ST - If laying of cables cannot be taxable service, adopting same logic, laying of pipeline also cannot be construed as taxable service -Demand of Rs 7.6 Cr set aside by CESTAT
By TIOL News Service
MUMBAI, OCT 16, 2014: THE appellant undertook manufacture and supply of pipes to Maharashtra Jeevan Pradhikaran and as per the contract apart from the supply of pipes they were also required to undertake the activity of laying, connecting, jointing pipeline for water supply projects till the stage of testing and commissioning of raw and pure water by pumping machinery.
It is the view of the department that the said activity is classifiable under "erection, installation and commissioning service" and accordingly a SCN was issued demanding Service Tax of Rs.7,62,26,657/- on the total contract value of Rs.75,36,01,409/- received by the appellants during the period from 2003-2004 to 2006-2007.
While upholding the allegations and confirming the ST demand, the CST, Mumbai also directed the jurisdictional Assistant Commissioner to calculate the admissible abatement under Notification No. 1/06 dated 01/03/2006 as per the documentary evidences for the period from March 2006 to March 2007. Interest and penalties were also imposed.
The appellant is before the Tribunal against the confirmation of ST demand etc. whereas the Revenue is in appeal against the directions given to the Asstt. Commr.for extending the abatement.
The appellant inter-alia submitted that in an identical set of circumstances in the case of Indian Hume Pipe Co. Ltd. Vs. CCE, Trichy, 2008-TIOL-1665-CESTAT-MAD, the Tribunal had held that laying of pipes for use in water supply projects will not come under the category of erection, commissioning and installation service and, therefore, service tax is not payable on the said activity under the category of erection, commissioning and installation. The decisions in Larsen & Toubro Ltd., Vs. CST 2011-TIOL-218-CESTAT-AHM and CST Bangalore Vs. Turbotech Precision Engineering Pvt. Ltd., 2010-TIOL-498-HC-KAR-ST wherein the High Court held that the activity undertaken was in the nature of a work contract and hence, not leviable to service tax under the category of Consulting Engineer were also cited. Reliance is also placed on the Circular No. 123/5/2010-TRU dated 24/05/2010 to emphasise that laying of pipeline will not amount to commissioning of a plant, machinery of equipment or structure and, therefore, the activity undertaken does not come under the category of erection, commissioning and installation service; that in the case of PSL Ltd. it was held that laying of pipelines or laying of coated pipes for water supply projects would not come within the purview of "erection, commissioning or installation service" but merit classification under "construction service".
The Revenue representative inter alia submitted that the order of the Tribunal in the case of Indian Hume Pipe Co. Ltd., has been appealed against before the High Court and the same has been admitted and, therefore, no precedential value can be given to the said judgment; that since the appellant had not furnished data relating to the value of the goods supplied the demand was made accordingly.
The Bench observed -
++ The facts of the present case are more or less identical with the facts in the Indian Hume Pipes Co. Ltd. case cited supra wherein it was held that laying of pipeline for water supply projects will not come under the category of erection, commissioning and installation service. Though the department has filed an appeal before the Hon'ble High Court of Madras against the said decision, no stay has been obtained by the department in respect of the said decision. Further, the Board's own Circular dated 24/05/2010 makes it absolutely clear that unless the activity undertaken results in the emergence of an "erected, installed and commissioned plant, machinery, equipment or structure", the activity will not come under the category of erection, commissioning and installation service. Pipelines cannot be construed as a plant, machinery or equipment or structure. Further, the said circular also clarifies that laying of cables under or alongside road or railway tracks, etc. is not a taxable service under Section 65(105) of the Finance Act, 1994. If laying of cables cannot be a taxable service, adopting the same logic, the laying of pipeline also cannot be construed as a taxable service.
++ We also note that the same view was taken by this Tribunal in the case of Hyundai Heavy Industries Co. Ltd. 2013-TIOL-1370-CESTAT-MUM wherein it was held that laying of submarine pipelines would not come within the purview of erection, commissioning and installation service. Further, in the case of PSL Ltd. this Tribunal noted that laying of pipelines for water supply projects would come under the "construction service" and since only commercial construction is liable to service tax and the pipelines for water supply are not commercial activities, the same would not be taxable. …Therefore, following the ratio of these decisions, in the present case also, we hold that laying of pipelines would not come within the category of "erection, commissioning and installation service" and therefore, the impugned order is not sustainable in law.
In fine, the order passed by the CST, Mumbai confirming the Service Tax demand of Rs.7.62 crores and imposing penalties in abundance and interest was set aside and the appeal was allowed. Consequently, the Revenue appeal was rejected.
(See 2014-TIOL-2007-CESTAT-MUM)
