At last, some light at end of the...canal
THE infrastructure industry in the State of AP/Telangana was having a tough time for quite some time on service tax front. During the Chief Ministership of Y. S. Rajasekhara Reddy, several massive irrigation projects were undertaken by the State Government, involving digging of canals, lift irrigation, strengthening the embankment of canals, laying of pipelines and other electro mechanical work, etc., running into crores and crores of rupees. Rightly or wrongly, these contracts were described as Turnkey /EPC projects, which is enough for the Service Tax department to demand service tax under Works contract service. With the sudden demise of Y.S. Rajasekhara Reddy and subsequent political developments, it was a nightmare for these infrastructure majors in claiming their contract amounts, cost escalation; leave alone the service tax demand.
While such demands were stayed by the CESTAT in several cases on a prima facie view, the calamity struck in the form of the decision of the Tribunal in the case of Ramky Infrastructure Limited - 2012-TIOL-613-CESTAT-BANG, which has upheld the demand. What followed was a spate of orders directing various amounts of pre deposits; inability of the appellants to pay the same, dismissal of appeals for non-compliance, battered assesses approaching High Court and Supreme Court.
Though there was a hope that a section 11C exemption would be issued in this regard ( - 19.12.2013), nothing happened. In fact the documents obtained under RTI by some of the contractors reveal that the Government was positively considering the issue of 11C exemption.
When all non-commercial construction activities were kept out of the levy of service tax upto 01.06.2007, and when canals were specifically exempted vide notification 41/2009 ST Dt. 23.10.2009 and all irrigation related works were exempted from 01.07.2012 under Notification 25/2012 ST dated 20.06.2012, it defies logic as to why they should be taxed only for the intervening period.
Few of the Joint Venture Companies, who have been asked to deposit 50 percent of the service tax dues by the Tribunal, have knocked at the doors of the AP High Court, albeit unsuccessfully. They then made a beeline to the Supreme Court, which passed a landmark order on the subject.
While directing the petitioners to deposit about 10 percent of the tax dues, the Supreme Court has directed that a full bench, headed by the President of the Tribunal should hear all such cases together and pass orders, before 15.03.2015. Full bench, in the language of the Supreme Court means a bench of three Judges and obviously, the issue has to be decided by the Larger bench of the Tribunal, which is not bound by the decision of the Division bench in Ramky case.
Will the CBEC magnanimously concede before the Tribunal about its intention to exempt such activities, instead of defending the demands tooth and nail?