Service tax liability on construction of dams and canals: contractors and subcontractors must pay, but input service credit allowed.
Contractors undertaking construction of dams and canals for SSNNL cannot rely on the mega exemption in Notification No.25/2012 because SSNNL does not meet the statutory definition of government authority; therefore such contractors are liable to pay service tax. Subcontractors are likewise liable since the subcontractor exemption applies only where the work contract services are themselves exempt. CENVAT credit of inputs is disallowed for work contracts, but CENVAT credit of input services is permitted where both the input service and the output service are specified services. (AI Summary)