Finally Ministry Exempts Works Contracts for Construction of Canals from Levy of Service Tax – Meant to cover construction under EPC mode?
IN 25.09.2009 we reported that Board has issued Circular 116 dated 15.09.2009 clarifying leviability of service tax on construction of canals by Government agencies.
Further in 09.10.2009 we reported that Board mysteriously brought in an amended version of this circular and tried to pass it off as the original one. We also highlighted certain technical aspects of this circular and how and why it failed to address the issues it sought to clarify in the first place.
While the mystery surrounding the replacement of the original circular by another circular still remains a mystery, the Board has issued a new notification exempting taxable services referred to in sub-clause ( zzzza ) of clause (105) of Section 65 of the Finance Act, in relation to execution of a works contract in respect of canals, other than those primarily used for the purposes of commerce or industry , from levy of service tax. The explanation under Section 65(105)( zzza ) defines works contract inter alia as “turnkey projects including engineering, procurement and construction or commissioning (EPC) projects” which appears to be the reason for disputes. In many places, it is viewed that works contract under EPC mode is taxable even for non commercial / industrial activities. Though Board bravely clarified in para 3 of the first version of the Circular dated 15.09.2009 that canals of irrigation projects are not covered under ( zzzza ), soon must have realised that this clarification is not supported by the definition / explanation under Section 65(105)( zzzza ) and issued a revised clarification which really did not solve the problem. So, now they have issued an exemption Notification to exempt services provided under works contract, other than those primarily used for commerce or industry.