipelines in respect of GVMC and Graphite India Ltd are concerned, the adjudicating authority has held that these were primarily used for commerce. However, this is not relevant as these works are in the nature of Erection, Commissioning or Installation Services (ECIS) and not construction services, whereas, these services are held to be covered under construction service and not under ECIS. Reliance has been placed on the judgment of Larger Bench in the case of Lanco Infratech Ltd Vs CCE & ST, Hyderabad [2015 (5) TMI 37 - CESTAT BANGALORE (LB)]. Moreover, it has also been held by the Coordinate Benches that laying of pipeline for municipalities and drinking water facility are not leviable to service tax. Construction of water distribution system irrespective of whether it has been provided as contractor or as sub-contractor - HELD THAT:- The activities of construction of water distribution system irrespective of whether it has been provided as contractor or as sub-contractor is in the nature of construction services and are not taxable as such constructions are for government department or municipalities and are in relation to drinking water supply. Demand of service tax on services provided to APIIC, in their capacity as SEZ developer - HELD THAT:- The services provided to SEZ are exempted by virtue of section 26(1)(e) of SEZ Act, 2005 read with Rule 31 of SEZ Rules, 2006 and Notification No.09/2009-ST till 28.02.2011 and under Notification No.17/2011-ST from 01.03.2011. It is also noted that in this case, Office of Development Commissioner has issued certificate certifying the fact that appellants are appointed as contractor by the Developer and that the execution of the work is for the authorized operations and hence exemptions can be extended. Therefore, it is obvious that the subject services were provided to SEZ developer and that the said services were required for authorized operations of SEZ unit. Therefore, even if there is deviation in following prescribed procedure for claiming exemption, the same cannot be a ground for demanding duty in view of provisions under section 26(1)(e) of SEZ Act. Demand on construction of water supply facilities at the industrial growth center for APIIC - HELD THAT:- The demand on construction of water supply facilities at the industrial growth center for APIIC, is also not tenable as APIIC is a public authority and their primary objective is promotion of industries and not to engage in commerce. Services rendered to Military Engineering Services (MES) - HELD THAT:- It is noted that it was in relation to Sainik School run by them and such building cannot be used for commerce and hence repairs of such building are beyond the scope of service tax. It is found that as per the definition of WCS, construction services in relation to properties, not primarily for commerce, are beyond the scope of levy of service tax and even repair services in relation to non-commercial government building are kept outside the scope of levy for the period 16.06.2005 to 30.06.2012. The demand confirmed by the adjudicating authority is not proper and legal and cannot be sustained and accordingly, the impugned order is set aside - Appeal allowed. ISSUES: Whether the services rendered are classifiable under Works Contract Service (WCS) as defined under section 65(105)(zzzza) of the Finance Act, 1994, and whether service tax is payable under WCS for the period in question.Whether certain repair services rendered to a Municipal Corporation are classifiable under Management, Maintenance or Repair Service (MMRS) as defined under section 65(105)(zzq) of the Finance Act, 1994, and whether service tax is payable under MMRS.Whether penalty is imposable under sections 76 and 77 of the Finance Act, 1994, for failure to pay service tax by due dates and for non-filing of returns.Whether construction and repair works related to government departments, municipalities, SEZ developers, and public authorities fall within the scope of taxable services under the Finance Act or are exempt. RULINGS / HOLDINGS: Services involving laying, shifting, and maintenance of pipelines and related works for municipalities and government departments are not leviable to service tax as Works Contract Service, as these works are in the nature of Erection, Commissioning or Installation Services (ECIS) or relate to non-commercial government properties and thus fall outside the scope of WCS under section 65(105)(zzzza).Repair services rendered to municipal authorities classified as MMRS are not taxable where the properties are immovable and used for non-commercial purposes, and the demand for service tax under MMRS is unsustainable.Services provided to SEZ developers are exempt under section 26(1)(e) of the SEZ Act, 2005 read with Rule 31 of SEZ Rules, 2006 and relevant Notifications, and such exemption cannot be denied due to procedural deviations.Construction of water supply facilities for public authorities engaged in promotion of industries is not taxable as these are not primarily commercial activities, and thus service tax demand is not tenable.Penalty under sections 76 and 77 for non-payment of service tax and non-filing of returns is not sustainable where the underlying service tax demand itself is set aside. RATIONALE: The Court applied the definitions and scope of Works Contract Service under section 65(105)(zzzza) and Management, Maintenance or Repair Service under section 65(105)(zzq) of the Finance Act, 1994, along with relevant exemption provisions under the SEZ Act, 2005 and associated Rules and Notifications.Reliance was placed on precedents including the Larger Bench decision in Lanco Infratech Ltd Vs CCE & ST, Hyderabad, which clarified the distinction between construction services and erection, commissioning or installation services, and on coordinate bench rulings holding that laying of pipelines for municipalities and drinking water facilities are not leviable to service tax.The Court recognized that construction or repair of immovable properties not primarily used for commerce or industry falls outside the taxable ambit of service tax under WCS and MMRS during the relevant period.The exemption provisions under the SEZ Act and Rules were interpreted strictly to protect the entitlement of contractors providing services to SEZ developers for authorized operations, even if procedural formalities were imperfectly followed.No dissent or doctrinal shift was noted; the decision aligns with established principles and prior judicial interpretations concerning the scope of taxable services and exemptions under the Finance Act and SEZ legislation.