Clarification - 'Commericial or Industrial consturction services' - Import of services

[Guest]

A Indian company is in the businss of tunnel construction. I understand tunnel construction is not covered under serivce tax as exemtion is provided inthe chapter'Commericial or Industrial consturction services' where in it is mentioned that services relating to construciton of road, airport, railways, bridges, tunnel and dam are not covered under service tax. I presume that the indian company need not pay any serivce tax on the billing made for tunnel consturctijon. Second issue- To construct the tunnel, the company has hired the serivce of a foreign company which suppplyies manpower,.Supply of manpower is covered under Import of services and service tax is to be paid by the service receipient ie the indian company. But since the main service ie the tunnel construction is not covered under service tax, i am of the view that the impoor of services is also not covered under service tax. kindly immediately clarify with your expert opinion.

[Madhukar N Hiregange]

Construction of tunnels is exempt. Manpower supply servcies would be liable your view may not be correct as the final servcie doe snot determine the intermediate servcies.

[Vijay Chitte]

I agree with the first part. However, in respect of second part, all input services are not exempt. Only if sub-contractor provides construction service, then u can say that construction service is in relation to tunnel and hence exempt. In respect of supply of manpower, the dispute is whether tax is payable on gross amount or net service charges. In my view, tax is payable only on net service charges but depatrtment's view is different. Some litigation is possible on this issue. Vijay Chitte -Claris

AI Summary

Exemption for construction services: tunnel construction exempt, but imported manpower services may be taxable under service tax law. Tunnel construction is exempt under the construction services exemption, so fees for tunnel works are not subject to service tax. However, imported supply of manpower to perform the work is a separate issue: manpower supplied by a foreign provider can be treated as an imported service potentially subject to service tax, because the exempt status of the principal construction service does not automatically exempt ancillary or input services; whether such supply is taxed on gross receipts or net service charges is contested.