ST - Tube well Construction - Exempted - CBEC Clarifies
DDT 2895 25 07 2016 highlighted a Service Tax issue raised by the Rajasthan Chief Minister Vasundhara Raje. She had informed the Union Finance Minister that notices have been issued by field officers under Central Excise Commissioner, Jodhpur region to the contractors who have been awarded work orders by Public Health and Engineering Department (PHED) for tubewell construction and related activities. PHED officials have also been sent letters by Central Excise asking them to provide lists of service providers. She said issue of notices have resulted in serious consternation among the PHED contractors. The Chief Minister said levying service tax on an essential state government function would simply mean a lumpsum transfer of funds from the state government kitty to the central government which shall affect the financial management of the state exchequer.
She requested the Finance Minister that a clarificatory notification be issued at the earliest applied with retrospective effect, unambiguously stating that boring/construction of tubewells etc. are covered under the exemption under Clause 12 and Clause 25; and the various activities such as construction, erection, installation etc. mentioned in the 2012 notification issued by Ministry of Finance, Govt. of India u/s 66B of the Finance Act, 1994 are only indicative.
She was obviously referring to Notification No. 25/2012-ST, dated 20.06.2012.
The CBEC has reacted - fast enough.
CBEC observes:
Exemption is available to the following services provided to the Government, a local authority or a governmental authority, by way of-
(a) construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipeline, conduit or plant for (i) water supply (ii) water treatment, and
(b) water supply -
"water supply" is a general phrase. Basically it will involve providing users, access to a source of water. The source may be natural or artificial like tanks, wells, tube wells etc. Providing users access to such a source will involve construction of the source (if artificial) and the transmission of water to the user. It will involve activities like drilling, laying of pipes, valves, gauges etc, fitting of motors, testing etc, so as to eventually result in the supply of water. Similarly, the word plant has to be understood and interpreted with reference to the context. A plant for water supply need not necessarily involve a huge assembly of machinery and apparatus.
And the Board clarifies:
The exemption under the entries at Serial No. 12(e) and 25(a) of notification 25/2012-Service Tax dated 20-6-2012, will cover a wide range of activities/services provided to a government, a local authority or a governmental authority and will include the activity of construction of tube wells.
Well done, Board - you have given a clarification that hopefully doesn't need further interpretation. And the Rajasthan Chief Minister has obviously done her home work well - she got exactly what she asked for.
It pays to be precise and clear when you ask the Central Government for favours/clarifications. It may also help if you are a ruling party Chief Minister.
CBEC Circular No. 199/09/2016-Service Tax., Dated August 22 2016