TaxTMI 
TaxTMI 
2015 (5) TMI 37
X X X X Extracts X X X X
X X X X Extracts X X X X
....L -KBL-JV , M/s IVRCL SEW -PRASAD-JV, M/s GKC PROJECTS LTD , M/s MAYTAS NCC JV , M/s PATEL ENGINEERING LTD, M/s AKR COASTAL JV , M/s IVRCL-JL- JV , M/s IVRCL -KBL-MEIL- JV , M/s IVRCL -KBL- JV , M/s PES-SEW-JV , M/s MEGHA ENGINEERING AND INFRASTRUCTURE LTD, M/s P V KRISHNA REDDY, MD OF M/s MEGHA ENGINEERING AND INFRASTRUCTURE LTD, M/s LANDT KBL JV M/s SUDHAKAR POLYMERS LTD, M/s LANDT KBL JV , M/s IVRCL-KBL-MEIL-JV ,M/s IVRCL-KBL-JV, M/s SCL INFRATECH LTD, M/s RAMKY INFRASTRUCTURE LTD -VSM JV , M/s MEGHA ENGG. AND INFRASTRUCTURE LTD, M/s PES-SEW-JV , M/s BHOORATHNOM CONSTRUCTION CO PVT LTD , M/s MAYTAS NCC JV , M/s IVRCL-SEW-PRASAD JV , M/s RM MOHITE AND CO BHOORATNAM JV , M/s IVRCL-SEW-WPIL-JV , M/s KRUSHI INFRAS INDIA PVT LTD , M/s GH REDDY ASSOCIATES AND KK REDDY CO JV , M/s KVR CONSTRUCTIONS LTD , M/s NCC LTD , M/s VISWA INFRASTRUCTURES AND SERVICES PVT LTD , M/s KOYA AND CO CONSTRUCTION PVT LTD , M/s KOYA AND CO CONSTRUCTION PVT LTD , M/s PATEL ENGINEERING LTD , M/s SRI VENKATESWARA PIPES LTD , M/s KIRLOSKAR BROTHERS LTD , M/s NAVAYUGA-IVRCL-SEW-JV , M/s NEC-NCC MAYTAS JV , M/s SEL-GKC PROJECTS JV, M/s CH VV SUBBA RAO Versus CC,CE & ST, HYDERABAD ORDER Per: Justice G. Rag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cution of "works contract", as this expression has come to be recognized in the world of commerce, in law and in jurisprudence. In some of the listed appeals, contracts/ agreements were entered into and the execution thereunder commenced prior to 01.06.2007 and continued thereafter as well. In other appeals constructions were subsequent to 01.06.2007. In appeals involving execution which commenced prior to 01.06.2007 and continued thereafter the transactions were classified (in respective adjudication orders impugned), as -Erection, Commissioning or Installation Service' (ECIS) for the period prior to 01.06.2007; and as works contract service (WCS) [under sub-clause (e) of Explanation (ii) in Section 65(105)(zzzza)] for the period subsequent to 01.06.2007. 5. Senior Counsel Shri V. Sridharan, S.R. Ashok and S. Ravi and other learned Counsel contended that in some of the appeals a substantial issue involved is also whether "works contract" is a taxable service only w.e.f. 01.06.2007 i.e. after introduction of sub-clause (zzzza) in Section 65(105) of the Finance Act, 1994 (the Act) by the Finance Act, 2007; and whether prior to 01.06.2007 works contract was not a taxable servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... service tax under WCS as turnkey projects, including engineering, procurement and construction or commissioning projects under clause (e) of Explanation (ii) in the definition of WCS or is excluded from the ambit of WCS since it is in respect of a "Dam" and thus stands excluded from WCS, as defined; C) Whether, turnkey projects, including engineering, procurement and construction or commissioning (EPC) projects specified in clause (e) is merely an enumeration of the mode of execution of taxable services specified in clauses (a) to (d) or is a wholly distinct taxable service and is exigible to service tax as an independent species of works contract service; D) Whether, even if clause (e) in Explanation (ii) of WCS is considered a distinct and independent service, where construction of canals for irrigation purposes and laying of pipelines either as part of lift irrigation systems or for transport and distribution of water is undertaken for Government/Government undertakings, the same is more appropriately covered under clause (b) of WCS i.e. construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, by applying principles of classifica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tor as WCS; other appeals where the WCS was provided by the appellant itself without sub contracting. There are also certain appeals where ld. Counsel contended that the majority of the works were sub contracted and only some of the works were executed by the appellant, a Joint Venture. We have tabulated this category of appeals separately. 10. In the following appeals the works are claimed to have been wholly sub contracted by the appellant and executed exclusively by the sub-contractor. TABLE - A Appeal No. & Name of the Appellant Period involved Nature of the work undertaken Whether the demand is on the main contractor and the actual work was executed by the sub-contractor ST/606/2009, M/s Jayaprakash Gayathri Projects Ltd. JV 6/2007 to 6/2008 (i)Veligonda Project- Closing of Sunkesula Gap, Excavation of feeder canal and Teegaleru canal (ii) Polavaram project - Right main canal- Earthwork excavation, forming embankment (iii) Flood flow canal - SRSP - earthwork excavation, forming embankment (iv) Rajiv Sagar Lift Irrigation Project - Laying pressure mains (pipeline) (v) GNSS main canal - earthwork excavation. Yes ST/607/2009 M/s Gayathri BCB....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../2007 to 9/2008 A total 15 projects are involved, which are canal work / lift irrigation works. Yes ST/177/2012 M/s AKR Coastal JV 6/2007 to 9/2009 Survey, detailed Investigation of Lower Level Canals and Distributory System including fixing alignment, preparation of HPs, excavation and formation of embankment and construction of whole distributor system i.e. majors, minors and sub minors in respect of various lift irrigation projects like Nettempadu Lift Irrigation, Rajiv Sagar Lift Irrigation, Sriram Sagar Project, Alimineti Madhava Reddy Project and modernisation of Kanupur Canal system. Yes ST/181/2012 M/s IVRCL-JL-IV 10/2008 to 9/2009 Execution of HNSS Lift Irrigation scheme and the work involves pipelines/ conduits. The scope of the work involves investigation, designs, construction of pumping stations, erection, commissioning and testing of mechanical and electrical accessories, civil works, pump house including sumo, pumping mails, etc. HNSS Main Canal and Branch Canal. These works are part of the pipeline construction works. Yes ST/182/2012 M/s IVRCL-KBL-MEIL-JV 10/2008 to 9/2009 Execution of HNSS Lift Irrigation scheme & ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Yes ST/3563/2012 M/s PES-SEW-JV 10/2009 to 9/2010 Supply, design, fabrication, transportation & erection of steel liner, penstock and Appurentant works of Myntdu Leshka Hydro Electrical Project (2x24 MV) for the State Electricity Board. Yes ST/25369/2013 M/s IVRCL-SEW- Prasad JV 10/2008 to 3/2011 In this appeal, a total 15 projects are involved, which are either canal work or lift irrigation works. Yes ST/25532/2013 M/s IVRCL-SEW-WPIL-JV 5/2008 to 3/2011 Execution of AVR HNSS Lift Irrigation scheme - Phase-II. The project is aimed at transporting water from Srisailam Reservoir for irrigation purpose. Yes ST/25754/2013 M/s GH Reddy Associates & KK Reddy & Co. JV 6/2007 to 1/2009 The works pertain to "package No. 19- investigation, design, estimation and excavation of right main canal, distribution system including construction of CM & CD works from Shankara Samudram balancing reservoir, Kanaipally (v) Kothakota (M) Mahaboobnagar District to feed 8000 acres. Yes ST/20893/2014 M/s Navayuga-IVRCL- SEW-JV 6/2007 to 9/2011 Execution of pumping station Yes ST/20921/2014 M/s NEC-NCC Maytas JV 6/2007 to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jects Limited 2007-08 Formation of flood banks. No ST/2819/2011 M/s GKC Projects Limited 2008 -09 Formation of flood banks. No ST/2820/2011 M/s GKC Projects Limited 2009-10 Formation of flood banks. No St/131/2012 M/s Patel Engg. Ltd. 12/2005 to 9/2009 i) Bhima Lift Irrigation Project (ii) Nattampadu Lift Irrigation Project Stage-I, II (iii) Kalwakurthy Lift Irrigation project (iv) Modernisation of Krishna Delta System Package-I, IV, VII, X, XI, XIV. No. ST/501/2012 M/s Megha Engg. & Infrastructure Ltd. 6/2005 to 3/2010 Various lift irrigation projects and water supply projects, all involving laying of pipelines and other associated works (The demand has been made under ECIS from 16.6.2005 to 31.5.2007). No ST/2290/2012 M/s Sudhakar Polymers Ltd. 01.06.2007 to 03.05.2011 Laying of pipelines. No ST/3394/2012 M/s SCL Infratech Limited 10/2005 to 12/2010 - No ST/3432/2012 M/s Megha Engg. & Infrastructure Ltd. 4/2010 to 3/2011 Various lift irrigation projects and water supply projects, all involving laying of pipelines and other associated works. No ST/25019/2013 M/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....da Canal Project, Water supply pipeline laying work in various municipal cities. No ST/28834/2013 M/s Patel Engg. Ltd. 10/2009 to 9/2010 i) Bhima Lift Irrigation Project, (ii) Nattampadu Lift Irrgation project Stage-I, II (iii) Kalwakurthy Lift Irrgation project (iv) Modernisation of Krishna Delta System Packages-I, IV, VII, X, XI, XIV No ST//20224/2014 M/s Sri Venkateswara Pipes Limited 4/2007 to 3/ Supply, delivery, laying and jointing of pipelines of Asbestos cement pipes, DI pipes, PVC/HDPE pipes, pumping mains, Construction of sump, pump houses, filteration plants storage reservoirs for Public Health Engineering and Panchayat Raj Depts. Of Govt. of A.P. for safe drinking water supply. (For one project, prior to 01.06.2007, demand has been made under CICS). No ST/20285/2014 M/s Kirloskar Brothers Limited 6/2007 to 3/2012 Various projects in respect of water supply, canals, lift irrigation for the AP Govt. including construction of pumping stations on dams, canals and reservoirs at various places and installation of electromechanical equipment in the pumping station with testing and commissioning, thereof. In some projects civil works....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In the circumstances, all contested issues of fact including as to the nature of the works executed and whether some of them were sub-contracted or otherwise and other issues not determined by this Bench, will be determined by the appropriate Bench which hears the appeals substantively. The determination by this Bench is, in the circumstances, confined to consideration of the five issues set out in para 7 (supra). ANALYSES : 14. ISSUE (A) : In view of the issue framed for determination we set out relevant provisions of the Act defining ECIS and CICS and provisions enumerating these to be taxable services. The period covering the transactions in issue (prior to 01.06.2007) is 16.06.2005 to 30.05.2007. During this period laying of pipelines for lift irrigation, transmission and distribution of drinking water or sewerage was undertaken by appellants for Government/ Government undertakings and were classified in the adjudication orders under appeal as ECIS, while negating claims by appellants that these transactions be classified as CICS. In view of the dispute as to classification of the works undertaken by appellants during the above period, we set out the relevant provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in relation to,- (i) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre fabricated or otherwise; or (ii) Installation of - (a) Electrical and electronic devices, including wirings or fittings therefor; or (b) Plumbing, drain laying or other installations for transport of fluids; or (c) Heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work; or (d) Thermal insulation, sound insulation, fire proofing or water proofing; or (e) Lift and escalator, fire escape staircases or travelators; or (f) Such other similar services;" CICS "Construction Service" was introduced w.e.f. 10.09.2004. Section 65(105) (zzq) provided that this taxable service means any service provided or to be provided to a person by a commercial concern in relation to construction service. Section 65(30a) defined "construction service" to mean: (a) Construction of new building or civil structure or a part thereof; or (b) Repair, alteration or restoration of, or similar services in relation to, building or civil structure, Which is- (i) Used, or to be used, primarily for; or (ii) Occup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vities. Section 65 (97a): "Site formation and clearance, excavation and earthmoving and demolition" includes, - (i) drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or (ii) soil stabilization; or (iii) horizontal drilling for the passage of cables or drain pipes; or (iv) land reclamation work; or (v) contaminated top soil stripping work; or (vi) demolition and wrecking of building, structure or road, but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies;". From the definition of CICS (as amended from time to time) it is apparent that a service falling under this definition was taxable only if it is primarily used for or is engaged in commerce or industry or work intended for commerce or industry. This service when provided in relation to roads, airports, railways, transport terminals, bridges, tunnels, long distance pipeline and dams is however wholly excluded from the purview of the definition itself. In the definition of ECIS however (as amended from tim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of drinking water or sewerage purposes undertaken for Government/ Government undertakings. In some instances Revenue adopted the position that such activities fall within CICS and in others that these fall within the ambit of ECIS. We shall shortly advert to the relevant rulings. Though, we are not deciding the appeals finally, we shall briefly refer to the nature of the contract in issue in Service Tax Appeal No. 501 of 2012 [enumerated in Table -B' in para 11 (supra)] since the period of the transaction involved in this appeal is June 2005 to March 2010 (part of the period falling prior to 01.06.2007). The activity was classified (in the adjudication order impugned in this appeal) as ECIS, for the period upto 31.05.2007. The appellant was apparently required to lay pipelines for several lift irrigation and water supply projects of State Government and the work involved laying of pipelines and associated works such as preparing and digging the soil, trenching, laying of pipes, closing the trenches, construction of pumping houses and other related electro-mechanical works. The basic designs pertaining to the project were provided by the Government. The appellant's claim ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he service portion subjected to tax. SLP filed against this order was dismissed by the Apex Court without assigning reasons. Order of the CESTAT in the case of L&T Ltd. vs. CCE, Cochin reported in 2006 (3) STR 223 (Tribunal) = 2004 (174) ELT 322 (Tri. Del.), was made following the ratio of Daelim Industrial Co. Ltd. The Apex Court admitted SLP against this order. Therefore, ratio of Daelim Industrial Co. Ltd. was no longer binding on the Tribunal. In Asian Techs vs. CCE [2005 (189) ELT 420 (Tri. LB)], it was held that though the appellant in that case had supplied PSC girders to M/s Konkan Railway Corporation for construction of bridges under a works contract, excise duty was leviable on PSC girders. It is submitted that in principle, in the face of specific charging provision to levy service tax on certain specified services, the mechanism of agreement to provide and receive services in the form of a composite contract or works contract could not vitiate levy itself, Erection, installation or commissioning was already leviable to service tax. Repelling Revenue's contention and allowing the appeal, the Tribunal held: 8. We have considered the rival arguments. The dispute ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om 10.09.2004, from 16.6.05 onwards meaning of -erection, commissioning or installation' [Section 65(39a)] was enlarged to include installation of various devices and equipments. An entry "plumbing, drain laying, or other installation for transport of fluids" was introduced under sub-section (ii)(b). The impugned order found that the service involved was specifically covered from 16.6.05 under the same head by the entry "plumbing, drain laying, or other installation for transport of fluids. We are inclined to agree with the appellants that this entry covers such facility provided in a building as it appears in the company of air-conditioning system, lifts, electronic devices including wiring etc. which are installed in a building. The Commissioner found that "plant represented a fixed investment for carrying out certain institutional activity for business". The ld. Consultant for the department has tried to defend the interpretation of the Commissioner of the expression plant. The Commissioner's interpretation of a plant would cover a long distance pipeline. We find it difficult to accept the above reading of the word plant in the context it is used. It is an inappropriate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly classifiable under CICS, falling within the ambit of Section 65(25b)(b) i.e., "construction of pipeline or conduit"; and that is also the purport of the rulings above. We also note the several shades of meaning of "conduit", as revealed from dictionaries. According to Merriam-Webster, the word means "someone or something that is used as a way of sending something from one place or person to another". According to Macmillan Dictionary - "A pipe or passage that water flows through, to go from one place to another. According to Collins Dictionary - "a pipeline or channel for carrying fluid". According to the Dictionary of Civil Engineering by John S. Scott, "conduit" means - "Any open channel pipe, etc. for flowing liquid". Water Works Engineering - Planning, Design and Operation (Ed. Syed R. Qasim, Edward M. Motley and Guang Zhu) states that various types of conduits are used for transporting water. Topography, available head, construction materials and practices, economics and water quality are primary considerations in selecting suitable conduits for water conveyance systems. Water conduits are classified as open channels or pressure conduits. Open channels have a free water ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rinciple laid down therein can nonetheless be extended to different portions of a single taxable service as well; and that the part (of the contract) that gives the essential character to the entire project will determine its nature and this would be determinative of its classification. We consider this a salutary clarification. Provisions of Section 65A are applicable to composite agreements comprising, integrated services which cannot and ought not to be vivisected for identifying each constituent component as a distinct taxable service. The transaction, considered as a whole must be ascertained and a composite agreement comprising a combination of different services must be classified as if they consisted of the service which gives them the essential character, in so far as this criterion is applicable, vide Section 65A(2)(b). Considered in the light of the precedents referred to herein above; the definitions of ECIS and CICS; the Board clarification dated 07.01.2010; the Dictionary meanings ascribed to the word "conduit"; and provisions of Section 65A(2)(a) and (b), we conclude that construction of a pipeline / conduit for transmission of water/ sewerage and involving associ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....milar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects. 17. Contentions on behalf of assessees - (a) The legislative intention underlying introduction of "works contract" as a taxable service is to bring to tax, service components of specified composite contracts. This is evident from the Budget speech by the Hon'ble Finance Minister (while introducing the Finance Bill, 2007-2008); the relevant portion reads: 154. State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract. The legislative intention is reinforced by Board Circular No. 123/5/2010 dated 24.05.2010, which reads: (i) Commercial or industrial construction services', in brief, cover construction of and the completion, finishing, repai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l contract - An agreement between client and a trusted contractor for the contractor to both design a job and build it. The best work is done by contractors who have all consultants on their staff: architects, civil, structural, mechanical and electrical engineers, and quantity surveyors. It may be a lump-sum contract. One real advantage for the client, especially one whose professional staff are overloaded, is the need to speak to only one responsible person, not to four or five consultants. So the turnkey contractor must be both trustworthy and competent. (b) Duncan Wallace - Building and Engineering Contracts - "Turnkey" is a contract where the essential design emanates from, or is supplied by the Contractor and not the owner, so that the legal responsibility for the design, suitability and performance of the work after completion will be made to rest with the contractor. Turnkey is treated as merely signifying the design responsibility of the contractor. (c) Campbell R. Harvey Dictionary - Turnkey Construction contract: A type of construction contract under which the construction firm is obligated to complete a project according to prescribed criteria for a price that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d as the basis for the EPC phase. The FEED can be divided into separate packages covering different portions of the project. The FEED packages are used as the basis for bidding on when the client offers the EPC work to the market. Normally the EPC Contractor has to execute and deliver the project within an agreed time and budget, commonly known as a Lump Sum Turn Key (LSTK) Contract. An EPC LSTK Contract places the risk for schedule and budget on the EPC Contractor. The Project Owner or client to the EPC Contractors will normally have a presence in the EPC Contractors offices during the execution of the EPC Contract. The client places what can be termed a Project Management Team or PMT to overlook the EPC Contractor. The client PMT may require specialist help and bring on board Project Management Consultants or PMC's to assist. The PMT/ PMC will ensure the EPC Contractor is carrying out the works in accordance with the agreed scope of works and in accordance with the Contract. It is quite common for the Engineering and Construction Contractor which delivered the FEED to be offered to Project Management Consultancy (PMC) Contract. In some instances which can be related ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oject and that is the responsibility of the contractor to prepare basic and detail design of the project. 3. In turnkey, contractor is responsible to perform construction and commissioning, start up and take over of the plant to the employer but in EPC, may be it is responsibility of the other third person to do commissioning and start up. (c) From the above meanings of "EPC/ Turnkey", it is apparent that these are modes of execution of contracts involved in large, complex projects, where the scope of the contract commences from the engineering or design stage on to completion of the project in its entirety and is normally for a lumpsum, with full responsibility on the contractor for effective execution of all stages thereof. Thus, clause (e) The definition of WCS cannot, on a true and fair construction of the clause in the definition considered as a whole, be considered as a distinct taxable service component. Clause (e) must be interpreted as effectuating the legislative intention to cover several components of "works contract" service enumerated in sub-clauses (a) to (d) i.e. even when more than one of these services and associated with other services are provided by way o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd a conduit can be either closed like a pipeline or open as a canal. Water Works Engineering, - Planning, Design and Operation by Syed R. Qasim etc. (referred to supra) observes that water canals are classified either as open channels (canal) or pressure channels (like pipelines). The statutory definition adopted these two methods of water/ fluid conveyance systems. Long distance water transportation may involve digging of canals where the water could flow by gravity and laying pipelines and associated supporting masonary and mechanical works, for pumping the fluids/ water to higher elevation. If "conduit" were not given the pluri-signative meaning as considered in general and technical Dictionaries and its commercially accepted purport, it would lead to the absurd consequence where a contractor engaged in pipeline laying work would fall outside the ambit of tax when the work is not for commercial or industrial purpose while a contractor executing canals for critical irrigation projects of the State would be liable to tax. Wherever the gradient /contours enable flow of water by gravity open channels/ canals are constructed but where water has to be lifted to higher altitudes pipel....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a barrier erected for impounding water and serves the primary purpose of retaining water in the reservoir appurtenant thereto, to provide water for irrigation or drinking purposes and for supply to nearby villages /towns, by way of canals, feeder channels etc. Without construction of channels / canals which are inlets/ outlets for conveying water to and from the dam, a dam would be wholly dysfunctional. Construction of channels /canals is integral to a dam project and must therefore be treated as a work "in respect of" a dam and is thus excluded from the levy, in terms of the definition itself. (f) The definition of "works contract" in sub-clause (zzzza) excludes works contract in respect of dams. The expression "in respect of" has been interpreted in several Dictionaries and judicial pronouncements as having the widest meaning and being wider in its connotation than the word "in" or "on". Hence, execution of channels/ canals not only amounts to construction of a conduit but is also covered by the exclusion clause in the definition of "works contract", as a works contract -in respect of' dam. (g) An "EPC / Turnkey" Project refers to a contract where the entire responsibi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me of the appeals include earthmoving, excavation during construction of canals, strengthening of embankment etc. The definition of this taxable service excludes the activity when it is provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies. In the EPC / turnkey mode of execution of construction services, site formation and clearance components would also be included as part of the bundled services provided. It would lead to absurd and legislatively unintended consequences if site formation and clearance services provided in respect of agriculture, irrigation etc. are excluded from the levy but are included by treating clause (e) as a distinct service. Similarly services provided under clause (b) for non-commercial, non industrial purposes stand excluded from the levy but when provided under the EPC/ turnkey mode would be liable to tax, an interpretation reductio ad absurdum. 17. CONTENTIONS ON BEHALF OF REVENUE : (i) In several of the appeals under consideration the works executed comprise a bundle of services including construction of a new building or a civil structur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iginate beyond the main "Dam" structure cannot be considered as part of the "Dam". "Dams" and "Canal systems" are independent species and the exclusionary clause in the definition of WCS is inapplicable to canal systems. (v) It is an established principle of interpretation that where the language of the statute is clear, the Court must give effect to the legislative intention as expressed. Only if there is an ambiguity in the language of a provision may the Court adopt purposive construction; or if the legal construction leads to an absurdity is it permissible to resort to external aids. The Act excludes "Dam" from the scope of WCS in the definition. In defining "Site Formation Service" the Act employs a different exclusionary formula and excludes from this service works provided in relation to irrigation, water shed development etc. Since the Act consciously excludes "Dams" from the purview of WCS and in "Site Formation Service" works provided in relation to Irrigation, Water shed Development etc. while defining the later taxable service, this distinction must be noticed and given effect to. Consequently, the meaning of "Dam" cannot be extended to canal systems under a Dam, as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contract, excluding works contract in respect of roads, airports, railways, transports terminals, bridges, tunnels and dams. Explanation.- For the purposes of this sub-clause, "works contract" means a contract wherein,- (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out, - (a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or airconditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) Construction of a new residential complex or a part thereof; or (d) Completion and finishing services, repair, alteration, renovation or re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts", "Commercial or industrial construction contracts", "Residential Construction Service Contracts" and "EPC Contracts" involving transfer of property in goods on which Sales Tax/ VAT is chargeable. But it does not mean that these contracts were not liable to Service Tax prior to 01.06.2007 as, as discussed above, "erection, installation or commissioning services", "commercial or industrial construction service", Residential constructions services were taxable even prior to 01.06.2007, even if the same involved use/ supply of goods on which Sales Tax/ VAT was payable. Similarly in respect of EPC contracts which are divisible contracts for design & engineering, procurement of goods, erection, installations & commissioning, service tax was chargeable even prior to 01.06.2007 on these taxable service component. The taxable services covered by Section 65(105)(zzq) (Commercial or industrial construction service) and Section 65(2105)(zzzh) [residential construction service] are overlapping. While w.e.f. 01.06.2007, following the principle of harmonious construction, it can be said that while Section 65(105)(zzzza) would cover the services defined by Section 65(105)(zzd), Section 65(105....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary view to that expressed in Alstom Projects India Ltd. (supra) on the aspect whether turnkey/ EPC contracts were chargeable to service tax prior to 01.06.2007. Para 8.4 of Ramky Infrastructure Limited notes Revenue's contention that turnkey /EPC contracts per se were not chargeable to service tax prior to 01.06.2007. Revenue did advert to the decision in Alstom Projects India Limited . In para 10.10, Ramky Infrastructure Limited concludes that transfer of property in goods exigible to sales tax is not involved in rendition of services defined under clauses (25b) and (97a) of Section 65 i.e. CICS and ECIS, whereas such transfer is necessarily involved in execution of works contract. This conclusion is clearly contrary to the decision of the special Bench of CESTAT in the Larsen & Toubro Limited reference (dated 19.03.2015). In para 10.6, Ramky Infrastructure Limited concludes, based on the premise that only where dams were built by an appellant in execution of an EPC contract and along therewith construction of canals etc. is also undertaken, the exclusionary clause in the definition of WCS excluding works contract "in respect of dams" would come into play. For the reasons ear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Government/ Government undertakings and for supply of water for irrigation or consumption or for disposal of sewerage, the activity is non-commercial, non-industrial, is covered by the exclusionary clause in the definition of CICS and is not exigible to service tax. Since a turnkey/ EPC contract would inhere elements of several services, consisting of combination of different services, the service which gives such contract its essential character would be laying of pipelines or conduits. A turnkey/ EPC contract for laying of pipeline/ conduit should therefore logically be classified under clause (b), Explanation (ii) of Section 65(105)(zzzza), on and from 01.06.2007 as well. This is the consequence of applying Section 65A(2)(b) of the Act and this position is clarified in Board Circular No. 123/5/2010-TRU dated 24.05.2010 (considered in detail in sub-para (o) infra]. For the same reasons as recorded in the preceding sub-para construction of canals for transmission of water or sewerage disposal would also be classifiable under clause (b) of the definition of WCS. Revenue, apart from relying on Ramky Infrastructure Limited has also adverted to an interim order passed in Patel E....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espect of" is wider in its connotation than the word "in" or "on". Therefore a class of municipal tax, though not a tax on the premises or buildings will nevertheless be a tax in respect of the premises or building used for the business. I.T. Commissioner vs. Chunilal, AIR 1968 Pat 364 at 367. [Constitution of India preamble] The words "in respect of" are wide enough to permit charges being made as terminals so long as any of these things, viz, station, sidings, wharves, depots, warehouses, cranes and other similar matters have been proved and are being maintained. The words "in respect of" used in S.3 (14) mean "for the provision of" and not "for the user of". Sahadasa Saharanpur Light Railway Co. Ltd. v. Upper doab Sugar Mills Ltd. AIR 1960 SC 695, 701, 702 (Railways Act 1890, S.3.(14)). In Respect of Any Employment The words "in respect of any employment" used in Art. 16(2) must include all, matters relating to employment as specified in Art. 16(1). General Manager Southern Railway v. Rangachari, AIR 1962 SC 36, 41 [Constitution of India Art.16(2)]. (ii) S. B. Sarkar's Words & Phrases of Excise & Customs - In respect of - (Canada). "The words 'in respect o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f which there has been contravention covers the sale proceeds of foreign currency, sale of which is prohibited under Section 4(1). The intention of the legislature is clear from the explanation to Sub-section (1B) of Section 23 which provides that "for the purposes of the Sub-section (1B) of Section 23 which provides that "for the purposes of the Sub-section property in respect of which contravention has taken place shall include deposits in a bank, where such property is converted into such deposits". If for this sub-section any property in respect of which a contravention has taken place includes deposits into which the property may be converted and can be reached even where the deposits are in a bank, it is not reasonable to think that the sale proceeds in Indian currency of any foreign exchange would be outside the scope of Section 23(1B0 and therefore not liable to be confiscation. In our opinion the High Court was wrong in quashing the order of confiscation which we consider valid and lawful. (v) In S. S. Light Railway Co. Ltd. vs. Upper Doab Sugar Mills Ltd. & Another AIR 1960 SC 695, the expression " in respect of " in 3(14) in Indian Railways Act, 1890 was explained. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the second part of the definition, viz., "of any services rendered thereat". Far from there being any reason to cut down, the consequence of the generality of language used viz., "in respect of", there is thus good ground for thinking that the legislature used this language deliberately to cut across the difficulty of distinguishing in a particular case as to which of these things had been used or whether any of them had been used at all. Innumerable people carry goods over the Railways and many of them, for the purpose of the carriage make use of the stations, sidings, wharves, depots, warehouses, cranes and other similar matters, while many do not. Though at first sight it might seem unreasonable that those who had not used would have to pay the same charge as those who had made use of these, it is obvious that the interminable disputes that would arise between the Railway Administration and the Railway users, if the fact of user of stations, sidings and other things mentioned had to determine the amount payable, would be unhelpful not only to the Railway Administration but also to the using public. The sensible way was therefore to make a charge leviable for the mere, provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnotation and compass. The Canadian Supreme Court in Nowegijick v. The Queen [1983] 1 SCR 29 explained that " in respect of " are words of the widest possible scope and import such meanings as "in relation to", "with reference to" or "in connection with; and that "in respect of" is probably widest of any expression intended to convey some connection between two related subject matters . (vii) Board Circular No. 116/10/2009-ST dated 15.09.2009 clarified the issue regarding leviability of service tax on construction of canals for Government projects. Paras 1 and 2 of this Circular dealt with the leviability of service tax under CICS, defined in Section 65(25b) of the Act. The Board clarified that since canal systems built by Government or as Government projects would not be for industrial or commercial purposes, the activity is not exigible to service tax. Para 3 of this Circular dealt with the position under clause (e) in Explanation (ii) of the definition of WCS. The Board clarified: 3. The second issue is about Government taking up construction activity of dams, irrigation projects, buildings or infrastructure construction etc. through EPC (Engineering Procurement & Const....
X X X X Extracts X X X X
X X X X Extracts X X X X
....portion in the execution of the works contract" to be a declared service. "Declared Service" is defined in Section 65B, to mean any activity carried on by a person for another for consideration and declared as such under Section 66E. As a consequence of the above provisions, construction of canals, dams or other irrigation works, pipeline, conduit or plant for (i) water supply (ii) water treatment; or (iii) sewerage treatment or disposal also fall within the service tax net. Notification No. 25/2012-ST dated 20.06.2012 was issued (w.e.f. 01.06.2012), under Section 93 of the Act (as a mega Notification), exempting a variety of taxable services from the levy of tax charged under Section 66B. Paragraph 12(d) and (e) of this Notification specify canal, dam or other irrigation works; and pipeline, conduit or plant for (i) water supply; (ii) water treatment; and (iii) sewerage treatment or disposal , as exempted from levy. (d) Revenue's contention that a canal system could also be for servicing industries within the territory of the system and would therefore be ineligible for exclusion, on the basis of the Supreme Court decision in Bangalore Water Supply and Sewerage Board (supra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s contract is taxable even prior to 01.06.2007 under appropriate existing taxable services identified by applying the relevant classification guidelines. Laying of pipelines for transmission of water or sewerage does not amount to ECIS but falls within the ambit of CICS, is the principle settled by the Tribunal decisions in Indian Hume Pipe Co. Limited ; A. Sekar ; Dinesh Chandra Agarwal ; Lalit Constructions ; Strategic Engineering Pvt. Limited and the interim order in Surindra Engineering Co. Limited [vide the analyses in para 15(i) and (ii) (supra)]. Turnkey/ EPC projects executed for Governments / Government undertakings in respect of construction of dams, canal systems, laying of pipelines for transmission of water for irrigation, human consumption or for disposal of sewerage would be an activity not liable to tax (prior to 01.06.2007) in view of the exclusionary clause in Section 65(25b), defining the scope of CICS, since the activity would not primarily be for industrial or commercial purposes. (i) W.e.f. 01.06.2007 the question then arises, whether turnkey / EPC projects for execution of canals under dams for transmission of water for irrigation of drinking water purpose....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h". The Orissa, Madras, Patna, Allahabad and Delhi High Courts also interpreted the phrase "in respect of" as a comprehensive expression to be constructed in the widest sense and as having a wide connotation and compass. The Canadian Supreme Court in Nowegijick (supra) explains that "in respect of" are words of widest possible scope and import such meaning as "in relation to", "with reference to", or "in connection with". (l) Canals construction, in particular for transmission of water for irrigation or drinking water purposes including where such canals are under a dam; or the laying of pipelines for conveyance of water for irrigation or drinking purposes or transmission of sewerage, even when executed under turnkey/ EPC mode is classifiable under CICS during the period upto 01.06.2007. (m) From the structural arrangement of the definition of works contract set out in Explanation (ii) of Section 65(105)(zzzza), it is apparent that the several species of activities brought within the scope of this taxable service were drawn from pre-existing taxable services. Thus, clause (a) substantially reproduces the integers of the taxable service ECIS defined in Section 65(39a). Clause ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ift irrigation, water supply or sewerage disposal, such contracts are classifiable under CICS prior to 01.06.2007 (in view of the several decisions of the Tribunal and of the Madras High Court adverted to earlier herein) . The services are however excluded from the levy since these are not primarily for commercial or industrial purposes (in view of the exclusionary clause in the definition of CICS), even when executed under a turnkey/ EPC mode (in view of the decision in Alstom Projects India Limited). We consider the above Board clarification to be consistent with the legislative intention underlying the enactment of WCS as a distinct taxable service, with elements drawn from pre-existing taxable services such as ECIS, CICS and COCS. Revenue has not contended before us that this clarification by the Board is inconsistent with the provisions of the Act and therefore of no legal consequence or force. (p) As earlier noted, prior to 01.06.2007 construction of canal systems or pipelines/ conduits for Government/ Government undertakings for transmission of water or sewerage would be in the nature of infrastructure projects to provide civic amenities or to augment irrigation and this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n and clearance, excavation earthmoving & demolition service. The Tribunal ruled that such activity undertaken by the assessee was preparatory to construction of a reservoir and other civil works and is therefore outside the purview of site formation service. The relevant paragraph of this decision reads: "6. We find that Engineering, procurement and Construction contracts were signed by the appellant for construction of Major Ground Balancing Reservoir, for raising the height of existing major ground reservoir and for protection work of existing major ground reservoir and extension of secondary reservoir. Activities undertaken in relation to these contracts neither fit in the definition of site formation and clearance, excavation and earthmoving and demolition service nor these relate to repairing/ renovating water sources as water sources in present case is river. Some part of site formation, excavation and earthmoving done by the appellant was for preparing of further construction of reservoir and other civil works. We therefore are of the view that these activities undertaken by the appellant are out of purview of Site Formation, and Clearance Excavation and Earthmoving and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he contractor assumes responsibility to the client for constructing productive installations and ensuring that they operate effectively before turning them over to the client. Contract, found especially in the computer and construction industries, in which a supplier provides a complete customised package to a client (who has merely to "turn the key" and take over the package) . ii) MacGraw - Hill-Dictionary of Scientific and Technical Terms - Turnkey contract: A contract in which an independent agent undertakes to furnish for a fixed price all materials and labour, and to do all the work needed to complete a project . iii) Black's Law Dictionary (Fifth Edition) - Turnkey contract: Term used in building trade to designate those contracts in which builder agrees to complete work of building and installation to point of readiness for occupancy. It ordinarily means that builder will complete work to certain specified point, such as building a complete house ready for occupancy as a dwelling and that builder agrees to assume all risk . iv) Understanding & Negotiating Turnkey and EPC Contract, 2 nd Ed. By Joseph A. Huse: 'The Turnkey' arrangement (also k....
X X X X Extracts X X X X
X X X X Extracts X X X X
....indicates that what follows this word is comprised or is contained in the whole of the words or phrases preceding and the nature of the included terms would not only partake the character of the whole but may be construed as clarificatory of the whole. (iii) In South Gujarat Roofing Tiles Manufacturers Association and Anr. Vs. The State of Gujarat and Anr . (1976) 4 SCC 601; the word "include" in Entry 22 in Part I of the Schedule to the Minimum Wages Act, 1978, fell for consideration. The Court explained the circumstances in which the word "include" which is generally used as a word of enlargement, in appropriate cases suggests a different intention, restrictive and exhaustive. The Court observed: Though 'include' is generally used in interpretation clauses' as a word of enlargement, in some cases the context might suggested a different intention. Pottery is an expression of very wide import, embracing all objects made of clay and hardened by heat. If it had been the legislature's intention to bring within the entry all possible articles of pottery, it was quite unnecessary to add an Explanation. We have found that the Explanation could not possibly have been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere it was stated , The word "include" is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word "include" is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to "mean and include", and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. Our attention was also invited to Ardeshir Bhiwandiwala v. State of Bombay MANU/SC/0236/1971; C.I.T. Andhra Pradesh v. Taj Mahal Hotel [1971] 82 ITR 44 (SC) and S.K. Gupta v. K.P. Jain [1979] 4 SCC 54. 36. We do not think it necessary to launch into a discussion of either Dilworth's case or a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....teristics . 70. Where two or more words are susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from and are qualified by each other, the meaning of the general word being restricted to a sense analogous to that of the less general. As said in Maxwell on the interpretation of Statues 12 th Edn. P.289. "Words, and particularly general words, cannot be read in isolation; their colour and their content are derived from their context, A-G v Prince Ernest Augustus of Hanover (1957) AC 436, per Viscount Simonds, at 461." 71. Put in other words the included words may be clarificatory or illustrative of the general word. Thus in U.P. State v. MANU/SC/0273/1966: Raja Anand; [1967] 1 SCR 362, while construing Article 31A (2) as enacted by the Constitution (Seventeenth Amendment) Act, 1964 the relevant excerpt of which read as:- "31A(2) in this article- (a) the expression 'estate' shall in relation to any local area, have the same meaning as that expression or its local equivalent has in the existing law relating to land tenures in force in that area and shall also include -....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er agrees to execute the whole of the enterprise awarded to him and if the agreement so provides from the stage of design and planning till execution and completion of the whole work entrusted; and undertakes wide variety of other responsibilities which may include design, engineering, procurement, construction of the facility, conduct of performance tests and other associated activities pre or post construction. (w) Counsel for the appellants/ assessees further contended that in most of the agreements in issue the work entrusted to each appellant was not the whole of the canal or pipeline but only certain packages (segments) of a specified length or "reach". On this basis it is contended, since the entirety of a canal or pipeline project is not entrusted, the transaction does not amount to a "turnkey or EPC project". Counsel further contended that unlike works contract services enumerated in clauses (b) and (c) in the definition of WCS, clause (e) does not indicate that a part of a turnkey or EPC project would also be taxable. The textual basis of this contention is not in dispute. While clauses (b) and (c) enumerate certain types of WCS (specified therein) and enact that the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erty is constructed. On the basis of this assertion, Counsel contends that the phraseology of Section 65(105)(zzzza) would apply only to (i) a divisible works contract (where distinct and separate contracts are entered into), whether in one or more instruments, one for the transfer of the goods qua goods, for consideration and the other for rendition of services or work done; or (ii) to an indivisible works contract with a material vesting clause (where no separate agreement for the sale of material exists but there is a term in the composite agreement that the title to the material or goods would pass to the employer as soon as these are brought to the site by the contractor). Counsel contends in elaboration, that the relevant provision of the Act does not employ the phrase "whether as goods or in some other form" in Explanation (i) of the definition. This provision in the definition of WCS reads: "65(105)(zzzza) ........ Explanation (i): For the purposes of this clause "works contract" means a contract wherein, transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods . According to Counsel since there is no transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are fully met. It is so because in the performance of a contract for construction of building, the goods (chattels) like cement, concrete, steel, bricks, etc . , are intended to be incorporated in the structure and even though they lost their identity as goods but this factor does not prevent them from being goods. (ii) Where a contract comprise of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. The term "works contract" in article 366 (29A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in article 366 (29A)(b) limits the terms "works contract". (vii) In view of the above ruling in Larsen & Toubro Limited, it is clear that even where goods are procured by a contractor and incorporated into a construction whereupon such goods get transformed into immovable property and the property in such goods passes to the employer only thereafter, the bundling of goods and services into the construction of a building / structure would nevertheless amount to a works contract and be leviable to sales tax as su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r transmission of water including by lift irrigation would be, when these works are conceived as integrated to a dam project, works contract "in respect of a dam" and thereby excluded from the purview of WCS. 20. Issue (E) : To recapitulate, the issue is, where the whole of the work is sub-contracted; and in the hands of the main contractor there occurs no transfer of property in goods involved in the execution of such work, to the principal employer, whether the transaction would be works contract as defined in Section 65(105)(zzzza). In State of A.P. and Others vs. Larsen & Toubro Ltd. and Ors . 2008 (17) VST 1 (SC), the respondent - contractor entered into agreements for civil constructions. The contracts authorised the contractor, with the consent of the principal employer (contractee) to assign the work to sub-contractors. In terms of the agreement, the contractor placed orders on sub-contractors and the overall work was done by sub-contractors. The sub-contractors purchased goods and chattel like bricks, cement and steel and erected the structures. An assessment order was passed against the contractor for levy of sales tax in respect of goods deemed to have been s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tractor) so as to be subject-matter of a retransfer. By virtue of article 366(29A)(b) of the Constitution once the work is assigned by the contractor (L&T), the only transfer of property in goods is by the sub-contractor(s) who is a registered dealer in this case and who claims to have paid taxes under the Act on the goods involved in the execution of the works. Once the work is assigned by L & T to its sub-contractor(s)., L & T ceases to execute the works contract in the sense contemplated by article 366 (29A)(b) because property passes by accretion there is no property in goods with the contractor which is capable of a retransfer, whether as goods or in some other form. The question which is raised before us is whether the turnover of the sub-contractors (whose names are also given in the original writ petition) is to be added to the turnover of L & T. In other words, the question which we are required to answer is whether the goods employed by the sub-contractors occur in the form of a single deemed sale or multiple deemed sales. In our view, the principle of law in this regard is clarified by this court in the case of Builders Association of India [1989] 73 STC 370 as under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) we have set out particulars of appeals where (according to appellants) the works was assigned wholly to sub-contractors and there was no rendition of works contract by these appellants. In Table (C) in para 12 (supra) we have set out appeals wherein (according to appellants), part of the works entrusted to them were sub-contracted. Since we are not disposing of the appeals on merits, we avoid an analyses and determination of whether in fact the whole of the works in table (A) or part of the works in Table (C) were sub-contracted by the appellants concerned. This fact must be determined on an analyses of the relevant facts on record in each of the relevant appeals by the appropriate Bench dealing with them on merits. On issue (E) we conclude, on the basis of the judgment in Larsen and Toubro Ltd. (SC-2008) that where under an agreement (whether termed as a works contract, turnkey or EPC project contract), the principal contractor, in terms of the agreement with the employer/ contractee assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such contract passes from the sub contractor by accretion to or incorporation into the wor....