a2z taxcorp llp - 2015-tiol-768-cestat-bang …2015-tiol-768-cestat-bang-lb in the customs, excise...

2015-TIOL-768-CESTAT-BANG-LB

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL

SOUTH ZONAL BENCH, BANGALORE

Service Tax Appeal Nos. 441, 606, 607, 898, 937 AND 211 of 2009

M/s LANCO INFRATECH LTD

M/s JAYAPRAKASH GAYATHRI PROJECTS LTD

M/s GAYATHRI BCBPPL

M/s RAMKY INFRASTRUCTURE LTD

M/s GAYATHRI PROJECTS LTD

Vs

COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD

Service Tax Appeal Nos. 398, 425, 1210, 1850 AND 2148 of 2010

M/s NCC LTD

M/s L AND T KBL

M/s L AND T LTD

M/s RAMKY INFRASTRUCTURE LTD

M/s KOYA AND CO CONSTRUCTION PVT LTD

M/s GAYATHRI PROJECTS LTD

Vs


Service Tax Appeal Nos. 918, 919, 920, 921, 922, 2818, 2819, 2820 AND 3174 of 2011

M/s IVRCL NAVAYUGA SEW JV

M/s IVRCL JL- JV

M/s IVRCL -KBL- MEIL-JV

M/s IVRCL -KBL-JV

M/s IVRCL SEW -PRASAD-JV

M/s GKC PROJECTS LTD

M/s MAYTAS NCC JV

Vs


Service Tax Appeal Nos. 131, 177, 181, 182, 183, 221, 501, 967, 1676, 2290, 3311,

3348, 3349, 3394, 3413, 3432 AND 3563 of 2012

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

Vs


Service Tax Appeal Nos. 25019, 25358, 25369, 25529, 25532, 25725, 25754, 25802,

26382, 26428, 26452, 26453 AND 28834 of 2013

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 PATEL ENGINEERING LTD

Vs


Service Tax Appeal Nos. 20224, 20285, 20893, 20921, 20922 AND 21218 of 2014

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

Vs


Date of Hearing: 15.12.2014 to 19.12.2014

Date of Decision: 28.4.2015

Appellants Rep by: Shri V Sridharan, Shri S R Ashok, Sh S Ravi, Sr. Advs; Shri B V Kumar,

G Natarajan, MdShafi, K Vijay Kumar, R Murlidhar and Ms NishaBineesh, Advs

Respondents Rep by: Shri Govind Dixit and ShriAmresh Jain, ARs

CORAM: G Raghuram, President

Ms ArchanaWadhwa, Member (J)

Mr B S V Murthy, Member (T)

Service Tax - Taxability of contracts executed for water supply projects/ pipelines /

irrigation /canals for Government for non-commercial purposes - Five key issues

decided by the Larger Bench.

Issues referred:

A) Whether laying of pipelines for lift irrigation systems, transmission and distribution

of drinking water or sewerage, undertaken for Government/ Government undertakings

should be classified under ECIS as erection, commission or installation of plant,

machinery, equipment or structures, whether pre-fabricated or otherwise; or

installation of plumbing, drain laying or other installations for transport of fluids,

enumerated in Section 65(105)(zzd) and defined Section 65(39a), during 16.06.2005 to

31.05.2007; or must be classified under CICS, as amounting to construction of pipeline

or conduit; and if classifiable under the later provision, whether the activity is not

taxable since it is not used or to be used, engaged or to be engaged primarily for

industry or commerce;

B) Whether construction of canals for irrigation purposes and laying of pipelines

including as part of lift irrigation systems, undertaken for the Government/

Government undertakings is liable to 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

classification set out in Section 65A(2)(a) & (b) and thus fall outside the ambit of levy,

since the activity is not primarily for the purpose of commerce or industry; or whether a

contrary view that clause (e) being an independent entry, activities falling thereunder

would be taxable even if the rendition of service thereby or thereunder, was not

primarily for non commercial or non industrial purposes; and

E) Where execution of the whole or a part of the work is sub-contracted on back to

back basis by the main contractor (which is a joint venture) to sub contractors, in the

absence of any transfer of property in goods involved in the execution of such works,

from the main contractor to the Government/ Government undertakings, whether levy

of service tax in the hands of appellant (main contractor) is valid under WCS, in the light

of the judgment in State of A.P. vs. L & T Ltd.

Ruling:

(a) Issue (A): Laying of pipelines/ conduits for lift irrigation systems for transmission of

water or for sewerage disposal, undertaken for Government/ Government

undertakings and involving associated activities like trenching, soil preparation and

filling, supporting masonry work, jointing of pipes, electro-mechanical works or

pumping stations and like activity, is classifiable only under Commercial or Industrial

Construction Service (CICS) for the period upto 01.06.2007 and not under Erection,

Commissioning or Installation Service (ECIS);

(b) Issues (B); (C) and (D):

(i) Construction of canals for irrigation or water supply; construction or laying of

pipelines/ conduits for lift irrigation conceived and integrated into a dam project, must

be classified as works contract “in respect of dam” and is thus excluded from the scope

of “Works Contract Service” defined in Section 65(105)(zzzza) of the Act, in view of the

exclusionary clause in the provision;

(ii) Turnkey/ EPC project contracts, enumerated in clause (e), Explanation (ii) in Section

65(105)(zzzza) of the Act is a descriptive and ex abundant cautela drafting

methodology. In the light of the decision in Alstom Projects India Ltd., fortified by the

Special Bench decision (dated 19.03.2015) in Larsen & Toubro Ltd 2015-TIOL-527-

CESTAT-DEL-LB. reference, a turnkey/ EPC contract is taxable prior to 01.06.2007 as

well. On and since 01.06.2007, turnkey/ EPC contracts must be classified on the basis of

the essential character of the service provided thereby, with the aid of classification

guidelines set out in Section 65A(2) of the Act. Consequently, a turnkey/ EPC contract

must be classified under any of the clauses (a) to (d), Explanation (ii), Section

65(105)(zzzza). The bundled bouquet of services provided as turnkey/ EPC contract,

classifiable as Commercial or Industrial Construction Service (CICS) prior to 01.06.2007,

would be classifiable under clause (b), Explanation (ii), Section 65(105)(zzzza) on and

from 01.06.2007 and would not be exigible to service tax if the rendition of service

thereby is primarily for non-commercial, non industrial purpose, in view of the

exclusionary clause in clause (b) of the definition of WCS.

This is the only possible and harmonious interpretation possible of the several clauses

under Explanation (ii) of Section 65 (105)(zzzza), a distinct taxable service defined with

constituent elements thereof substantially drawn from elements of pre-existing taxable

services like ECIS, CICS or COCS; and other services when bundled to amount to

turnkey/ EPC;

(ii) Construction of canals/ pipelines/ conduits to support irrigation, water supply or for

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, in view of

the exclusion enacted in clause (b); and

(c) Issue (E): Where under an agreement, whether termed as works contract, turnkey

or EPC, 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 works passes on accretion to or incorporation into the

works on the property belonging to the employer/ contractee, the principal contractor

cannot be considered to have provided the taxable (works contract) service

enumerated and defined in Section 65(105)(zzzza) of the Act.

Reference answered in favour of assessees

Case laws cited:

State of A.P. vs. L & T Ltd - 2008-TIOL-158-VAT-SC ....Para 7(e), 20

Indian Hume Pipe Co. Ltd. vs. Commissioner of C. Ex. Trichy - 2008-TIOL-1665-CESTAT-

MAD ...... Relied on (para 15 (i))

A. Sekar vs. CCE - 2010-TIOL-620-CESTAT-MAD ..... Relied on (para 15 (ii))

Trichy; Dinesh Chandra Agrawal vs. A. Infracon Pvt. Limited - 2010-TIOL-1413-

CESTAT-AHM .... Relied on (para 15 (ii))

Surindra Engineering Co. Limited vs. CC, Mumbai 2012 (27) STR 77 (Tri.Mumbai)....

Relied on (para 15 (ii))

Lalit Constructions vs. CCE, Raigad (Tribunal Decisions) 2012 (27) STR 138 (Tri.

Mumbai)..... Relied on (para 15 (ii))

Strategic Engineering Pvt. Ltd. vs. Additional Commr. C. Ex. Mumbai - 2011-TIOL-547-

HC-MAD-ST ......Relied on (para 15 (ii))

Bangalore Water Supply and Sewerage Board and Others vs. R. Rajappa and Others

AIR (1978) SC 548.... Para 17 (iii)

Alstom Projects India Ltd. vs. Commissioner of Service Tax, Delhi - 2011-TIOL-459-

CESTAT-DEL .... Relied on (Para 18(b))

Ramky Infrastructure Limited vs. CST, Hyderabad - 2012-TIOL-613-CESTAT-BANG ....

Overruled (Para 18(b))

Union of India (UOI) and Anr. Vs. Vijay Chand Jain (1977) 2 SCC 405.... Para 18(b)(iv)

Commissioner of Income Tax vs. Bharat Heavy Electrical Ltd. - 2012-TIOL-727-HC-DEL-

IT ..... Para 18(b)(vi)

Larsen & Toubro Ltd Vs CST Delhi – 2015-TIOL-527-CESTAT-DEL-LB … Relied on (Para

18 (b) & 18(h)

Commissioner of Customs, Bangalore vs. Spice Telecom - 2006-TIOL-146-SC-CUS-

LB ...... Para 18 (viii)

Radius Corporation Ltd. vs. CCE, Raipur 2014 (33) STR 416 (Tri. Del.).... Para 18 (s)

Dr.Lal Path Labs Pvt. Ltd. vs. CCE, Ludhiana - 2006-TIOL-1175-CESTAT-DEL … Para 18(t)

CCE, Ludhiana vs. Dr. Path Labs Pvt. Ltd. 2007 (8) STR 337 (P&H) = 2007-TIOL-533-HC-

P&H-ST .... Para 18 (t)

Infosys Limited vs. CST, Bangalore - 2014-TIOL-409-CESTAT-BANG ......Para 18 (t)

South Gujarat Roofing Tiles Manufacturers Association and Anr. Vs. The State of

Gujarat and Anr . (1976) 4 SCC 601 … Para 18(u)

Reserve Bank of India vs. Peerless General Finance and Investment Co. Ltd. and Ors .

(1987) 1 SCC 424 … Para 18(u)

Godfrey Phillips India Ltd. and Anr. Vs. State of U.P. and Ors . - 2005-TIOL-10-SC-LT-

CB … Para 18(u)

CBEC Circulars referred:

1. Circular No 123/5/2010 dated 24.05.2010 (para 18(b), 18(o)

2. Circular No 116/10/2009 ST dated 15.09.2009 (para 18(c)(vii)

3. Circular No 80/10/2004 ST dated 17.09.2004 (para 18(e)

INTERIM ORDER NOS.57 to 112/2015

Per: G Raghuram:

We have heard learned Sr. Counsel Shri V. Sridharan, Shri S. R. Ashok and Sh. S. Ravi;

learned Counsel Shri B.V. Kumar, G. Natarajan, MdShafi, K. Vijay Kumar, R. Murlidhar

and Ms. NishaBineesh, for the appellants - assessees; and Dr. Anil Nigam, Shri R.

Gurunathan, ShriMohd. Yusuf, Shri Govind Dixit and ShriAmresh Jain, learned ARs for

the respondent/ Revenue.

2. By the order dated 15.09.2014, Hon'ble Supreme Court in Civil Appeal Nos. 8847 to

8849 of 2014 directed 47 appeals (from a list submitted by ShriRadhakrishnan, ld. Sr.

Counsel appearing for the Revenue) alongwith other connected cases pending

adjudication before the regional Bench, CESTAT at Bangalore to be heard by a full

Bench, presided by the President and to be disposed of by 15.03.2015.

3. The full Bench assembled on 15.12.2014 to hear the appeals (in terms of the

direction of the Hon'ble Supreme Court), after issue of notices to parties concerned.

The appeals were heard during 15.12.2014 to 19.12.2014. 79 matters were listed on

the Board of the full Bench. Of these, in 19 appeals stay applications were pending

disposal and Revenue contended that these appeals be not disposed of without

considering waiver of pre-deposit and grant of stay. It was also urged that in ST Appeal

Nos. 03174/2011 and 26382/2013, stay applications are pending consideration. In ST

Appeal Nos. 3146/2011, 3147/2011, 254/2012 and 25302/2013, appellants Counsel

contended that some substantive issues and regarding quantum of pre-deposit to be

made, were pending before the Andhra Pradesh High Court. On behalf of Revenue, the

contention on behalf of assessees that some aspects of the issues involved in these

appeals were pending consideration before the Andhra Pradesh High Court, was not

contested. Shri B. V. Kumar, learned Counsel also pointed out that in S. T. Appeal No.

3394 of 2012, the liability is also confirmed on the basis that the appellant (SCL

Infratech Ltd.) had also provided Business Auxiliary Service and was the recipient of

Management and Business Consultancy Service wherefor the liability was confirmed on

reverse charge basis, erroneously.

4. Appellants are the assessees, who had provided construction related and other

categories of composite, bundled services, which inhered deemed sales (transfer) of

property in goods together with rendition of associated services involved in execution

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 service

falling within the ambit of any of pre -existing taxable services pertaining to

construction such as ECIS; Commercial or Industrial Construction Service (CICS); or

Construction of Complex Service (COCS).

The issue whether works contract was taxable prior to 01.06.2007 was heard and

reserved for judgment by a special Bench (five Members) of the CESTAT. The judgment

on this issue was not pronounced (as on the date of conclusion of arguments in the

batch of appeals). We therefore informed the Bar that this issue and in the

circumstances cannot appropriately be decided by this Bench and must await the

decision by the special Bench.

6. Learned Counsel and learned ARs also submitted that there are several disputed

factual positions with regard to the nature and interpretation of the contracts/

agreements in issue (in the several appeals); with regard to other taxable services; and

other disputes with regard to valuation, which ought to be considered in each of the

appeals, separately.

7. In the above circumstances, we indicated that we would hear and dispose of issues

which are common, excluding the issue whether works contract was a taxable service

prior to 01.06.2007. All parties agreed to this course of action. On behalf of the several

Counsel, five issues were identified for disposition by this Bench. Revenue does not

demur. The issues presented for our consideration are:

Issues :

A) Whether laying of pipelines for lift irrigation systems, transmission and distribution

of drinking water or sewerage, undertaken for Government/ Government undertakings

should be classified under ECIS as erection, commission or installation of plant,

machinery, equipment or structures, whether pre-fabricated or otherwise; or

installation of plumbing, drain laying or other installations for transport of

fluids, enumerated in Section 65(105)(zzd) and defined Section 65(39a), during

16.06.2005 to 31.05.2007; or must be classified under CICS, as amounting

to construction of pipeline or conduit ; and if classifiable under the later provision,

whether the activity is not taxable since it is not used or to be used, engaged or to be

engaged primarily for industry or commerce;

B) Whether construction of canals for irrigation purposes and laying of pipelines

including as part of lift irrigation systems, undertaken for the Government/

Government undertakings is liable to 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

classification set out in Section 65A(2)(a) & (b) and thus fall outside the ambit of levy,

since the activity is not primarily for the purpose of commerce or industry; or whether a

contrary view that clause (e) being an independent entry, activities falling thereunder

would be taxable even if the rendition of service thereby or thereunder, was not

primarily for non commercial or non industrial purposes; and

E) Where execution of the whole or a part of the work is sub-contracted on back to

back basis by the main contractor (which is a joint venture) to sub contractors, in the

absence of any transfer of property in goods involved in the execution of such works,

from the main contractor to the Government/ Government undertakings, whether levy

of service tax in the hands of appellant (main contractor) is valid under WCS, in the light

of the judgment in State of A.P. vs. L & T Ltd - 2008-TIOL-158-VAT-SC.

8. In view of submissions by respective parties adverted to above (of not hearing

appeals where stay applications are pending and where substantive issues involved are

pending consideration before the A.P. High Court), 56 appeals are left for

consideration. In view of the submission that disputed questions of fact; of issues

pertaining to other taxable service; of interpretation of terms of the agreements in

issue; valuation disputes; and issue of taxability of WCS prior to 01.06.2007 are

involved, we take up the five issues set out in the preceding paragraph, for

consideration and determination. After recording our conclusions on the five issues we

shall remit the appeals for determination on merits, to the appropriate Bench, to be

disposed of, in accordance with law and the conclusions recorded by this Bench, on the

five issues we pronounce our conclusions on.

9. Ld. Counsel for appellants furnished a consolidated list of appeals, setting out the

respective appeal numbers; description of the appellant; the period involved; the

quantum of service tax and penalties confirmed; the nature of the work undertaken,

specifying whether the confirmed demand is on the appellant as the main contractor,

while the actual work was wholly executed by a sub-contractor. From the consolidated

tabulated list provided by ld. Counsel we have retabulated the appeals into those

where works were executed entirely by a sub-contractor while the demand is

confirmed against the main contractor 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 JayaprakashGayathri

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 BCBPPL JV

4/2008 to

9/2008

Work executed for

Narmada Valley

Development

Department towards

execution of canal

system for Indira Sagar

Project.

Yes

ST//898/2009

M/s Ramky

Infrastructure Ltd. WPIL

JV.

6/2007 to

5/2008

Execution of pumping

station.

Yes

ST/398/2010 6/2007 to

9/2008

iv) Govt. of MP - PHE

Dept. Lashkar -Gwalior

zone 90 MLD Sewage

Yes

pumping station. v)

Govt. of WB- Dte. Of

PHE - Nadia District -

Surface water based

water supply schemes

for arsenic affected

areas. Vi) Govt. of

Rajasthan- PHE Dept.

Bisalpur Water supply

project, Phase II, Ajmer

vii) Govt. of Jharkhand -

Drinking water and

Sanitation Dept. Giridih

Drinking Water Supply

Scheme. Viii) Govt. of

Jharkhand - Drinking

Water and Sanitation

Dept. - Dhanbad Water

Supply scheme, Phase-I.

Ix) Govt. of Jharkhand -

Drinking water and

Sanitation Dept.

Dhanbad Water Supply

Scheme, Phase-II.

ST/1210/2010

M/s Ramky

Infrastructure Ltd. - WPIL

JV.

6/2008 to

3/2009

Execution of Pumping

Station.

Yes

ST/918/2011

M/s IVRCL - Navayuga

SEW JV

6/2007 to

9/2008

Execution of

SripadaSagar Project -

Phase-I. The work

involves investigation,

soil exploration, design,

supply installation,

testing and

commissioning of

pumping machinery,

transformer sub-

Yes

stations, raising mains,

construction of pump

houses and other civil

structures, channels

without lining and

deliver cistern, etc.

ST/919/2011

M/s IVRCL-JL-JV

6/2007 to

9/2008

Execution of HNSS Lift

Irrigation scheme and

the work involves

pipelines/ conduits. The

scope of the work


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/920/2011


6/2007 to

9/2008


Irrigation scheme

&Kalleswaram Lift

Irrigation scheme. The

work involves laying of

pipelines.

Yes

ST/921/2011 6/2007 to

9/2008

i) Pilot Micro Irrigation

scheme under

Gandikota Reservoir;

and ii) Pada Lift

Irrigation scheme -

Gandikota Reservoir.

Yes

The scope of work

involves laying of

pipelines as part of lift

irrigation work, drawing

water from Gandikota

Reservoir.

ST/922/2011

M/s IVRCL -SEW- Prasad

JV

6/2007 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

DistributorySystem

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,

SriramSagar Project,

AliminetiMadhava

Reddy Project and

modernisation of

Kanupur Canal system.

Yes

ST/181/2012

M/s IVRCL-JL-IV

10/2008

to 9/2009


Irrigation scheme and

the work involves

pipelines/ conduits. The

scope of the work

Yes


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.

ST/182/2012


10/2008

to 9/2009


Irrigation scheme

&Kalleswaram Lift



pipelines and other

associated electro

mechanical works.

Yes

ST/183/2012

M/s IVRCL-KBL-JV

10/2008

to 9/2009

The projects involved: i)

Pilot Micro Irrigation

scheme under


and ii) Pada Lift

Irrigation sceheme -


The scope of work

involves laying of




Reservoir.

Yes

ST/221/201M/s PES- 3/2008 to Supply, design,

fabrication,

Yes

SEW-JV 9/2008 transportation &

erection of steel liner,

penstock and

appurtenant works of

MyntduLeshka Hydro

Electrical Project (2x24

MV) for the State

Electricity Boad.

ST/1676/2012

M/s L&T KBL JV

10/2008

to 9/2009

Package No. L104/06-

07- investigation,

design, supply and

erection of necessary lift

systems with all

electrical and

mechanical

components, surge

protection systems and

all control valves for

lifting 7.50 TMC in 45

days from storage

Reservoir-3 (+260.00M)

including improvements

to GoddumarriAnicut to

provide a capacity of

0.07 TMC in Anantapur

District.

Yes

ST/3311/2012

M/s L&T KBL JV

10/2009

to 9/2010

Package No. L104/0607-

investigation, design,

supply and erection of

necessary lift systems

with all electrical and

mechanical

components, surge

protection systems and

all control valves for

lifting 7.50 TMC in 45

days from storage

Reservoir-3 (+248.00M)

near Goddamvaripalli

Yes

Village to

GoddumarriAnicut

(+260.00M) including

improvements to

GoddumarriAnicut to

provide a capacity of

0.07 TMC in Anantapur

District.

ST/3348/2012

M/s IVRCL-KBL- MEIL-JV

10/2009

to 9/2010


Irrigation scheme

&Kalleswaram Lift



pipelines and other

associated electro

mechanical works.

Yes

ST/3349/2012

M/s IVRCL-KBL-JV

10/2009

to 9/2010

i) Pilot Micro Irrigation

scheme under


and ii) Pada Lift

Irrigation scheme -


The scope of work

involves laying of




Reservoir.

Yes

ST/3413/2012

M/s Ram Infrastructure

Ltd. VSM JV

4/2009 to

3/2010

Addanki Canal; GKN

canal - Package No. 32;

GNSS Flood flow canal;

Rejeev Augmentation

(diversion) scheme; and

Vamsadhara Project.

Pulichinthala Project

and lower Tapi project.

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

MyntduLeshka 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

ShankaraSamudram

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

9/2011

Bheema Lift Irrigation

Project - Civil works for

pumping stations.

Yes

ST/20922/2014

M/s SEL-GKC Projects JV

2008-2012 Flood Flow Canal

Project

Yes

11. In the following appeals the execution was undertaken by the appellant itself, not

sub-contracted.

TABLE – B

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/441/2009

M/s

LancoInfratech

Limited

6/2007 to

7/2008

Construction of canal - HNSS scheme No

ST/937/2009

M/s Gayathri

Projects Limited

12/2007 to

6/2008

The work involved is package II of

Nagavalli - Formation of flood bank on

Nagavalli River.

No

ST/211/2010 6/2007 to - Indore Municipal Corporation - Urban No

M/s NCC

Limited

9/2008 water supply and environmental

improvement project ii) Govt. of A.P. -

CAD Deptt. Pushkara Lift Irrigation

scheme. Iii) Govt. of A.P. -CAD Deptt.

Mugoladoddi Lift Irrigation Scheme.

ST/425/2010

M/s L&T

Limited

6/2007 to

9/2008

1) Polavaram Project right main canal-

West Godavari District including (a)

"Conducting detailed investigation of

Polavaram Project right main canal

including subsoil exploration

preparation of hydraulic particulars,

design of CM&CD works, fixing B.M.

stones along main canal, preparation

of LP schedules, excavation of main

canal and can lining, construction of

CM & CD works, plantation along the

main canal, formation of service roads

on left bank of main canal complete

excluding cost of land acquisition in

package No. PPRMC-7 from km. 156.50

to km. 174.00,"and (b) Lining of the

above canal either with cement

concrete or any modern techniques

such as geomembrane, geo textiles or

combination of one or two of the

above (EPC - turnkey contract) 2)

Veligonda project "closing of

Gottipadia Gap and Excavation of

Gottipadia canal including.

No

ST/1850/2010

M/s Koya& Co.

Construction

Pvt. Ltd.

6/2007 to

9/2008

Venkatanagaram Pumping scheme,

Guthpa Lift Irrgation scheme, Telugu

Ganga project, Narmada canal project,

water supply pipeline laying work in

various municipal cities.

No

ST/2148/2010

M/s Gayathri

Projects Limited

7/2008 to

3/2009

Package-II of Nagavalli - formation of

flood bank on NagavalliRibber.

No

ST/2818/2011

M/s GKC

Projects 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

4/2010 to

3/2011

Various lift irrigation projects and

water supply projects, all involving

laying of pipelines and other associated

works.

No

Ltd.

ST/25019/2013

M/s

Bhoorathnom

Construction

Co. Pvt. Limited

1/2006 to

12/2010

Construction of pipelines for drinking

water supply, irrigation; seweage

disposal; construction of reserviour

with cannals and distribution channels.

No

ST/25369/2013 10/2008 to

3/2011

15 projects are involved, which are

either canal work or lift irrigation

works.

Yes

ST/25725/2013

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 purposes.

Yes

ST/25802/2013

M/s KVR

Constructions

Ltd.

2006-08 to

2010-11

1. Whether services relating to

erection, commissioning, and

installation services for 132/33 KV,

25MVA, 3 phase, 50Hz ONAN/ONAF on

load tap changer power transformer

with all standard fittings, with all leads

and lifts for the work of KurhaVadoda

not provided by KNR (Appellants) are

liable to pay Service Tax? Lift irrigation

scheme of two numbers.

No

ST/26382/2013

M/s NCC

Limited

10/2003 to

9/2011

i) Indore Municipal Corporation -

Urban water supply and environmental

improvement project ii) Govt. of A.P. -

CAD Deptt. Pushkara Lift Irrigation

scheme. iii) Govt. of A.P. -CAD Deptt.

Mugoladoddi Lift Irrigation Scheme.

No

ST/26428/2013

M/s Viswa

Infrastructures

& Services Pvt.

Ltd.

6/2007 to

3/2012

iv) Govt. of MP-PHE Dept. Lashkar -

Gwalior zone 90 MLD Sewage Pumping

station. v) Govt. of W.B. - Dte. Of PHE-

Nadia District - Surface water based

water supply schemes for arsenic

affected areas. Vi) Govt. of Rajasthan-

PHE Deptt. Bisalpur Water supply

No

project, Phase-II, Ajmer. Vii) Govt. of

Jharkhand - Drinking water and

Sanitation Deptt. Giridih drinking water

supply scheme. Viii) Govt. of Jharkhand

- Drinking water and Sanitation Deptt. -

Dhanbad Water Supply scheme, Phase-

I. Ix) Govt. of Jharkhand - Drinking

water and Sanitation Deptt. Dhanbad

Water Supply Scheme, Phase-II.

ST/26452/2013

M/s Koya& Co.

Constructions

Pvt. Ltd.

6/2007 to

3/2011

Venkatanagaram Pumping Scheme,


Ganga Project, Narmada Canal Project,

Water supply pipeline laying work in


No

ST/26453/2013

M/s Koya& Co.

Constructions

Pvt. Ltd.

10/2009 to

9/2010

Venkatanagaram Pumping Scheme,


Ganga Project, Narmada Canal Project,

Water supply pipeline laying work in


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

6/2007 to

3/2012

Various projects in respect of water

supply, canals, lift irrigation for the AP

No

Brothers

Limited

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 for

construction of pump house and piping

work is also undertaken.

ST/21218/2014

M/s Ch V

VSubbaRao

6/2007 to

3/2012

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 Panchayati Raj RWSS

(Rural Water Supply and Sanitation)

deptt. of Govt. of A.P.

No

12. In the following appeals (according to ld. Counsel) the majority of the several works

undertaken were sub-contracted on back to back basis and only few of the works were

executed by the appellant itself.

TABLE – C

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/25358/2013

M/s Maytas

NCC JV

October

2009

i) GNSS - Package 29 (ii) SRBC

Nandyal - Package 26 (iii) SRSP

Flood Flow canal - package 16 (iv)

Gundalakama (v) Indira Sagar -

(majority

of the

work sub

contracted.

Package 4 (vi) Thotapally Package-2

(vii) Lingala (viii) GNSS - Package 10

(ix) PranahithaChevella Package -

all projects are for drawal of water

from various dams for irrigation

purposes.

Some part

of the

work

executed

by the JV).

ST/25529/2013

M/s R.M.

Mohite& Co.

Bhooratnam JV

6/2007 to

7/2009

10.09.2009

Bhima Lift Irrigation Project -

Package No. 13 - Investigation

design estimation and excavation

of high level RIGHT MAIN CANAL,

distributor system including

construction of CM & CD works etc.

to feed ayacut of 28,400 acres

under Sangambanda balancing

reservoir, Sangambanda (V)

Makhthal (M) Mahboobnagar

District on EPC Turnkey basis.

Section 105(zzzza) Explanation

(ii)(b).

Some were

executed

by the

appellant

and some

were sub-

contracted.

13. Since we are not disposing of the appeals on merits, we have recorded assertions by

ld. Counsel as to the nature of works executed, the period stated to be involved, and

whether the execution was wholly sub-contracted, executed by the appellant itself or

partly by the appellant and partly sub-contracted, as per the information furnished in

the consolidated list. In its written submissions Revenue does not contest these

assertions by ld. Counsel for the appellants, presumably since appeals are not being

finally disposed of by this Bench. 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 provisions including

amendments made thereto from time to time.

ECIS

W.e.f. 01.07.2003, a service provided or to be provided to a customer by a

commissioning or installation agency, in relation to commissioning or installation was

enumerated to be a taxable service in Section 65(zzd). Section 65(28) defined:

'Commissioning or Installation' to mean:

Any service provided by a commissioning or installation agency in relation to

commissioning or installation of a plant, machinery or equipment.

Section 65(29) defined "commissioning and installation agency" as:

any agency providing service in relation to commissioning or installation.

W.e.f. 10.09.2004 Section 65(zzd) was amended as: any service provided or to be

provided to a customer, by a commissioning or installation agency, in relation to

erection, commissioning or installation. Section 65(28) was omitted w.e.f. this date and

Section 65(29) amended to insert the word "erection" before "commissioning or

installation". Also from this date, Section 65(39a) defined "erection, commissioning or

installation" to mean:

Any service provided by a commissioning or installation agency in relation to erection,

commissioning or installation of plant, machinery or equipment.

W.e.f. 16.06.2005 Section 65(39a) was again amended. Since the transactions in issue

fall on and since this date, we extract definition of ECIS as it stands w.e.f. 16.06.2005.

From 16.06.2005:

Section 65(39a) : "erection, commissioning or installation" means any service provided

by a commissioning and installation agency in relation to,-

(i) Erection, commissioning or installation of plant, machinery or equipment; 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;"

The definition was further amended w.e.f. 01.05.2006. It now reads:

From 01.05.2006:

Section 65 (39a): "erection, commissioning or installation" means any service provided

by a commissioning and installation agency, 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) Occupied, or to be occupied, primarily with; or

(iii) Engaged, or to be engaged, primarily in,

Commerce or industry, or work intended for commerce or industry, but does not include

road, airport, railway, transport terminal, bridge, tunnel, long distance pipeline and

dam ;"

W.e.f. 16.06.2005 Section 65 (30a) was substituted to insert therein a new service

termed: "construction of complex" service (COCS), on relocating and redesignation of

the extant "construction service" as "commercial or industrial construction" service and

incorporating this service in Section 65(25b). W.e.f. this date CICS is defined in Section

65(25b) as:

From 16.06.2005:

Section 65(25b): "Commercial or industrial construction service "means-

(a) Construction of a new building or a civil structure or a part thereof; or

(b) Construction of pipeline or conduit; or

(c) Completion and finishing services such as glazing, plastering, painting, floor and wall

tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing

and railing, construction of swimming pools, acoustic applications or fittings and other

similar services, in relation to building or civil structure; or

(d) Repair, alteration, renovation or restoration of, or similar services in relation to,

building or civil structure, pipeline or conduit,

Which is-

(i) Used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in,

commerce or industry, or work intended for commerce or industry, but does not include

such services provided in respect of roads, airports, railways, transport terminals,

bridges, tunnels and dams;"

W.e.f. 16.6.2005, Section 65(105)(zzq) was also amended to reflect the re-designation

and re-definition of "construction service" as "commercial or industrial construction

service". An Explanation was added to sub-clause (zzq) w.e.f. 01.07.2010, which is

however not relevant to this lis.

Counsel for the appellants point out that w.e.f. 16.06.2005 a service known as "site

formation" service was introduced and specified to be a taxable service in Section

65(105)(zzza); defined in Section 65(97a) to mean a service provided or to be provided

to any person, by any other person, in relation to site formation and clearance,

excavation and earthmoving and demolition and such other activities.

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 time to time),

there was no exclusionary clause specifying that it is taxable only when it is primarily

for commerce or industry or intended for commerce or industry. The definition of ECIS

does not also exclude the rendition of this service even if it be in respect of road,

airport, railway, transport terminal, bridge, tunnel and dam. By exemption Notification

No. 17/2005-ST, dated 07.06.2005, Government exempted levy of service tax on ECIS

provided in the course of construction of roads, airports, railways, transport terminals,

bridges, tunnels, dams, ports or other ports.

It is therefore essential to examine the contours of ECIS and CICS, as these services are

defined and to normatively ascertain in what circumstances and which category of

transactions fall within either ECIS or CICS.

To the extent relevant for the analyses on issue (A), it requires to be noticed that w.e.f.

16.06.2005 the definition of ECIS enjoins that this service means any service provided

by a commissioning and installation agency in relation to:

(a) erection, commissioning or installation of plant, machinery or equipment; or

(b) installation - plumbing, drain laying or other installations for transport of fluid.

W.e.f. 16.06.2005, CICS is defined to mean (to the extent relevant for our purposes)

(a) construction of a new building or a civil structure or a part thereof; or

(b) construction of a pipeline or conduit; or

(c) completion and finishing services such as glazing, plastering, painting, floor and wall

tiling, wall covering and well papering, wood and metal joinery and carpentry, fencing

and railing, construction of swimming pools, acoustic applications or fittings and other

similar services, in relation to building or civil structure; or

(d) repair, alteration, renovation or restoration of, or similar services in relation to,

building or civil structure, pipeline or conduit, which is used or to be used; engaged or

to be engaged, primarily in commerce or industry or work intended for commerce or

industry. There is however exclusion of CICS when provided in respect of roads,

airports, railways, transport terminals, bridges, tunnels and dams.

From the several decisions cited before us (covering the period prior to 01.06.2007), it

is seen that Revenue had not adopted a uniform approach to classification of laying of

pipelines for lift irrigation, supply 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 that the contract considered as a whole falls

outside the scope of ECIS (during the period prior to 01.06.2007), was rejected by the

adjudicating Authority.

15. ANALYSES OF CASE LAW :

Now we advert to decisions where the scope of ECIS and CICS, in the context of works

involving laying of pipelines, was considered.

(i) In Indian Hume Pipe Co. Ltd. vs. Commissioner of C. Ex. Trichy 2008 (12) STR 363 (Tri.

Chennai) = 2008-TIOL-1665-CESTAT-MAD, the appellant was a manufacturer of pre-

stressed concrete pipes (PSC) which were cleared to the Tamil Nadu Water Supply and

Drainage Board for use in a water supply project. The appellant also undertook laying of

pipelines and associated works and was assessed to service tax for having provided

commissioning or installation during 01.07.2003 to 09.09.2004 and ECIS during

10.09.2004 to 30.09.2006. Appellant preferred an appeal to CESTAT against the

adjudication order. Revenue contested the appellant's claim as under:

7. The ld. Consultant for the Revenue argued that the pipelines supporting machinery

like pumps etc., sumps and other supporting civil structures built by the assessee could

very well be called a plant. The erection, commissioning or installation service and the

corresponding entry since 1.7.03. Argument that the pipeline was not installed or

commissioned by IHPL was misleading. The activity involved laying, jointing, testing and

commissioning of PVC pipes which resulted in emergence of a pipeline. The works

contract between IHPL and its clients against the turnkey contracts prescribed

completing the entire work satisfactorily and commissioning within the stipulated

period and maintaining the scheme for the specified period. Pipes were used for

transporting water for distribution and hence fell within the definition of equipment.

Equipment was a set of necessary tools, clothing etc. for a particular purpose. The

exclusion of long distance pipeline from construction service did not mean that same

item could not be charged to tax under another heading. Clause (30a) underwent a

change in 2005 budget omitting this exclusion. The impugned service was not in the

course of commerce and had to be classified under erection, installation or

commissioning service. The Daelim Industrial Company (supra) was not relatable to the

present case. The Daelim Industrial Company case decided that a works contract could

not be vivisected and the 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.) = 2003-TIOL-209-CESTAT-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 involves the meaning of the

expression and legislative intent behind scope of the levy of erection, commissioning or

installation. The impugned order found that up to 16.6.95, the assessee had rendered

the taxable activity of erection, commissioning or installation of a plant. The

Commissioner found that "plant represented a fixed investment for carrying out certain

institutional activity for business". The water supply system involving pipelines is

therefore seen as a plant. The activity undertaken by IHPL is construction of pipeline by

earthwork excavation, conveying and lowering of PSC/MS pipes and MS specials, AC

pipes, PVC pipes, CI/GI pipes and jointing materials into the trench; laying to proper

grade and alignment; refilling the trenches with excavated soil after laying of pipes,

construction of sluice valve pits, scour valve pits, air valve pits, thrust blocks, etc.

8.1 We find ourselves in agreement with the appellants' reading of the expressions

contained in the relevant entry, namely, -erection, commissioning or installation'. We

find it elementary that -erection' connotes construction of building of a structure and

laying of pipeline does not involve erection. We find no ambiguity in the expression

installation. It applies to machinery already made which are formally made ready to

operate at the site. Installation implies setting up the machinery ready for use, like

giving power connections or installing driver software in the case of a machine run with

the aid computer software. Commissioning involves the operationalisation of the

machinery after which it starts functioning regularly. In laying of long distance pipeline,

earth is dug and pipes laid and jointed, and the pipes pass through sumps with boosters

at intervals, if necessary. This activity will not involve erection.

8.2 As rightly argued by IHPL, the CBEC Circular No. 62/11/2003-ST., dated 21.8.2003,

inter alia, clarified the levy to the same effect as follows:

1.2 As commonly understood, the activity of installation means the act of putting an

equipment, machinery or plant into its place and making it ready for use. The activity of

installation will start after erection which would refer to putting up civil structures,

commissioning of a plant would mean operationalising an installed plant/ equipment/

machinery.

Whereas erection became part of the entry only from 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 selection of the various meanings of this

simple word. Plant in popular usage means a cluster of buildings or a building in which

machinery are installed usually for manufacture of goods. Long distance pipeline is not

even remotely associated with this common understanding of the word plant. We also

find that a water supply project is an infrastructure facility and a civic amenity the State

provides in public interest and not an activity of commerce or industry. The impugned

order also did not hold it to come under a service of commercial or industrial nature as

submitted by the ld. Consultant for the Revenue. Therefore, the impugned order

demanding duty on the activity of laying of pipeline interpreting it to be erection,

commissioning and installation of a plant is totally misconceived and unacceptable.

(ii) The decision in Indian Hume Pipe Co. Ltd. (supra) was followed in A. Sekar vs. CCE

2010 (19) STR 82 (Tri. Chennai) = 2010-TIOL-620-CESTAT-MAD, Trichy; Dinesh Chandra

Agrawal vs. A. Infracon Pvt. Limited 2011 (21) STR 41 (Tri. Ahm.) = 2010-TIOL-1413-

CESTAT-AHM; in an interim order in Surindra Engineering Co. Limited vs. CC, Mumbai

2012 (27) STR 77 (Tri.Mumbai), and in Lalit Constructions vs. CCE, Raigad (Tribunal

Decisions) 2012 (27) STR 138 (Tri. Mumbai). The Madras High Court in Strategic

Engineering Pvt. Ltd. vs. Additional Commr. C. Ex. Mumbai 2011 (24) STR 387 (Mad.)

= 2011-TIOL-547-HC-MAD-ST allowed the writ petition against an adjudication order

classifying pipeline laying as ECIS.

During 10.09.2004 to 16.06.2005, "construction service" defined in Section 65(30a)

excluded service when provided in relation to "long distance pipeline", from the scope

of the definition. W.e.f. 16.06.2005 "construction of pipeline of conduit" was included

in the definition of CICS, defined in Section 65(25b). Apart from the decisions referred

to above which consistently ruled that construction of a pipeline for transmission of

water or sewerage falls outside the scope of ECIS, it requires to be noticed that

construction of pipelines involves associated works such as digging trenches,

construction of supporting masonary structures, jointing of pipes; and in cases of

construction of pipelines for lift irrigation, pumping / booster stations and other

electro-mechanical works as well. Therefore construction of a pipeline does not

amount to "other installations for transport of fluids", a clause in Section 65(39a)(ii)(b),

but is more appropriately 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 surface in contact with the atmosphere, while pressure conduits have a

confined water surface. Under each of these general classifications there are several

types of conveyance systems in common use. Pressure Conduits are enclosed pipes

where water flows at a pressure higher than the atmospheric pressure. S. B.

Sarkar's Words and Phrase of Customs and Excise (4th Edition) states that "conduit" is

a channel, pipe, tube or duct through which a fluid, liquid or gas may pass; a channel for

conveying water or other fluid or liquids.

Section 65A enacts provisions for classification of taxable services. This provision reads:

65A. Classification of taxable services

(1) For the purposes of this Chapter, classification of taxable services shall be

determined according to the terms of the sub-clauses of clause (105) of section 65.

(2) When for any reason, a taxable service is, prima facie, classifiable under two or more

sub-clauses of clause (105) of section 65, classification shall be effected as follows:-

(a) The sub-clause which provides the most specific description shall be preferred to sub-

clauses providing a more general description;

(b) Composite services consisting of a combination of different services which cannot be

classified in the manner specified in clause(a), shall be classified as if they consisted of a

service which gives them their essential character, insofar as this criterion is applicable;

(c) When a service cannot be classified in the manner specified in clause (a) or clause

(b), it shall be classified under the sub-clause which occurs first among the sub-clauses

which equally merit consideration.

The Board addressed a communication dated 07.01.2010 forwarding a clarification on

an advice sought from the Commissioner of Central Excise, Mysore with regard to

leviability of service tax on construction of integrated structures by KSRTC, which were

to serve as a commercial complex and a bus terminal. The Board after stating that a

single construction contract for construction of a commercial complex as well as a

transport terminal cannot be vivisected for the purpose of levy of service tax, added

that a solution must be found as laid down in Section 65A(2) of the Act. The Board

clarified: Though, this provision is intended to be applied to cases where two distinct

taxable services are provided in a composite manner, the principle 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 associated works like digging of the earth, supporting masonry structures,

refilling the earth, jointing of different lengths of pipes for laying the pipeline/ conduit,

construction of pumping stations together with associated machinery and other

construction works, including for transmission of water in lift irrigation projects, cannot

be classified under ECIS. These services are only classifiable as CICS. Where the

pipeline/ conduit laying is executed for Government or Government undertakings as

part of irrigation, water supply, or sewerage projects, the works are not exigible to

service tax under CICS (prior to 01.06.2007), since these are not primarily for

commercial or industrial purposes and are excluded from the scope of the taxable

services qua the exclusionary clause definition of CICS, in Section 65(25b) of the Act.

16. ISSUES (B); (C) and (D) :

These issues overlap and invite integrated analyses. W.e.f. 01.06.2007 (by the Finance

Act, 2007) sub-clause (zzzza) was inserted in Section 65(105) to bring "works contract"

within the ambit of service tax. This provision reads:

(zzzza) to any person, by any other person in relation to the execution of a works

contract excluding works contract in respect of roads, airports railways, transport

terminals, bridges, tunnels and dams.

Explanation: For the purposes of this sub-clauses, "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 air-conditioning 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 restoration of, or

similar 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, repair, alteration, renovation, restoration or similar activities

pertaining to buildings, civil structures, pipelines or conduits. Therefore, only such

electrical works that are parts of (or which result in emergence of a fixture of) buildings,

civil structures, pipelines or conduits, are covered under the definition of this taxable

http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2010/sercir123.htm

service. Further, such activities undertaken in respect of roads, railways, transport

terminals, bridges, tunnels and dams are outside the scope of levy of service tax under

this taxable service.

(ii) Under -Erection, commissioning or installation services', the activities relevant to the

instant issue are (a) the erection, commissioning and installation of plant, machinery,

equipment or structures; and (b) the installation of electrical and electronic devices,

including wiring or fitting therefor. Thus, if an activity does not result in emergence of

an erected, installed and commissioning plant, machinery, equipment or structure of

does not result in installation of an electrical or electronic device (i.e. a machine or

equipment that uses electricity to perform some other function) the same is outside the

purview of this taxable service.

(iii) Works contract incorporates the inclusions and exclusions of the aforementioned

two taxable services (amongst others) and it is the nature of the contract (i.e. a contract

wherein the transfer of property in goods involved is leviable to a tax as sale of goods)

rather than the nature of activities undertaken, that distinguishes it from the previously

stated taxable services. Thus, even in the case of -works contract' if the nature of the

activities is such that they are excluded from aforesaid two services then they would

generally remain excluded from this taxable service as well. (emphasis added).

(b) Section 65(105)(zzzza) Explanation (ii)(e) specifies "turnkey projects including

engineering, procurement, construction or commissioning (EPC) projects", as a works

contract. The terms "EPC / Turnkey" denote the mode of and the integers embedded in

execution of large projects. There is no statutory definition provided of these terms.

The following are the definitions of EPC / turnkey contracts as per technical

Dictionaries.

(a) Dictionary of Civil Engineering - John S. Scott (4 th Ed.). Turnkey contracts/ design

and build contract/ design and construct contract / package deal 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 is fixed at the time the contract is

signed.

(d) Farlex Financial Dictionary - A construction contract in which the price is fixed at the

time the contract is signed. As a result, the construction company is held responsible for

exceeding the budget. Turnkey construction contracts reduce the risk to the buyer of the

construction services and provide an incentive for the company to stay within the

budget.

(e) International Federation of Consulting Engineers ; Extract from "applicability of

different patterns of General Conditions of Contract".

(i) "EPC / Turnkey Contract

1. Is it a Process Plant or a Power Plant (or a factory or similar) where the Employer -

who provides the finance - wishes to implement the project on a Fixed-Price Turnkey

Basis?

When the Employer wishes the Contractor to take total responsibility for the design and

construction of the process or power facility and hand it over ready to operate "at the

turn of a key".

- and the Employer wishes a higher degree of certainty that the agreed contract price

and time will not be exceeded

- and the Employer wishes - or is used to - the Project being organized on a strictly two

party approach, i.e. without an "Engineer" being involved.

- and the Employer does not wish to be involved in the day-to-day progress of the

construction work, provided the end result meets the performance criteria he has

specified

- and the Employer is willing to pay more for the construction of his Project (than would

be the case if the Conditions of Contract for Plant and Design-Build were used) in return

for the Contractor bearing the extra risks associated with enhanced certainty of final

price and time".

(ii) EPC - Engineering Procurement Construction

EPC stands for Engineering, Procurement, Construction and is a prominent form of

contracting agreement in the construction industry. The engineering and construction

contractor will carry out the detailed engineering design of the project, procure all the

equipment and materials necessary, and then construct to deliver a functioning facility

or asset to their clients. Companies that deliver EPC Projects are commonly referred to

as EPC Contractors.

The EPC phase of the project is also known as the Execution phase which normally

follows what is know as a FEED or Front End Engineering Design phase. The FEED is a

basic engineering design used 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 to the time a project owner would like the

project delivered, and engineering and construction company can be given work on a

direct reimbursable basis to start with followed by conversion to LSTK once sufficient

time and resources can be allocated to quantifying and pricing the scope of works. One

method to convert from a reimbursable to LSTK Contract is called an Open Book

Estimate or OBE in which the Contractor will open all their working documentation or

books for representatives of the client to assess what the total scope of works for

delivering the project will be. An agreed LSTK scope of works and price will be

negotiated and agreed between EPC Contractor and Project Owner during the execution

of EPC activities.

(f) Extracts from "Understanding and Negotiating Turnkey and EPC

Contracts", by Joseph A. Huse (2002)

Under an EPC agreement, the contractor provides all of the engineering, procurement

and construction. Under a turnkey contract, the contractor supplies the final design of

the project. From the perspective of the author these terms are largely interchangeable.

Design Build, EPC and Turnkey.

The "turnkey" arrangement (also known as the "package deal", "design and build", "cle-

en main", "design and construct" or "EPC") places the duty to design and construct

solely on the contractor. The term "turnkey" tends to mean the most extreme form of

placing design and construction responsibility on the contractor, such that after

completion the employer need only to turn the key. Notwithstanding this, the term

"turnkey" will be used here to describe the more general global arrangement of placing

all design, procurement and construction responsibilities on one contractor. The turnkey

system generally uses the lump sum pricing method".

(g) Distinction between "EPC" and "Turnkey" contracts - Wikipaedia -

EPC is a contract comprising Engineering, Procurement and Construction. Turnkey is a

contract comprising Engineering, Procurement and Construction. If you look at the

definition, you may find no difference between two concepts, but there are some

differences between the two concepts, as follows.

1. In EPC, there is an employer who will provide basic engineering to contractor and the

later shall perform detailed design based on received basic design.

2. In turnkey, employer only will provide certain technical specifications of the project

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 of turn

key projects including EPC.

(d) While clauses (a) to (d) in the definition of WCS are drawn from pre-existing

definitions of taxable services such as ECIS, CICS and COCS - defined in Section 65(39a)

and (91a), 65(25b) and Section 65(30a) clause (e) is intended to cover all modes of

executing works contract falling within sub-clauses (a) to (d) including when executed

as EPC/ Turnkey projects. The legislative intention is to tax all genres of services

comprised in composite contracts involving deemed transfer of property in goods and

rendition of associated services involved in the execution of works contract. Thus,

EPC/Turnkey projects may comprise not merely services falling within the ambit of ECIS,

CICS or COCS but other taxable services such as Architect Service (clause 6), Consulting

Engineer Service - (clause 31) Design Services - (clause 36b) Intellectual Property Service

- (clause 55b); Interior Decorator Service - (clause 59) Real Estate Consultant Service -

(clause 89), Site Formation and Clearance, Excavation and Earth Moving and Demolition

Service (clause 97a), Technical Testing and Analyses Service - (clause 106); Technical

Inspection and Certification Service - (clause 108), as well.

One of more of the above services, apart from defined components of ECIS, CICS or

COCS would invariably be bundled into an "EPC/ Turnkey mode of execution of a works

contract defined in Section 65(105)(zzzza).

(v) Sub-clause (e) is introduced to avoid interpretational complexities and classification

of complex and bundled services which are integers of agreements involving transfer of

property in goods coupled with rendition of several varieties of services, involved in a

works contract in execution of major infrastructure or development projects.

(vi) In many of the appeals, earth excavation, forming embankment and construction of

channels, excavation of feeder canals, flood flow canals, canal systems, canal lining with

either cement concrete, geo-membrane or geo textiles etc. for irrigation, lift irrigation,

water supply, or sewerage purposes, is involved. Clause (b) of the definition of "works

contract" includes "a pipeline or conduit, primarily for the purpose of commerce or

industry". The words "pipeline" and "conduit" are not defined. "Conduit", according to

general and technical Dictionaries means a passage for water or any other liquid; and 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

pipelines are used, as in "lift irrigation". All these works are comprised within the

meaning of "pipeline" or "conduit". Where these are constructed (in the agreements in

issue in the appeals) for Government / Government undertakings for irrigation, water

supply or sewerage disposal purposes, the works are not for commercial or industrial

purposes and would fall outside the scope of the definition in clause (b) of WCS. The

residual entry in clause (e) is an enactment ex abundant cautela. Further, in terms of

Section 65A, the specific description/ definition of a taxable service must prevail over

the generic description, which describes a mode of execution, as in clause (e).

(vii) The definition of "works contract" excludes works contract in respect of a "dam".

"Dam" is not defined. We may notice the several meanings of "dam" as provided in

dictionaries:

(i) Merriam Webster Dictionary - Barrier built across a watercourse for impounding

water. Barrier built across a stream, river, or estuary to conserve water for such uses as

human consumption, irrigation, flood control and electric power generation. Modern

dams are generally built of earth fill, rock fill, masonry or monolithic concrete. Earth-fill

(or embankment) dams, are usually used across broad rivers to retain water. Concrete

dams may take various forms;

(ii) Cambridge Dictionary - a wal l built across a river that stops the river's flow and

collects the water, especially to make a reservoir (an artificial lake) that provides water

for an area" ;

(iii) Oxford Dictionary - a barrier constructed to hold back water and raise its level,

forming a reservoir used to generate electricity or as a water supply;

(iv) Collins Dictionary - a barrier of concrete, earth etc., built across a river to create a

body water, as for domestic water supply; a reservoir of water created by such a barrier

something that resembles or functions as a dam"; and

(v) Wikipaedia - a dam is a barrier that impounds water or underground streams. Dams

generally serve the primary purpose of retaining water, while other structures such as

floodgates or levees (also known as dikes) are used to manage or prevent water flow

into specific land regions. A dam can also be used to collect water or for storage of

water which can be evenly distributed between locations

(e) From the above meanings of "dam" it is clear that it is 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 responsibility for

execution, from the stage of design is on the contractor and on completion the project

is handed over to the client in a ready to use condition. In the several contracts in issue

in the several appeals, Governments/ Government undertakings have used the term

EPC/ Turnkey in a loose manner. All the works are only for specified packages i.e. each

package pertaining to a segment of the whole project and each package is awarded to a

different contractor. Under such agreements, each of the appellants would be

constructing only a portion (reach) of the entire stretch of the channel/ canal/ pipeline,

awarded under the specified package. Unless the entire length of the channel/ canal/

pipeline is constructed, the project is incomplete. In the circumstances, works executed

by each of the appellants comprising only a part / segment of the entire project cannot

be considered EPC/ turnkey. In some of the appeals, only preparatory work such as

execution or strengthening of embankment of the canal work is awarded but is yet

called as EPC / turnkey. Such works cannot under any circumstances be considered as

EPC/ turnkey projects. It requires to be noticed that while clause (b) of the definition of

WCS, covers "part of a building or civil construction", clause (e) dealing with EPC/

turnkey projects does not specify a part of EPC/turnkey projects as the taxable service.

In all appeals, since the appellants executed only a part/ package of the overall project,

for a limited distance of the whole, the work cannot be considered as EPC/ Turnkey,

notwithstanding its description as such in the relevant agreements.

(h) Section 65(97a) defines "Site Formation and Clearance, Excavation Earthmoving and

Demolition", which service is defined to include-

(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".

The various activities awarded in agreement in issue in some 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 structure or a part thereof;

a pipeline; irrigation, commissioning or installation of plant, machinery, equipment or

structures; and plumbing, laying of drains or other installations for transport of fluids.

Other activities involved are in the nature of designing of structures to be executed;

Design and Engineering, Procurement and Installation; Commissioning and like works.

Taken together, the several activities can not be classified in anyone of the clauses (a)

to (d) of WCS. T he several categories of works executed under the agreements

considered as a whole fall specifically under clause (e), since this is the comprehensive

sub-clause which enumerates activities of Engineering Procurement and Construction

or Commissioning (EPC) or turnkey;

(ii) exhypothesi even if assumed that the activities are classifiable under clause (b), it

would not be excluded from the levy since the activities are for industrial purposes.

One of the works involves lifting 4.50 TMC of water from Godavari river near

Kannepally (v) near Kaleswaram of Karimnagar District to feed an ayacut of 45,000

acres. This work is not only for the of the population residing in these areas but also to

farms, industrial areas, commercial establishments, complexes, malls etc., of those

areas;

(iii) In view of the decision in Bangalore Water Supply and Sewerage Board and Others

vs. R. Rajappa and Others AIR (1978) SC 548, whether a particular body is an industry is

not dependent on whether the activity thereunder is undertaken by corporate body in

the discharge of its statutory functions or even by the State itself. It is only the process

involved in the activity, objectively viewed which is the determinative factor in deciding

whether the activity is an industry. Hence, it cannot be said that supply of water or

creation of an irrigation distributory scheme or a lift irrigation project is not for

industrial purposes.

(iv) "Dam" (which is excluded from the scope of the taxable service in the definition of

WCS), means only the civil construction and installation of gates extending to the

stretch of the river or stream. A "Dam" is confined to that portion of the structure

which obstructs the natural flow of water in a river or a stream. No civil construction,

structure or installation extending beyond the main Dam structure would fall within the

meaning of the word "Dam". Thus, canal systems which originate 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 these would pertain to irrigation, which is excluded

only under "Site Formation Service".

(vi) In respect of "Site Formation Service" Government issued exemption Notification

No. 17/2005/ST dated 16.03.2005, exempting the said service when provided "in

respect of dams". Similarly, in respect of WCS, Notification No. 41/2009/ST dated

23.10.2009, granted exemption in respect of works contract provided in respect of

canals. These Notifications, issued under Section 93 of the Act, establish that works

contract in respect of canals is otherwise included within the scope of the taxable

service and that execution of canals is outside the purview of "Dam", which alone is the

excluded component.

(vii) The definition of WCS uses both the expressions - "In relation to" and "in respect

of ". "In relation to" means "in the context of", "in connection with". On the other

hand, "in respect of" means "as regards", "with reference to". Thus, the expression "in

relation to" has a wider connotation than "in respect of". Consequently, since works

contract "in respect of" "Dam" is excluded from the scope of the definition, it must be

given a narrow construction and irrigation and canal systems fall outside the scope of

exclusion.

(viii) Assessees contention that where contracts involve only a package or a specified

distance out of the overall project, it would not constitute an EPC/ Turnkey Project and

only when the entirety of the larger project is executed by one entity it would amount

to EPC/ Turnkey project, is misconceived. The definition of WCS, in clause (e) under

Explanation (ii) thereof does not specify any such requirement. Even if a portion,

package or a reach of the entire and larger project is awarded to a contractor and that

portion, package or reach answers the description of EPC/ turnkey, the same would be

taxable under clause (e). In each of the contracts in issue, the terms thereof stipulate

that it is an EPC / turnkey project. All these contracts therefore fall within the ambit of

EPC turnkey projects, under clause (e) under Explanation (ii) of WCS.

18 . ANALYSES OF ISSUES (B); (C) and (D) :

(a) WCS was introduced by the Finance Act, 2007 w.e.f. 01.06.2007 by insertion of sub-

clause (zzzza) in Section 65(105) of the Act. The provision reads:

Section 65 (105) (zzzza) : to any person, by any other person in relation to the execution

of a works 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 restoration of, or

similar services, in relation to (b) and (c); or

(e) Turnkey projects including engineering, procurement and construction or

commissioning (EPC) projects ;

From the definition of WCS, it is clear that only specified categories of works contract

are considered for levy of service tax. These are enumerated in clauses (a) to (d) of

Explanation (ii) in the definition. Clause (e) refers to -

Turnkey projects including engineering, procurement and construction or commissioning

(EPC) projects.

The question is whether clause (e) signifies a distinct category of service, distinct from

those enumerated in clauses (a) to (d); or is merely descriptive of the mode of

execution of taxable services comprised in clauses (a) to (d). Assessees contend that

clause (e) merely describes the mode of execution of taxable services enumerated in

clauses (a) to (d) and is intended to cover works contracts involving bundled services

which may comprise more than one component of the taxable services enumerated in

each of the clauses (a) to (d) and contracts where in addition to one or more of the

taxable services enumerated in clauses (a) to (d), there are other services / activities

bundled into the agreement, which may or may not be taxable services elsewhere

enumerated in the Act to be so.

b. Before proceeding to a detailed analyses of these issues, it is necessary to consider

whether EPC/ turnkey projects were taxable prior to 01.06.2007 and if so how such

projects ought appropriately be classified amongst the several taxable services that

were in force prior to 01.06.2007.

In Alstom Projects India Ltd. vs. Commissioner of Service Tax, Delhi 2011 (23) STR 489

(Tri.Del) = 2011-TIOL-459-CESTAT-DEL; a Division Bench of this Tribunal concluded that

EPC contracts are chargeable to service tax even prior to 01.06.2007. The following

observations in para 6.2 of this judgment are relevant:

(2) The entry "Service in relation to execution of work contract" as defined in Section

65(105) (zzzza) is different from services defined in other sub-clauses of Section

65(105).In fact, as discussed above, Section 65(105)(zzzza) read with Rule 2A of

Service Tax (Determination of Value) Rules, 2006 and work Contract (Composite

Schemes for Payment of Service Tax) Rules, 2007 only provide a new machinery

provision for assessment of service tax on "Erection, installation or Commissioning

Contracts", "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

http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2011/2011-TIOL-459-CESTAT-DEL.htm

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)(zzq), Section 65(105)(zzzh) and EPC

contracts which involve transfer of property is goods on which tax as sale of goods is

leviable, and Section 65(105)(zzd), 65(105)(zzq) and Section 65(105)(zzzh) will cover

erection, installation or commissioning service, 'commercial or industrial construction

services' and 'residential construction services' respectively not involving transfer of

property in goods, but it does not mean that prior to 01.06.2007, the services covered

by Section 65(105)(zzd), 65(105)(zzq) and 65(105)(zzzh) involving transfer of property of

goods were not taxable.

(emphasis added)

In view of Alstom Projects India Limited, since an EPC/ turnkey contract (which is also a

works contract) is taxable prior to 01.06.2007 as well, bundled services in a composite,

indivisible contract of this nature require to be classified under any one of the extant

(prior to 01.06.2007) taxable services, by employing classification guidelines set out in

Section 65A of the Act. Normally, since the dominant intention underlying such a

contract would be the construction of a civil structure such as a "Dam" or a canal

system under a dam (and not merely the designing or planning etc., thereof), an EPC/

turnkey contract must be classified (prior to 01.06.2007), under CICS. The special Bench

decision in the recent Larsen & Toubro Limitedreference ruled that works contract is

taxable prior to 01.06.2007 as well. Earlier, in Indian Hume Pipe Co. Limited (supra

considered in para 15(i)], Revenue contended that the contract in issue was a turnkey

contract. We concur with the ruling in Alstom Projects India Limited that turnkey/ EPC

contracts were taxable prior to 01.06.2007 as well, on classification under the

appropriate taxable service applicable. Where such construction is for Government /

Government undertakings, for providing irrigation, water supply, sewerage disposal or

lift irrigation facilities, the activity being not primarily for commercial or industrial

purposes but for delivering the affirmative obligations of the State or a State

instrumentality under the Constitution, the transaction would stand excluded from

liability to tax under CICS, as not being primarily for commercial or industrial purposes.

We notice that another Division Bench, in Ramky Infrastructure Limited vs. CST,

Hyderabad 2013 (29) STR 33 (Tri. Bang) = 2012-TIOL-613-CESTAT-BANG expressed a

contrary 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 Limitednotes 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) = 2015-TIOL-

527-CESTAT-DEL-LB. 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 earlier recorded herein and for the

reasons to follow, this conclusion in Ramky Infrastructure Limited is erroneous. Works

contract "in respect of dams" is excluded from the purview of WCS. A true and fair

construction of the definition of WCS and the exclusionary clause "works contract in

respect of dams", indicates no requirement that works contract executions of

structures ancillary or integrated into a dam project should be taken up along with

construction of the main dam structure and by the same contractor, to come within the

exclusionary clause. This conclusion in Ramky Infrastructure Limited is therefore, with

respect, erroneous and is overruled. In para 10.8, Ramky Infrastructure Limited negated

plea of the appellants therein that where a works contract is assigned to sub-

contractors and the transfer of property in goods used in the execution of such contract

was only from the sub-contractors to the Government and not from the appellants, the

same would not be covered under the definition of WCS. The Tribunal held that the

definition of "works contract" does not so stipulate and proceeded to hold "it is enough

if transfer of property in goods is involved in the execution of the contract and the

same is exigible to sales tax as is the case under consideration". This conclusion is per

incurium the judgment of the Supreme Court in Larsen & Toubro Limited (SC.2008),

which we shall advert to in detail, later herein.

In view of the special (5 member) Bench decision in the Larsen & Toubro

Limited reference, it follows that a works contract is exgibile to service tax even prior to

01.06.2007. In view ofIndian Hume Pipe Co. Limited ; and Alstom Projects India

Limited it follows that a turnkey / EPC contract is exigible to service tax prior to

01.06.2007, under the appropriate taxable service such as ECIC, CICS or COCS. From this

position it inexorably follows that clauses (a) to (e) of the definition of WCS in

Explanation (ii) thereof are enumerations of taxable services drawn substantially from

definitions and integers of existing taxable services such as ECIS, CICS and COCS. From

the decision in Indian Hume Pipe Co. Limited and other decisions [referred to in paras

15(i) and (ii) (supra)], it is clear that laying of pipelines/ conduits for transmission of

water or for disposal of sewerage falls within the ambit of CICS and not ECIS; and where

provided to 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 Engineering Limited vs. CCE, Hyderabad-II 2014 (35) STR

235 (Tri. Bang.). Suffice to notice that this interim order records only prima

facie conclusions in respect of the various aspects dealt with therein. In para 5 of the

above order, Tribunal observes that whether in enacting distinct taxable services such

as CICS w.e.f. 2004 and WCS w.e.f. 01.06.2007, works contract is a distinct and stand

alone taxable entity or is carved partly or wholly from the earlier CICS, is inappropriate

for a detailed analysis at an interim stage of the proceedings.

We are also informed at the Bar that against the pre-deposit ordered in Patel

Engineering Limited (supra), the appellant preferred an appeal which is pending before

the High Court of A.P. wherein an interim order was passed modifying the quantum of

pre-deposit to be made, reported in 2014 (35) STR 297 (A.P.) . It is also urged that an

appeal is preferred against the judgment (final order) in Ramky Infrastructure

Limited which is also pending before the High Court, though no particulars were

provided, of the appeal preferred. We are only stating these facts for completion of the

narrative at the Bar.

(c). The definition of WCS in sub-clause (zzzza) of Section 65(105) of the Act, to the

extent relevant for this part of our analyses, defines the service as one provided or to

be provided "in relation to" the execution of a works contract, excluding works

contract "in respect of , ...... Dams". On its text, the definition of WCS excludes works

contract " in respect of " dams . The expression "in respect of" means:

(i) P. RamanathaAiyar's - The Law Lexicon :

In respect of . The words 'in respect of' convey some connection or relation between the

plaintiff's claim and the personal injuries that he sustained. Paterson vs. Chandwick

(1974) 2 All ER 772, 775 (QBD). (Administration of Justices Act, 1970, S.32 (1)).

Giving the words 'in respect of' 'their widest meaning viz. 'relating to' or 'with reference

to' it is plain that this relationship must be predicated of the grant, renewal or

continuance of a lease and a lease must come into existence simultaneously or

nearabout the time that the money is received. TularamRelumlal v. State of Bombay,

AIR 1954 SC 496. (Bombay Rents, Hotel and Lodging House Rates (Control) Act (57 of

1947) S. 18 (1)).

"The expression "in respect 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 of' are, in my opinion, words of the

widest possible scope. They import such meanings as 'in relation to', 'with reference to',

or 'in connection with'. The phrase 'in respect of' is probably the widest of any

expression intended to convey some connection between two related subject-matters".

Nowegijick v. Canada [1983] 1 SCR 29, (Words & Phrases Legally Defined. Butterworths.

3 rd edition. 1997 Supplement).

"it cannot be said to have a precise legal meaning. Fowler's Modern English Usage' does

it justice by recommending that it be used as seldom as possible". (New Zealand Court

of Appeal in - Phonographic Performances (NZ) Ltd. v. Lion Breweries Ltd.- (1980) PSR

383 (1979). (Garner).

(iii) Mitra's- Legal & Commercial Dictionary -

In respect of . The words 'in respect of' used in s. 3(14) of the Indian Railways Act, may

be taken to mean 'for the provision of' and 'for the user of'. Therefore, irrespective of

the actual user by any particular consignor of the stations, sidings and other things

mentioned therein, terminal charges are leviable by reason of the mere fact that these

things have been provided by the Railway Administration. Sahadara (Delhi) Saharanpur

Light Railway v. Upper Doabs Sugar Mills Ltd. AIR 1960 SC 695: (1960) 2 SCR 926.

The words in respect of are of very wide amplitude and the suit must have relation to or

must have reference to an act purporting to be done by a public officer in his official

capacity. State v. VenkataDurga AIR 1957 AP 675.

(iv) The expression "in respect of ", occurring in Section 23(1b) of the Foreign Exchange

Regulation Act, 1947 was considered in Union of India (UOI) and Anr. Vs. Vijay Chand

Jain (1977) 2 SCC 405, the Court explained:

The words "in respect of" admit of a wide connotation; Lord Greene M1, in Canard's

Trustees v. Inland Revenue Commissioners 174 L.T. Rep. 133 calls them colourless

words. This Court in S.S. Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. and Anr.

MANU/SC/0011/1960: 1983 CriLJ1044 construing these words in Section 3(14) of the

Indian Railways Act, 1890 has held that they are very wide. It seems to us that in the

context of Section 23(1B) 'in respect of' has been used in the sense of being 'connected

with', and we have no difficulty in holding that the currency in respect of 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.

The Court held:

A further question thus arises as regards the interpretation of the phrase "in respect of".

Does it mean charges for the mere provision and maintenance of stations, sidings,

depots, wharves, warehouses, cranes and other similar matters are the terminals or

does it, contemplate charges only for use of sidings, stations, wharves, warehouses,

cranes and other similar matters? The wide enough to permit charges being made as

terminals so long as any of these things, viz., stations, sidings, wharves, depots,

warehouses, cranes and other similar matters have been provided and are being

maintained. The question is whether the import of this generality of language should be

cut down for any reason. It is well-settled that a limited interpretation has to be made

on words used by the legislature in spite of the generality of the language used where

the literal interpretation in the general sense would be so unreasonable or absurd that

the legislature should be presumed not to have intended the same. Is there any such

reason for cutting down, the result of the generality of the language used present here?

The answer, in our opinion, must be in the negative. It is true that in many cases

stations, sidings, wharves, depots, warehouses, cranes and other similar things will be

used and it is arguable that in using the words "in respect of" the legislature had such

user in mind. It is well to notice however that the legislature must have been equally

aware that whereas in some cases accommodation provided by stations will be used, in

some cases sidings will be used, in other wharves, in other warehouses and in other

cases cranes, and in certain cases several of these may be used, in most cases there will

be no use of all of these. From the practical point of view it is impossible to regulate

terminal charges separately in respect of user of each of these several things

mentioned. When therefore the legislature authorised the Central Govt., to fix terminals

leviable would not depend on how many of these things would be used. It is also worth

noticing that the user of a depot, warehouse and cranes would necessarily mean some

service rendered "thereat". If terminals did not include charges in respect of the

provisions of depots, warehouses and cranes unless these were used, there would be no

need of including these in the first portion as they would be covered 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, provision of

these things irrespective of whether any use was made thereof. That was the reason

why such wide words "in respect of" was used. We are therefore of opinion that the

words "in respect of" used in S. 3(14) means "for the provision of" and not "for the user

of". It is worth considering in this connection that the definition of "terminal charges" in

the Indian Act is a verbatim reproduction of the definition appearing in the English

Railway and Canals Traffic Act, 1888 and that only three years before the English

Parliament passed that Act an English Court had held in Hall & Co. v. London, Brighton

and South Coast Rly., Co. (2), that for the purposes of interpretation of section 51 of the

London, Brighton, and South Coast Rly. Act, 1863 which did not include such a definition

of terminal charges, the words "any service incidental to the duty or business of a

carrier", does comprise providing such station accommodation and such sidings, and

such weighing, checking and labelling as is incidental to the duty which they undertake,

of collecting and dealing with the goods as carriers". It is reasonable to think that the

English Parliament in defining "terminal charges" in the Railway and Canals Act, 1889

intended to give effect to this view that provision of station accommodation and sidings

entitled the Railway Administration to levy "terminal charges". When the Indian

Legislature adopted the same definition in its own Act it is proper to think that it also

was aware of the view taken in Hall's case (2). This consideration fortifies the conclusion

which we have already reached on an examination of the scheme of our own Act, apart

from authorities, that the words "in respect of" used in s.3(14) in the definition of (2)

(1885) 15 K.B. 505 .

(vi) The Orissa High Court in Godavaris vs. Nandkisore Das AIR 1953 Ori 111; The

Madras High Court in State of Madras vs. ChitturiVenkataDurgaPrasadarao and Ors. AIR

1957 A.P. 675; the Patna High Court in Commissioner of Income Tax vs.

ChunilalRameshwarLal AIR 1968 Pat 364; the Allahabad High Court in Har vs. Hans Ram

and Ors. AIR 1966 All 124; and the Delhi High Court in Commissioner of Income Tax vs.

Bharat Heavy Electrical Ltd. AIR 1953 Ori 111 - 2012-TIOL-727-HC-DEL-IT, uniformly

interpreted the phrase "in respect of" as a comprehensive expression, to be construed

in a broad sense and as bearing a wider connotation 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 & Construction) mode. The said service is covered under

section 65(105)(zzzza) of Finance Act, 1994. The said section itself excludes works

contract in respect of dams, road, airports, railways, transport terminals, bridges &

tunnels executed through EPC mode. Hence works contract in respect of above works

even if done through EPC mode are exempt from payment of service tax.

The above Board circular represents the executive construction of the scope of EPC/

turnkey contracts in the light of the exclusionary clause in the definition which excludes

works contract in respect of Dams, from the purview of the definition itself.

(viii) Notification No. 41/2009-ST dated 23.10.2009 (issued under Section 93 of the Act)

exempts the taxable WCS in respect of canals, other than those primarily used for the

purposes of commerce and industry, from the whole of the tax leviable thereon under

Section 66 of the Act. This being an exemption Notification and not having been made

specifically retrospective cannot be given a retrospective connotation vide

Commissioner of Customs, Bangalore vs. Spice Telecom 2006 (203) ELT 538 (SC) = 2006-

TIOL-146-SC-CUS-LB. However, an exemption Notification per se cannot be a legitimate

guide to interpretation of the scope of provisions in an Act. Revenue's contention, that

since Notification No. 41/2009-ST (prospectively) exempts execution of works contract

in respect of canals, other than those primarily used for the purposes of commerce and

industry from the levy of tax, it must be presumed that but for this exemption,

construction of canals is taxable under WCS, is misconceived. Whether construction of

canals is excluded from the levy of tax under WCS must be considered independent of

an exemption Notification, on primary analysis of the relevant provision; and if on such

construction this activity is found to be excluded from the purview of the definition of

WCS, an exemption Notification cannot negate the proper interpretation to be put

upon the definition of WCS.

(ix) With introduction of the negative list regime w.e.f. 01.06.2012, Section 66B of the

Act is the charging provision and enjoins levy of service tax on the value of all services,

other than those specified in the negative list, provided or agreed to be provided. The

negative list of services is specified in Section 66D. Clause (h) of Section 66E

(enumerating Declared services) specifies "service 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), is a contention that is stated to be rejected. The exclusionary clause does

not exclude the rendition of CICS if it be even incidentally or also for industrial purpose.

The exclusionary clause would be inapplicable only when the activity is primarily for

industrial purposes.

(e) Board Circular No. 80/10/2004-ST dated 17.09.2004 (issued to clarify the scope of

construction services introduced w.e.f. 10.09.2004) clarifies about the non taxability of

civil constructions used inter alia for providing civic amenities by the Government or

Government agencies - vide para 13.2 and 13.4 thereof.

(f) The position then would be (if Revenue's contentions are accepted), (a) EPC /

turnkey project for civil constructions in respect of dams, canal systems for irrigation

and pipeline/ conduit laying for water supply or sewerage disposal, is not taxable (prior

to 01.06.2007) under CICS; (b) Canal systems executed as turnkey/ EPC projects are not

taxable even under WCS w.e.f. 01.06.2007 in view of para 3 of the Board Circular dated

15.09.2009, but would be taxable if the Board Circular is contrary to the true

interpretation of WCS; (c) Works contract in respect of canals, other than those

primarily used for the purposes of commerce or industry (even under turnkey /EPC

mode) is specifically exempted from levy qua Notification No. 49/2009-ST dated

23.10.2009; and (d) w.e.f. 01.06.2012, on introduction of the negative list, construction

of canals, dams or other irrigation works, pipeline conduit or plant for water supply,

water treatment or sewerage treatment or disposal is exempt w.e.f. 01.06.2012 itself,

vide exemption Notification No. 25/2012-ST dated 20.06.2012.

(g) Nevertheless, Revenue would argue, construction of canals under EPC/ turnkey

mode of execution is leviable to tax under sub-section (e) to Explanation (ii) of Section

65(105)(zzzza).

(h) EPC/ turnkey projects for construction of dams and canal systems for irrigation,

water supply or sewerage disposal, laying of pipelines for transmission of water as in

the case of lift irrigation systems or for transmission of sewerage, clearly fall within the

ambit (prior to 01.06.2007) of CICS, in view of the decision in Alstom Projects India

Limited. A Larger (special) Bench of this Tribunal in the reference in the case of Larsen &

Toubro Limited 2015-TIOL-527-CESTAT-DEL-LB (vide the majority judgment dated

19.03.2015) ruled that a works 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 purposes or laying of pipelines again for transmission of water for irrigation of

drinking water purposes as in the case of lift irrigation systems or for sewerage disposal

is taxable under clause (e), Explanation (ii) in Section 65(105)(zzzza). W.e.f. 23.10.2009,

exemption Notification No. 41/2009-ST exempted works contract in respect of canals

other than those primarily used for the purposes of commerce or industry from the levy

of service tax, by specifically referring to WCS defined in Section 65(105)(zzzza). The

only issue that survives is therefore whether turnkey/ EPC projects pertaining to

execution of works contract for canal systems in respect of dams is taxable during

01.06.2007 to 23.10.2009.

(j) Para 3 of Board Circular No. 116/10/2009 dated 15.09.2009 clarified that works

contract in respect of dams, roads, airports, railways, transport terminals, bridges &

tunnels even if executed through the EPC mode is exempt from tax in view of the

definition of WCS in Section 65(105)(zzzza). Whether construction of canals or

pipelines/conduits for transmission of water by gravity or in lift irrigation systems as the

case may be ought be interpreted as a works contract "in respect of dams" is the

question. If so, construction of canals or laying of pipelines/ conduits would not be

taxable in view of the exclusionary clause in the definition of WCS. Section

65(105)(zzzza) defines WCS (in the pre ambular portion) as an activity " in relation to

the execution of a work contract excluding works contract in respect of dam , road,

airports, railways, transport terminals, bridges, tunnels and dams ".

(k) Is construction of canal systems under works contract not a works contract in

respect of dams?

On a true and fair construction of the definition of WCS (extracted in the preceding sub

para), the provision employs the expression "in respect of ........ dams" as an activity

excluded from the scope of the levy. Earlier in the analyses herein we have noticed that

the expression "in respect of" is an expression having a wider connotation and bears

the widest possible scope. The decision in S.S. Light Railway Co. Ltd. (supra) rules that

the expression "in respect of" may be taken to mean "for the provision of". Supreme

Court in Vijay Chand Jain ruled that the expression "in respect of" admits of a wide

connotation and has been used in the sense of "being connected with". 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 inNowegijick (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 (b) is drawn from essential elements of

CICS defined in section 65(25b), in particular, sub-clauses (a) and (b) thereof. Clause (c)

under Explanation (ii) of the WCS definition is drawn from the definition of COCS, in

particular sub-clause (a) thereof. Clause (d) of WCS is substantially an extract of clauses

(c) & (d) of the definition of CICS and COCS in Section 65 (25b) and (30a), respectively.

(n) In view of the decision in Alstom Projects India Limited , it is clear that turnkey/ EPC

projects were taxable even prior to 01.06.2007 and turnkey/ EPC contracts ought to be

classified either as ECIS, CICS or COCS depending upon the dominant intent or

objectives for which the relevant agreements are entered into. Construction of canal

systems or construction of pipelines/ conduits for transmission of water or sewerage

would be classifiable under CICS prior to 01.06.2007; this is the law declared in CESTAT

decisions. Could Parliament have intended, when introducing clause (e) in Section

65(105)(zzzza), to treat EPC/ turnkey projects as a new species of work contract after

01.06.2007?

(o) To clarify and resolve disputes that had arisen in several parts of the country

regarding taxability of the different activities, taking into account the scope of related

taxable services such as site formation, CICS, ECIS or WCS as well as new services

introduced by Finance Act, 2010, the Board issued a clarificatory Circular

No. 123/5/2010-TRU dated 24.05.2010. In para 2 of the circular the scope of CICS and

ECIS were clarified in clauses (i) and (ii). Clause (iii) in para 2 deals with WCS. Clause (iii)

sets out the following clarification:

(iii) Works Contract' incorporates the inclusions and exclusions of the aforementioned

two taxable services (amongst others) and it is the nature of the contract (i.e. a contract

wherein the transfer of property in goods involved is leviable to a tax as sale of goods)

rather than the nature of activities undertaken, that distinguishes it from the previously

stated taxable services. Thus, even in the case of 'works contract' if the nature of the

activities is such that they are excluded from aforesaid two services then they would

generally remain excluded from this taxable service as well.

From this clarification, it follows that since construction of canals is for irrigation, water

supply or pipelines/ conduits for lift 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 being a non industrial, non commercial purpose would

be outside the scope of CICS. Since 23.10.2009, vide Notification No. 41/2009-ST works

contract in respect of canals, other than those primarily used for the purposes of

commerce or industry is exempt from the levy under WCS. Since works contract in

respect of dams is excluded from the definition of WCS by the provision itself,

exemption Notification No. 41/2009-ST should be considered as issued under a

misconception that construction of canals under a dam though not primarily for

purposes of commerce or industry is nevertheless taxable, which it is not.

(q) We are thus left with the activity of construction of pipelines/ conduits under the

turnkey / EPC mode. When the construction is for Government/ Government

undertakings and for water supply or sewerage disposal purposes, prior to 01.06.2007

this activity is classifiable under CICS and is excluded from the purview of the definition.

Under clause (b) under Explanation (ii) of the definition of WCS, construction of a

pipeline or a conduit primarily for the purposes of commerce or industry is an activity

falling within the definition of WCS. This provision in the definition of WCS is extracted

from the definition of CICS, in parimateria . Construction of pipeline or conduit

(otherwise than under a turnkey/EPC mode), when executed for Government/

Government undertakings for transmission of water or sewerage would be outside the

ambit of levy of tax, in terms of the definition itself, since this would undisputedly fall

within the ambit of sub-clause (b) of WCS.

(r) What then could be the legislative intention in not excluding levy on construction of

a pipeline or conduit when executed under a turnkey/ EPC mode. Revenue does not

explain this incongruity while contending that works contract executed under turnkey/

EPC project mode even in respect of canals, pipelines conduits for Government/

Government undertakings is taxable even if for non commercial, non industrial

purposes!

(s) In Radius Corporation Ltd. vs. CCE, Raipur 2014 (33) STR 416 (Tri. Del.); the issue was

whether pre-construction work undertaken by an assessee like levelling of ground,

construction of culverts, earthen bunds, stone pitching of reservoir bund, construction

of pumping station, staff quarters and the activities are covered under the definition of

CICS or under site formation 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 Demolition Service as

defined under Section 65(97a) of the Act".

(emphasis supplied)

(t) In Dr.Lal Path Labs Pvt. Ltd. vs. CCE, Ludhiana 2006 (4) STR 527 (Tri. Del.) = 2006-

TIOL-1175-CESTAT-DEL; it was held that once there is a specific entry for an item in the

tax code, the same cannot be taken out of such specific entry and taxed under any

other entry. This principle is enacted in Section 65A of the Act and as per clause (2)(b)

of this provision, in case of composite services the classification must be on the basis of

a service which gives them their essential character, insofar as this criterion is

applicable. The decision in Dr. Path Lab Pvt. Ltd.was confirmed by the Punjab &

Haryana High Court in CCE, Ludhiana vs. Dr. Path Labs Pvt. Ltd. 2007 (8) STR 337 (P&H)

= 2007-TIOL-533-HC-P&H-ST. The principle that what is excluded under one entry

(category) cannot be taxed under another was reiterated in respect of outbound

roaming service under Telecommunication Service. The issue was whether services

provided by a foreign telecom service provider could be taxed under Business Auxiliary

Service (BAS) since it is not taxable as Telecommunication Service as a foreign telecom

service provider is not a Telegraphic Authority as per Indian law. Board circulars dated

15.07.2011 and 19.12.2011 clarified that telecommunication service provided by a

foreign telecom service provider could not be taxed under BAS. The Tribunal in Infosys

Limited vs. CST, Bangalore - 2014-TIOL-409-CESTAT-BANG; also ruled that service

provided by a foreign telecom service provider cannot be classified under BAS.

(u) In the several appeals before us proceedings were initiated on the basis that

contracts awarded to appellants are "Engineering Procurement and Construction and

Commissioning (EPC)/ turnkey" contracts. The expression "EPC/ turnkey" was used in

the relevant contracts. Revenue assumed that "EPC" is a species of the genus "turnkey".

This assumption by Revenue is predicated on the basis of clause (e) in the definition of

WCS, which reads:

Turnkey projects including Engineering, Procurement and Construction or

Commissioning (EPC) projects.

Neither "turnkey" nor "Engineering, Procurement and construction or Commissioning

EPC" is defined. We therefore refer to lexicographic assistance for definition of "turnkey

projects".

i)Law Lexicon by P. RamanathaAiyar (2010: Lexis Nexis)

Turnkey contract: A contract under which the 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 known as the 'package deal', 'design and build', 'cle-

en-main', 'design and construct' or 'EPC)' places the duty to design and construct solely

on the contractor. There is no accepted definition for each of these terms in the

construction field .

v) Black's Law Dictionary (Eighth Edition) -

Engineering, Procurement and Construction Contract (EPC) contract -

A fixed price, schedule - intensive construction contract - typically used in the

construction of single -purpose projects, such as entry plants - in which the contractor

agrees to a wide variety of responsibilities, including the duties to provide for the

design, engineering, procurement and construction of the facility, to prepare start-up

procedures; to conduct performance tests; to create operating manuals; and to train

people to operate the facility - Also termed turnkey contract.

vi) Major Law Lexicon of P. RamanathaAiyar (2010: Lexis Nexis)

EPC Contract : Engineering, Procurement and Construction contract (i.e. turnkey

construction contract)

From the guidance derived from the above expositions, it is clear that EPC contracts are

synonymous and are referred to as turnkey contracts as well.

Now we consider whether the word "including" employed in clause (e) under

Explanation (ii) of the definition of WCS must be construed in an expansive or a

restrictive sense.

(i) The word "includes" is generally used in interpretation or definition provisions in

order to enlarge the meaning of words or phrases occurring in the body of the

provision. When so used these words or phrases ought to be construed as

comprehending not only such things as they signify according to the natural import but

those things as well which the interpretation clause declares that they shall "include".

(ii) However, the word "includes" is susceptible to another construction which is equally

compelling. If the context of the Act indicates that it was not employed merely for the

purpose of adding to the natural significance of the words or expressions defined, the

word "includes" must be interpreted as indicating "mean and include"; and in such a

case the word indicates an exhaustive explanation of the meaning of the words and

phrases in the provision which, for the purposes of the provision must invariably be

attached to those words or phrases. Ordinarily "includes" 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 introduced to extend the meaning of potteries industry or

the articles listed therein added ex abundant cautela. It seems to us therefore that the

legislature did not intend every thing that the potteries industry turns out to be covered

by the entry. What then could be the purpose of the Explanation? The Explanation says

that, for the purpose of entry 22, potteries industry 'includes" manufacture of the nine

articles of pottery named therein. It seems to us that the word 'includes' has been used

here in the sense of 'means', this is the only construction that the word can bear in the

context. In that sense it is not a word of extension, but limitation; it is exhaustive of

the meaning which must be given to potteries industry for the purpose of entry 22.

The use of the word 'includes' in the restrictive sense is not unknown. The observation

of Lord Watson in Dilworth v. Commissioner of Stamps (1899) A.C. 105, which is

usually referred to on the use of 'include' as a word of extension, is followed by these

lines: "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". It must therefore be

held that the manufacture of Mangalore pattern roofing tiles is outside the purview

of entry 22.

(emphasis added)

(iv) The significance of the word "includes" was again considered in the context of Prize

Chits and Money Circulation Schemes (Banning) Act, 1978, 1978, in Reserve Bank of

India vs. Peerless General Finance and Investment Co. Ltd. and Ors . (1987) 1 SCC 424

The following passage in the judgment elucidates the different significations of

"includes", depending on the context of the provision in issue and the legislative

intention of the relevant enactment read as a whole:

35. Much argument was advanced on the significance of the word 'includes' and what

an inclusive definition implies. Both sides relied on Dilworth's case. Both sides read out

the well known passage in that case where 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 ArdeshirBhiwandiwala v. State of Bombay

MANU/SC/0236/1971; C.I.T. Andhra Pradesh v. TajMahal Hotel [1971] 82 ITR 44 (SC)

=2002-TIOL-642-SC-IT 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

any of the other cases cited. All that is necessary for us to say is this: Legislatures resort

to inclusive definitions (1) to enlarge the meaning of words or phrases so as to take in

the ordinary, popular and natural sense of the words and also the sense which the

statute wishes to attribute to it, (2) to include meanings about which there might be

some dispute, or, (3) to bring under one nomenclature all transactions possessing

certain similar features but going under different names. Depending on the context, in

the process of enlarging, the definition may even become exhaustive. We do not think

that by using the word 'includes' in the definition in Section 2(a) of the Act, the

Parliament intended to so expand the meaning of prize chit as to take in every scheme

involving subscribing and refunding of money. The word 'includes', the context shows,

was intended not to expand the meaning of 'prize chit' but to cover all transactions or

arrangements of the nature of prize chits but under different names .

(iv) In the context of Entry 62 of List II of the Seventh Schedule of the Constitution, the

Supreme Court in Godfrey Phillips India Ltd. and Anr. Vs. State of U.P. and Ors . (2005) 2

SCC 515 = 2005-TIOL-10-SC-LT-CB considered whether "includes" could in certain

http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=37&filename=legal/sc/2002/2002-TIOL-642-SC-IT.htm

contexts be a word of limitation. The Court explained:

69. It has also been held that the word 'includes' may in certain contexts be a word of

limitation (South Gujarat Roofing Tiles Manufacturers v. MANU/SC/0314/1976 State of

Gujarat): [1977) 1 SCR 878. In the context of Entry 62 of List II this would not mean that

the word 'luxuries' would be restricted to entertainments, amusements, betting and

gambling but would only emphasise the attribute which is common to the group. If

luxuries is understood as meaning something which is purely for enjoyment and beyond

the necessities of life, there can be no doubt that entertainments, amusements, betting

and gambling would come within such understanding. Additionally, entertainments,

amusements, betting and gambling are all activities. 'Luxuries' is also capable of

meaning an activity and has primarily and traditionally been defined as such. It is only

derivatively and recently used to connote an article of luxury. One can assume that the

coupling of these taxes under one entry was not fortuitous but because of these

common characteristics .

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 thEdn. 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 -

(i) xxx xxxxxx

(ii)xxx xxxxxx

(iii) any land held or let for purposes of agriculture or for purposes ancillary thereto,

including waste land, forest land, land for pasture or sites of buildings and other

structures occupied by cultivators of land, agriculture labourers and village artisans;

this Court said:-

"In our opinion the word "including" is intended to clarify or explain the concept of land

held or let for purposes ancillary to agriculture. The idea seems to be to remove any

doubt s on the point whether waste land or forest land could be held to be capable of

being held or let for purposes ancillary to agriculture".

72. In the present context the general meaning of 'luxury' has been explained or clarified

and must be understood in a sense analogous to that of the less general words such as

entertainments, amusements, gambling and betting, which are clubbed with it . This

principle of interpretation known as 'noscitur a sociis' has received approval in Rainbow

Steels Ltd. MANU/SC/0408/1981: CST [1981] 2 SCR 727.

(vi) In Karnataka Power Transmission Corpn. And Anr. Vs. Ashok Iron Works Pvt. Ltd .

(2009) 3 SCC 240 = 2009-TIOL-136-SC-MISC; the Court reiterated the principle that

interpretation of a word or expression must depend on the word and the context. The

resort to the word "includes" often indicates intention of the Legislature that it wanted

to give an expansive and enlarged meaning to such expression. Sometimes, however,

the context may suggest that the word "includes" may have been designed to mean

"means". The setting, context and object of an enactment would provide sufficient

guidance for interpretation of the word "includes" for the purposes of such enactment.

(vii) The above exposition of the meaning of the words "includes" i.e. that it could have

a restrictive connotation, was reiterated in CC, New Delhi vs. Caryaire Equipment India

Pvt. Ltd. 2012 (278) ELT 30 (SC) = 2012-TIOL-17-SC-CUS;

(v) From the guidance provided by the above precedents and in view of the fact that in

the commercial world and practice, in legal and technical Dictionaries, "EPC contracts"

are synonymously known and referred to as "turnkey contracts" as well, we conclude

that in clause (e) under Explanation (ii) of the definition of WCS, turnkey projects and

EPC projects are employed to signify similar, not dissimilar transactions, to indicate

contracts in which a builder 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

http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2009/2009-TIOL-136-SC-MISC.htm

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 specified service or a part thereof would also amount to the taxable service,

this is however not the language in clause (e). Revenue does not, specifically address

this contention.

The above contention on behalf of assesses does not however, in our considered view,

exclude them per-se from the liability to service tax. Earlier in our analyses (on the

present issues), we concluded that clause (e) in the definition of WCS is not indicative

of a distinct works contract service but is an ex abundanticautela and descriptive

provision, intended to embrace genres of works contract which contain elements other

than those indicated in each of the clauses (a) to (d) and which may include elements of

other services as well, bundled into a comprehensive contractual exertion, agreed

between the parties to be executed. We have also ruled that even an EPC /turnkey

contract must be classified to identify the services embedded therein which gives the

contract its essential character; and on such ascertainment of the essential character,

the contract must be classified as falling within any of the enumerated works contract

services set out in clauses (a) to (d), by application of the principles set out in Section

65A(2)(a) and (b). Consequently, if an EPC/turnkey contract falls to be classified under

clause (b) or (c), it cannot be contended that since only a part of the whole or a larger

project is executed by a particular appellant, there is no liability to tax.

(x)

(i) Before recording our conclusions on these issues [Issues (B), (C) & (D)], we advert to

other contentions advanced by Shri V. Sreedharan. Counsel contends that the contracts

in issue are single, indivisible agreements whereby the transfer of property in goods

involved in the execution thereof does not pass to the employer as soon as goods are

brought to the site by the contractor. The transfer property in the goods takes place

only when these are incorporated into the construction and get transformed as

immovable property i.e. the property in the goods involved passes by accretion. In this

class of works contract there is neither a separate agreement for the sale of goods

involved in the execution of the works nor does the transfer of property in such goods

takes place prior to the construction. The transfer takes place only at the time of

construction by incorporation and as and when immovable property 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 transfer of property in goods qua goods but in

some other form i.e. by accretion or transformation as immovable property on

incorporation, such transactions are not intended to fall within the scope of WCS.

(ii) Revenue has not responded to this contention of ShriSreedharan, either in its oral or

written submissions. We are however of the view, for the analyses to follow, that this

contention does not merit acceptance.

(iii) Sub clause (b) of Article 366 (29A), inserted in the Constitution by the 46 th

Amendment authorises levy of tax on the sale or purchase of goods by expanding the

definition of "tax on the sale or purchase of goods", to include: (b) a tax on transfer on

property in goods (whether as goods or in some other form), involved in the execution of

a works contract .

(iv) What then is the position of a works contract involving accretion sale of goods as

regards sales tax; in the case of a composite contract where the title in the goods

passes to the employer on incorporation / accretion to the immovable property (i.e.

does not pass as soon as goods are brought to the site by the contractor but only on

incorporation / accretion), would such a transaction be exigible to sales tax?

(v) This question is no longer res-integra . It stands concluded by the decision in Larsen

& Toubro Limited vs State of Karnataka (2014) 1 SCC. 708.

(vi) One of the issues considered by the Supreme Court in the above decision was

whether an agreement for sale of a constructed building preceded by the construction

thereof is an agreement to transfer the immovable property as an indivisible whole, by

execution of a conveyance or whether there is in such a transaction a works contract as

well. The Court summarised the legal position (to the extent relevant for our purposes),

as under:

(i) For sustaining the levy of tax on the goods deemed to have been sold in execution of

a works contract, three conditions must be fulfilled: (one) there must be a works

contract, (two) the goods should have been involved in the execution of a works

contract and (three) the property in those goods must be transferred to a third party

either as goods or in some other form.

(ii) For the purposes of article 366 (29A)(b), in a building contract or any contract to do

construction, if the developer has received or is entitled to receive valuable

consideration, the above three things 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 such. If there could be no escape from the liability to

sales tax on such an activity the question is whether the liability to service tax is

excluded in the light of the definition of works contract in Explanation (i) of Section 65

(105)(zzzza).

(viii) In our considered view, works contract service, as we have noticed, is inter

alia defined to mean "a contract wherein transfer of property in goods involved in the

execution of such contract is leviable to tax as sale of goods". In drafting the definition

of WCS and in structuring the aforesaid definition the draftsman is seen to have

employed a shorthand incorporating the post 46 th amendment accretion of legislative

powers in Entry 54 of List II, expanding States power to levy sales tax on deemed/

accretion sale of goods as well. The mere omission of the phrase "whether as goods or

in some and other form" in the definition of WCS does not denude the provision of its

vitality to reach out to works contract (of the non material vesting clause variety) where

property or goods passes by accretion or incorporation into a construction. It is

axiomatic that even in works contract of the above category the transfer of property in

goods involved therein, is leviable to sales tax. This is what the definition of WCS clearly

enacts.

On the above analyses, contentions of ShirShreedharan do not commend acceptance.

We reject the same. We hold that even in works contract where the transfer of

property in goods involved in the construction of a building or civil structure passes by

accretion, the transaction is exigible to service tax under Section 65(105)(zzzza).

19. On the aforesaid analyses we hold [on issues (A), (B) & (C)] that construction of

canals under a dam for transmission of water or sewerage; or construction of pipelines

or conduits for conveyance of water for irrigation, domestic consumption or sewerage

disposal even where executed as turnkey/ EPC contracts; (i) would be classifiable under

clause (b), Explanation (ii) of Section 65(105) (zzzza); (ii) construction of canals,

pipelines or conduits for Government/ Government undertakings for augmentation of

irrigation, water supply or sewerage disposal would be for a non-commercial, non-

industrial purpose or user and thus excluded in view of the exclusionary clause in clause

(b) of WCS definition; and (iii) construction of canals, pipelines or conduits for

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) 2008-

TIOL-158-SC-VAT, 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 sold by it to the contractee. The adjudicating authority

concluded that there were two deemed sales, one from the assessee (contractor) to

the principal employer (contractee) and the other from the sub-contractor to the

assessee, in the event of the principal employer not having any privity of contract with

the sub-contractor. The Supreme Court analysed the position obtaining consequent on

the 46th Amendment and insertion of Article 366 (29A) (b), the several precedents

governing the field; and explained the position as follows:

In this case we are concerned with the Andhra Pradesh Value Added Tax Act, 2005.

Section 4 is the charging section. It comes in Chapter III which deals with "incidence, levy

and calculation of tax". In this case, we are concerned with the taxability of works

contract. That subject is dealt with by section 4(7) of the said 2005 Act. In our view,

section 4(7) is a code by itself. It begins with a non obstante clause. It, inter alia, states

that every dealer executing a works contract shall pay tax o the value of goods at the

time of incorporation of such goods in the works executed at the rates applicable to the

goods under the Act. The point to be noted is that section 4(7)(a) of the 2005 Act

indicates that the taxable event is the transfer of property in goods involved in such

goods takes place when the goods are incorporated in the works, the value of the goods

which constitutes the measure for the levy of the tax is the value of the goods at the

time of the incorporation of the goods in the works. What is stated hereinabove also

finds place in Rule 17(1)(a) of the APVAT Rules, 2005, quoted hereinabove. It is

important to note that each of the sub- contractors of L & T is registered dealer. None of

them are unregistered. Under section 4(7)(a) read with rule 17(1)(c), quoted above,

where a VAT dealer awards any part of the contract to a sub-contractor, such sub-

contractor shall issue a tax invoice to the contractor for the value of the goods at the

time of incorporation in such sub-contract. The tax charged in the tax invoice issued by

the sub-contractor shall be accounted by him in his returns. Therefore, the scheme

indicates that there is a "deemed sale" by the dealer executing the work i.e., the sub-

contractor. It is only the sub-contractor who effects transfer of property in goods as

no goods vest in the respondent-company (contractor) 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 (at page

400):

"Ordinarily unless there is a contract to the contrary in the case of works contract the

property in the goods used in the construction of a building passes to the owner of the

land on which the building is constructed, when the goods used are incorporated in the

building".

(emphasis supplied by us)

As stated above, according the Department, there are two deemed sales, one from the

main contractor to the contractee and the other from sub-contractor(s) to the main

contractor, in the event of the contractee not having any privity of contract with the

sub-contractor(s).

If one keeps in mind the above quoted observation of this court in the case of Builders

Association of India [1989] 73 STC 370 the position becomes clear, namely, that even if

there is no privity of contract between the contractee and the sub-contractor, that

would not do away the principle of transfer of property by the sub-contractor by

employing the same on the property belonging to the contractee. This reasoning is

based on the principle of accretion of property in goods. It is subject to the contract to

the contrary. Thus, in our view, in such a case the work executed by a sub-contractor,

results in a single transaction and not multiple transactions. This reasoning is also

borne out by section 4(7) which refers to value of goods at the time of incorporation in

the works executed. In our view, if the argument of the Department is to be accepted

it would result in plurality of deemed sales which would be contrary to Article 366

(29)(b) of the Constitution as held by the impugned judgment of the High Court.

Moreover, it may result in double taxation which may make the sale 2005 Act

vulnerable to challenge as violative of articles 14, 19(1)(g) and 265 of the Constitution

of India as held by the High Court in its impugned judgment .

(emphasis added)

The above authoritative ruling concludes the issue. Even where an appellant had

entered into a turnkey/ EPC project agreement or other works contract but had sub-

contracted the whole or part of the works awarded (under terms of the agreement

which authorised such sub-contracting); and the incorporation of goods into the

construction/ structures was by the sub-contractor and not by an appellant, there is no

rendition of WCS by such appellant, which is taxable under Section 65(105)(zzzza). In

Table (A) in para 10 (supra) 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 works, the principal contractor

cannot be considered as having provided the taxable (works contract) service,

enumerated and defined in Section 65 (105)(zzzza) of the Act.

21. In the light of the foregoing analyses, we record our conclusions on the several

issues framed, as follows:

(a) Issue (A): Laying of pipelines/ conduits for lift irrigation systems for transmission of

water or for sewerage disposal, undertaken for Government/ Government

undertakings and involving associated activities like trenching, soil preparation and

filling, supporting masonry work, jointing of pipes, electro-mechanical works or

pumping stations and like activity, is classifiable only under Commercial or Industrial

Construction Service (CICS) for the period upto 01.06.2007 and not under Erection,

Commissioning or Installation Service (ECIS);

(b) Issues (B); (C) and (D) :

(i) Construction of canals for irrigation or water supply; construction or laying of

pipelines/ conduits for lift irrigation conceived and integrated into a dam project, must

be classified as works contract "in respect of dam" and is thus excluded from the scope

of "Works Contract Service" defined in Section 65(105)(zzzza) of the Act, in view of the

exclusionary clause in the provision;

(ii) Turnkey/ EPC project contracts, enumerated in clause (e), Explanation (ii) in Section

65(105)(zzzza) of the Act is a descriptive and ex abundant cautela drafting

methodology. In the light of the decision in Alstom Projects India Ltd ., fortified by the

Special Bench decision (dated 19.03.2015) in Larsen & Toubro Ltd. reference, a turnkey/

EPC contract is taxable prior to 01.06.2007 as well. On and since 01.06.2007, turnkey/

EPC contracts must be classified on the basis of the essential character of the service

provided thereby, with the aid of classification guidelines set out in Section 65A(2) of

the Act. Consequently, a turnkey/ EPC contract must be classified under any of the

clauses (a) to (d), Explanation (ii), Section 65(105)(zzzza). The bundled bouquet of

services provided as turnkey/ EPC contract, classifiable as Commercial or Industrial

Construction Service (CICS) prior to 01.06.2007, would be classifiable under clause (b),

Explanation (ii), Section 65(105)(zzzza) on and from 01.06.2007 and would not be

exigible to service tax if the rendition of service thereby is primarily for non-

commercial, non industrial purpose, in view of the exclusionary clause in clause (b) of

the definition of WCS.

This is the only possible and harmonious interpretation possible of the several clauses

under Explanation (ii) of Section 65 (105)(zzzza), a distinct taxable service defined with

constituent elements thereof substantially drawn from elements of pre-existing taxable

services like ECIS, CICS or COCS; and other services when bundled to amount to

turnkey/ EPC;

(iii) Construction of canals/ pipelines/ conduits to support irrigation, water supply or for

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, in view of

the exclusion enacted in clause (b); and

(c) Issue (E): Where under an agreement, whether termed as works contract, turnkey

or EPC, 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 works passes on accretion to or incorporation into the

works on the property belonging to the employer/ contractee, the principal contractor

cannot be considered to have provided the taxable (works contract) service

enumerated and defined in Section 65(105)(zzzza) of the Act.

22 . We record our appreciation and gratitude to the several learned Counsel and

learned ARs who assisted us with their painstaking presentation of the several shades

of possible interpretations of the relevant provisions considered herein. We remit all

the appeals to be disposed of on merits by the appropriate Bench, in accordance with

law and in conformity with conclusions recorded on the five issues framed and

determined herein.

(Pronounced on 28.04.2015 at Principal Bench, New Delhi.)

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