CESTAT Kolkata Holds Road Construction Services Provided To West Bengal Govt Exempt From Service Tax

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a ₹54.91 lakh service tax demand against a road construction contractor, holding that the services provided to the West Bengal Government were exempt from service tax.

The Division Bench comprising Judicial Member Justice R. Muralidhar and Technical Member K. Anpazhakan was hearing an appeal filed by M/s Gouri Construction, a proprietorship concern engaged in construction of roads.

The appellant had provided works contract services to the Dakshin Dinajpur Highway Division, P.W. Roads and the office of the Executive Engineer, Malda Highway Division, both under the Government of West Bengal.

The Department alleged that the appellant had short-paid service tax during the financial years 2015-16 and 2016-17 based on the turnover reflected in Form 26AS. A show cause notice was subsequently issued proposing recovery of service tax.

The adjudicating authority confirmed a service tax demand of ₹54,91,765, along with interest and penalties under the Finance Act, 1994. The demand was upheld in appeal.

Before the Tribunal, the appellant contended that the extended period of limitation could not be invoked as it was registered under the service tax regime and had regularly filed ST-3 returns.

It also submitted that the Department had relied upon information already available in Form 26AS, income tax returns and statements of receipts furnished by the appellant.

The Tribunal accepted the limitation objection. It observed that the show cause notice had been issued on the basis of figures available in Form 26AS, income tax returns and the statement of receipts provided by the appellant. The Department had not carried out any independent verification or due diligence before alleging suppression.

The Tribunal held that the allegation of suppression and wilful violation was based only on assumption and presumption, without any supporting evidence on record.

Relying on the Supreme Court's decision in Anand Nishikawa Company Ltd. v. Commissioner of Central Excise and its earlier decisions, the Tribunal held that mere failure to declare information does not amount to wilful suppression and that a positive act indicating deliberate suppression to evade tax was required.

On merits, the Tribunal found that the services provided by the appellant involved materials and were appropriately classifiable as works contract services.

The Tribunal examined the work orders, which involved widening and strengthening of the English Bazar-Kotwali Road, including construction of footpaths on either side of the road.

The Department had denied the exemption under Entry 13 of Notification No. 25/2012-ST on the ground that the appellant had not constructed a road but had only widened and strengthened the footpath along the existing road.

The Tribunal rejected this distinction. It held that the expression “road” was not restrictively defined under the service tax law and that, in its ordinary and legal meaning, a public road includes integral components and facilities meant for movement of the public, including pedestrian pathways.

The Tribunal observed that the work had to be examined as a composite road-development project rather than by isolating the footpath component.

"..We do not agree with the findings of the lower authorities that 'widening /strengthening of road for providing double foot path' would not amount to road construction. Providing foot path on either side of the road is a part of construction of road. If foot paths are not there, people will walk on the road risking their life", the Court said. 

It further noted that the work order had been awarded by the Public Works (Roads) Directorate, which was responsible for planning, construction and maintenance of roads in the State.

Accordingly, the Tribunal held that the widening and strengthening of the road for providing footpaths amounted to construction of a road and fell within the exemption under Entry 13 of Notification No. 25/2012-ST.

The Tribunal also noted that the appellant had neither charged nor collected service tax from the Public Works (Roads) Department, as the services were bona fide treated as exempt services relating to public roads.

Holding that the service tax demand was unsustainable both on limitation and on merits, the Tribunal set aside the demand of ₹54,91,765 along with interest and penalties.

"...the Appellant are eligible for the exemption as provided under entry 13 of the mega exemption notification 25/2012..", the Court said.

The appeal was accordingly allowed with consequential relief, if any, in accordance with law.

For Appellant: Shri Navin Kumar Agarwal, Advocate 

For Respondent: Shri P. Halder, Authorized Representative