Service Tax not Payable on Service of Laying Down Water Supply Pipelines For KWA: CESTAT [Read Order]

In a recent case, the Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that the assessee is not liable to pay service tax for the activity undertaken by them for laying down the pipelines for government/government undertakings for supply of water from Kerala Water Authority ( KWA ) for Thiruvananthapuram city region for the period 1st June, 2007 to 31st October, 2012. Electrosteel Castings Limited, the appellant/assesee is in the business of manufacturing ductile iron pipes and pipe fittings. The appellant was also providing services in the nature of construction/laying down of pipelines, for which it is duly registered with the service tax authorities. The appellant was executing several composite projects for various local authorities and municipal corporations. The appellant was awarded a contract by Kerala Water Authority ( KWA ) for the construction of a distribution system for water supply for Thiruvananthapuram City. Get a Copy of GST on Services Ready Reckoner, Click here Prior to 01 June 2007, the services, although classifiable as Commercial or Industrial Construction Services ( CICS ), were not taxable as the same were non-commercial and non-industrial in nature, and service tax was accordingly not charged on the invoices raised upon KWA before the period 01 June 2007. However, with effect from 1 June 2007, “work contract services” were covered as a taxable service under Section 65(105)(zzzza) of the Finance Act, 1994. The appellant was of the opinion that the services provided by them were covered under “work contract services” as an EPC/turnkey project and started to raise invoices reflecting service tax and suo-moto depositing the same with the government exchequer. The appellant, through numerous correspondences, approached KWA for payment of service tax. Tokyo Engineering Consultants Limited informed the Appellant that the laying of pipelines for drinking water supply projects for state agencies does not fall under the expression “commercial or industrial construction,” and as such, no service tax was payable by them. The service tax deposited by the appellant with the government was never paid to the appellant by KWA. Get a Copy of GST on Services Ready Reckoner, Click here The appellant filed two applications for refund of service tax deposited by the appellant under Section 11B of the Central Excise Act, 1944. The adjudicating authority rejected the first refund claim as a time bar, and the second refund claim was rejected by observing that the appellant could not provide supporting documents for exemption of service tax on the “works contract services” provided by the appellant to KWA and has failed to establish that the refund claim was not hit by unjust enrichment. On appeal, the Commissioner (Appeals) rejected the refund claim for both periods, holding that the service tax was correctly discharged by the appellant on the services rendered by them. The assessee contended that he has not received any service tax from the service recipient, and the same has been communicated to them from Tokyo Engineering Consultants Company Limited. Therefore, the appellant has passed the bar of unjust enrichment. Therefore, the refund claims are to be allowed. Get a Copy of GST on Services Ready Reckoner, Click here The two member bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that the construction of canals/pipelines/conduits to support irrigation, water supply, or sewerage disposal, when provided to government/government undertakings, would be for non-commercial, non-industrial purposes, even when executed under turnkey/EPC contractual mode, and would fall within the ambit of clause (b), Explanation (ii) of Section 65(105)(zzzza), and would consequently not be exigible to service tax. While allowing the appeal, The CESTAT held that the appellant is not liable to pay service tax. As the service rendered by them is not a taxable service, therefore, the service recipient refused to pay service tax to the appellant. The appellant has borne the service tax by themselves and has passed the bar of unjust enrichment. The refund claims filed by the appellant are not hit by the bar of unjust enrichment. Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates