2025 (9) TMI 1274 - AT - Service Tax

Appellant's track laying and renewal contracts held 'original works' under Notification No.25/2012-ST; tax demand, interest, penalties set aside

M/s. Ashok Kumar Madhyani Versus Commissioner of C.G.S.T. and Central Excise, Siliguri

CESTAT-Kol allowed the appeal, holding the appellant's work-contracts for laying and renewal of railway tracks are 'original works' under the Service Tax ... Classification of service - services rendered by the appellant in laying and renewal of railway tracks and ancillary works - works contract service or not - original works within the meaning of the Service Tax law and N/N. 25/2012-ST dated 20.06.2012 - denial of exemption benefit solely on the ground that the services rendered by them cannot considered as 'Original Works' - demand alongwith interest and penalty - HELD THAT:- It is observed that the ld. adjudicating authority has not considered the 'work contract service' rendered by the appellant as 'Original Works', as stated by the appellant. The eligibility of the exemption provided under the Notification No. 25/2012 dated 20.06.2012 has to be determined on the basis of the 'work order' and not on the basis of Railway Board’s clarification. Whether the works rendered by the appellant are 'original works' or not is to be examined as per the definition of 'original work' as laid down under the Service Tax law. It is found that while denying the benefit of the said notification, the ld. adjudicating authority has not given any specific finding as to why the services rendered by them as per the work orders would not be covered under the definition of 'original work' under the Service Tax law. The ld. adjudicating authority merely rejected the exemption benefit on the basis of reliance on the Railway’s clarification, without examining the statutory definition of 'Original work' as provided under the Service Tax provisions. It is a settled legal principle that if a contract/work order is covered under the definition of 'original work' as provided under the Service Tax law, then such work is eligible for the exemption irrespective of how it is described in any departmental circular or internal communication. Therefore, once the nature of work is examined and found to be covered within the ambit of 'original work' as per the Service Tax law, the benefit of exemption cannot be denied. The work orders mentioned, on the basis of which the 'work contract service' has been rendered by the appellant, all fall within the definition of “Original Work”. Accordingly, the services rendered by the appellant being 'Original Works' to Railways, are specifically exempted vide Service Tax Mega Exemption Notification No. 25/2012-S.T. dated 20.06.2012. Consequently, the demand of Service Tax confirmed in the impugned order is not sustainable and hence, the same is set aside. As the demand of Service Tax itself does not survive, the question of demanding interest and imposing penalties does not arise. Accordingly, the demand of interest as well as the penalties imposed in the impugned order also set aside. The impugned order is set aside and the appeal filed by the appellant is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether services rendered by the appellant in laying and renewal of railway tracks and ancillary works constitute 'works contract service' and specifically qualify as 'original works' within the meaning of the Service Tax law and Notification No. 25/2012-ST dated 20.06.2012. 2. Whether the adjudicating authority rightly denied the benefit of exemption under Sl. No.14 of Notification No.25/2012-ST by relying on a Railway Board clarification instead of examining the work orders against the statutory definition of 'original works'. 3. Consequent legal effect on demand of service tax, interest and penalty where the underlying services are held to be exempt as 'original works'. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the services rendered fall within the statutory definition of 'works contract service' and 'original works' Legal framework: Section 65B(54) of the Finance Act, 1994 defines 'works contract service'. Notification No. 25/2012-ST (20.06.2012) grants exemption for services by way of construction, erection, commissioning or installation of original works pertaining to railways (Sl. No.14). The notification adopts the meaning of 'original works' as assigned in Rule 2A of the Service Tax (Determination of Value) Rules, 2006; Explanation (1)(a) to Rule 2A defines 'original works' to include (i) all new constructions; (ii) additions and alterations to abandoned or damaged structures required to make them workable; and (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise. Precedent treatment: No external precedents were relied upon or discussed in the impugned order or in the appeal court's reasoning; the Tribunal applied the statutory definitions directly to the work orders. Interpretation and reasoning: The Court examined the substantive scope of each disputed work order (renewal of sleepers and rails, deep screening of ballast, replacement of glued rail joints and expansion joints, track gauge conversion, provision of drains, unloading and spreading of ballast, etc.). Applying the Rule 2A definition, the Court found that the contracts involved either new construction, renewal amounting to new construction, or additions/alterations to make existing structures workable - all falling squarely within the definition of 'original works'. The Court emphasized that activities such as through rail renewal, complete track renewal, deep screening to restore ballast cushion, gauge conversion and related installations are either new construction or necessary alterations to make the track workable, and thus constitute original works for the purposes of the notification. Ratio vs. Obiter: Ratio - The direct application of the statutory definition of 'original works' to the described scope of works and the holding that those works qualify as 'original works' under Notification No.25/2012-ST is binding for the present dispute. Obiter - Remarks on general principle that renewals undertaken when unserviceable sleepers reach prescribed thresholds constitute new construction may be persuasive beyond the facts but are not strictly necessary to the statutory interpretation. Conclusion: The services rendered in the specified work orders are 'works contract service' that qualify as 'original works' within the meaning of Rule 2A and Notification No.25/2012-ST and thus are prima facie exempt under Sl. No.14 of the notification. Issue 2 - Whether reliance on a Railway Board clarification can displace statutory definition and whether the adjudicating authority was obliged to examine work orders against statutory definition Legal framework: Exemption under Notification No.25/2012-ST is determined by whether the service falls within the statute-defined category of 'original works'. Administrative circulars or departmental/internal communications may assist but cannot supplant statutory definitions. Precedent treatment: The Tribunal stated the settled legal principle that eligibility for exemption is to be determined by reference to the statutory definition; it did not cite or overrule prior cases but applied that principle to the facts. Interpretation and reasoning: The Court found procedural and substantive infirmity in the adjudicating authority's approach: the impugned order denied exemption solely on the basis of the Railway Board's clarification without giving specific findings showing why the work orders do not meet the statutory definition of 'original works'. The Tribunal held that the eligibility must be decided on the basis of work orders and statutory meaning, not merely on departmental or Railway internal clarifications. The Tribunal applied the statutory test to each work order and reached affirmative findings that they qualify as original works. Ratio vs. Obiter: Ratio - Administrative or departmental clarifications cannot override or replace statutory definitions; authorities must examine the actual work orders against the statute to determine entitlement to exemption. Obiter - Observations criticizing reliance on internal communications without statutory comparison serve as guidance for future adjudications. Conclusion: The adjudicating authority erred in denying exemption by relying on the Railway Board clarification without statutory examination; proper application of the statutory definition to the work orders mandates allowance of the exemption. Issue 3 - Consequence for confirmed demands of service tax, interest and penalty if services are exempt Legal framework: Where the underlying tax demand is unsustainable because the activity is exempt under a statutory notification, ancillary demands for interest and penalty based on that tax demand fall away unless separately sustainable on other grounds. Precedent treatment: The Tribunal applied the logical legal consequence without citing precedents: if the primary tax demand is set aside, related interest and penalty cannot survive. Interpretation and reasoning: Having concluded that the services are exempt, the Tribunal held that the confirmed demand of service tax is not sustainable. Consequently, since interest and penalties were levied in respect of that unsustainable tax demand, they too cannot be imposed. The Tribunal set aside the demand for service tax, interest and penalties. Ratio vs. Obiter: Ratio - Where a tax demand is quashed because the service is statutorily exempt, consequential interest and penalty based solely on that tax demand must also be set aside. Obiter - None additional necessary. Conclusion: The confirmed demand of service tax, and the attendant interest and penalties imposed in the impugned order, are set aside as unsustainable in law.