Service Tax on ‘maintenance or repair of roads' – Board Clarifies
Come election time, “ bijli+sadak+paani ” is back in the reckoning, whether we like it or not. In -Dated-February 6, 2008, we reported that a request from the Chief Minister of Madhya Pradesh for exempting maintenance and/or repair of roads be exempted from levy of Service Tax was turned down by the Finance Ministry and a letter was issued by DGST to all the field formations to initiate action to recover service tax on this activity.
In this regard we referred to a clarification issued vide F.No.B1 /6/2005- TRU, dated: July 27, 2005 wherein it was clarified that immovable property also includes roads and therefore maintenance or repair of roads would come under the purview of Management, Maintenance or Repair Service.
But this time, the Commissioner from Nashik had raised a doubt on the taxability of maintenance or repair of roads. The latest clarification issued by the Ministry dispels the doubt on this subject by clarifying that maintenance or repair of roads is subject to levy of service tax. Strangely, the latest clarification does not make any reference to the DGST's clarification issued vide F.No . V/ DGST /30-Misc-16/2008448 dated: January 31, 2008 issued in the backdrop of the Madhya Pradesh CM's request.
In the latest Circular, the Board has clarified that though definition of taxable services viz., ‘Commercial or Industrial Construction Service' and ‘Management, Maintenance or Repair Service' do not specifically provide for levy of service tax on construction of road, a conjoint reading of these two definitions will lead to the conclusion that maintenance or repair of roads is a taxable service under the purview of ‘Management, Maintenance or Repair Service'.
It was further clarified to distinguish the specific nature of activities under the category of ‘construction of road' and ‘maintenance/repair of road'. In this regard, “Maintenance or repair activities” includes resurfacing, renovation, strengthening, relaying and filling of potholes while “Construction Activities” includes laying of a new road, widening of narrow road to broader road (such as conversion of a two lane road to a four lane road) and changing road surface (gravelled road to metalled road/ metalled road to blacktopped/blacktopped to concrete etc).
The field formations were directed to decide the pending cases basing on this clarification and also protect revenue.
Now all the contractors engaged in maintenance/repair of roads may have to factor this levy and also the litigation cost while quoting their rates for the tenders called for in this regard by the authorities.
Going by the logic of this latest clarification where Board has clarified that ‘construction of road' is excluded from the purview of service tax levy, we at TIOL fail to understand the logic of levying tax on maintenance and/or repair of such roads. In fact, in we raised a question on the propriety of levying tax on maintenance and/or repair of roads, as these roads belong to either Central Government or State Government or the local municipal bodies.
Circular No. Dated: February 23, 2009