In Service Tax Appeal No. 51950 of 2017 -CESTAT- CESTAT (New Delhi) rules in favour of Pile Foundation Construction Co., classifies their services as 'Commercial or Industrial Construction Service' & exempts them from Tax liability
Members Rachna Gupta (Judicial) & Hemambika R. Priya (Technical) [30-06-2023]

Read Order: Pile Foundation Construction Co v. The Commissioner, Service Tax, Delhi-II

Chahat Varma

New Delhi, July 7, 2023: The Principal bench of the Customs, Excise, and Service Tax Appellate Tribunal has ruled that the activity or service provided by Pile Foundation Construction Co. (appellants) fell under the category of providing ‘Commercial or Industrial Construction Service’ (CICS), as defined under Section 65 (25b) of the Finance Act and that when such services were provided with respect to road, bridges, tunnels, etc., they were exempted from tax liability.

Factual issue involved on the present case was that the appellants, engaged in providing construction services for commercial or industrial buildings and civil structures, were investigated by the Delhi Service Tax Commissionerate for alleged non-payment of service tax despite providing taxable services. The Department formed an opinion that the services provided by the appellants, specifically the ‘piling work’ for main construction projects like bridges, roads, or schools, should be classified under ‘Erection, Commissioning, or Installation Service’ (ECIS) taxable from 01.05.2006. A show cause notice was issued proposing to classify their services under ECIS instead of CICS. They were asked to pay Rs. 19,43,878/- as service tax along with interest and penalties. However, the Commissioner (Appeals) observed that the pile foundation work provided by the appellants should be classified under either CICS or ‘Works Contract Service’. The matter was remitted back to the adjudicating authority for re-determination of the demand of service tax, interest, and penalties. Still aggrieved by the decision, the appellants approached the Tribunal.

The two-member bench of Rachna Gupta (Judicial) and Hemambika R. Priya (Technical) opined that the appellants’ activity involved pre-casting a concrete structure or a steel body of a specific shape to be fixed underground, either by pre-casting it on the ground level and then inserting it underground or by constructing the pillar underground using a special technique. This activity primarily related to the construction of a new building or civil structure. Therefore, the bench concluded that this activity could not be classified as ‘ECIS’, which typically involved the installation of various items in an already constructed building or civil structure, as defined in clauses (a) to (f) of Section 65 (39a) of the Finance Act.

The bench further observed that for an activity to be classified as a ‘Works Contract Service’, it must involve the transfer of property in goods that are used in the execution of the contract. In the case of the appellant, they were acting as a sub-contractor or job worker, and the question of them being the owner of the goods used in pile formation works did not arise. The bench concluded that the Commissioner (Appeals) had failed to appreciate the basic mandate of the definition of works contract service and had gone beyond the scope of the show cause notice.

Consequently, the bench set aside the challenged order and allowed the appellants’ appeal.