service tax Litigation & Safeguard in IndiaLarger Bench of CESTAT On Various Services Prior to 01.06.2007

Larger Bench of CESTAT  finally settles various issues pertaining to services  prior to 01.06.2007

(a)     Issue (A):  Laying of pipelines/ conduits for lift irrigation systems for transmission of water or for sewerage disposal, undertaken for Government/ Government undertakings and involving associated activities like trenching, soil preparation and filling, supporting masonry work, jointing of pipes, electro-mechanical works or pumping stations and like activity, is classifiable only under Commercial or Industrial Construction Service (CICS) for the period upto 01.06.2007 and not under Erection, Commissioning or Installation Service (ECIS);

(b)    Issues (B); (C) and (D):

(i)      Construction of canals for irrigation or water supply; construction or laying of pipelines/ conduits for lift irrigation conceived and integrated into a dam project, must be classified as works contract “in respect of dam” and is thus excluded from the scope of “Works Contract Service” defined in Section 65(105)(zzzza) of the Act, in view of the exclusionary clause  in the provision;

(ii)      Turnkey/ EPC project contracts, enumerated in clause (e), Explanation (ii) in Section 65(105)(zzzza) of the Act is a descriptive and ex abundant cautela drafting methodology.  In the light of the decision in Alstom Projects India Ltd., fortified by the Special Bench decision (dated 19.03.2015) in Larsen & Toubro Ltd. reference, a turnkey/ EPC contract is taxable prior to 01.06.2007 as well.  On and since 01.06.2007, turnkey/ EPC contracts must be classified on the basis of the essential character of the service provided thereby, with the aid of classification guidelines set out in Section 65A(2) of the Act. Consequently, a turnkey/ EPC contract must be classified under any of the clauses (a) to (d), Explanation (ii), Section 65(105)(zzzza).  The bundled bouquet of services provided as turnkey/ EPC contract, classifiable as Commercial or Industrial Construction Service (CICS) prior to 01.06.2007, would be classifiable under clause (b), Explanation (ii), Section 65(105)(zzzza) on and from 01.06.2007 and would not be exigible to service tax if the rendition of service thereby is primarily for non-commercial, non industrial purpose, in view of the exclusionary clause in clause (b) of the definition of WCS.

This is the only possible and harmonious interpretation possible of the several clauses under Explanation (ii) of Section 65 (105)(zzzza), a distinct taxable service defined with constituent elements thereof substantially drawn from elements of pre-existing taxable services like ECIS, CICS or COCS; and other services when bundled to amount to turnkey/ EPC;

(iii)     Construction of canals/ pipelines/ conduits to support irrigation, water supply or for sewerage disposal, when provided to Government/ Government undertakings would be for non-commercial, non–industrial purposes, even when executed under turnkey/ EPC contractual mode and would fall within the ambit of clause (b), Explanation (ii) of Section 65(105)(zzzza); and would consequently not be exigible to service tax, in view of the exclusion enacted in clause (b); and

(c)     Issue (E):  Where under an agreement, whether termed as works contract, turnkey or EPC, the principal contractor, in terms of the agreement with the employer/ contractee, assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such works passes on accretion to or incorporation into the works on the  property belonging to the employer/ contractee, the principal contractor cannot be considered to have provided the taxable (works contract) service enumerated and defined in Section 65(105)(zzzza) of the Act.

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench, Bangalore

Date of hearing:  15.12.2014 to 19.12.2014

Date of decision :  28.04.2015

INTERIM ORDER NO. 57 to 112/2015

Service Tax Appeal Nos.   441, 606, 607, 898, 937 &  211 of 2009

M/s Lanco Infratech Limited                                             Appellants

M/s Jayaprakash Gayathri Projects Ltd.

M/s Gayathri BCBPPL

M/s Ramky Infrastructure Ltd.,

M/s Gayathri Projects Ltd.,

Versus

CC,CE & ST, Hyderabad                                                 Respondent

Service Tax Appeal Nos. 398, 425, 1210, 1850 & 2148 of 2010

M/s NCC Limited                                                   Appellants

M/s L&T KBL

M/s L&T Limited

M/s Ramky Infrastructure Ltd.,

M/s Koya & Co. Construction Pvt. Ltd.,

M/s Gayathri Projects Ltd.,

Versus

CC,CE&ST, Hyderabad                                          Respondent

Service Tax Appeal Nos. 918, 919, 920, 921, 922, 2818, 2819,

2820 &  3174  of  2011

M/s IVRCL Navayuga SEW JV                                        Appellants

M/s IVRCL JL- JV

M/s IVRCL –KBL- MEIL-JV

M/s IVRCL –KBL-JV

M/s IVRCL  SEW  -Prasad-JV

M/s GKC Projects Ltd.

M/s Maytas NCC JV

Versus

CC,CE&ST, Hyderabad                                                   Respondent

Service Tax Appeal Nos. 131, 177, 181, 182, 183, 221, 501, 967, 1676, 2290, 3311, 3348, 3349, 3394, 3413, 3432 & 3563 of  2012

M/s Patel Engineering Ltd.                                     Appellants

M/s AKR Coastal JV

M/s IVRCL –JL- JV

M/s IVRCL –KBL-MEIL- JV

M/s IVRCL –KBL- JV

M/s PES-SEW-JV

M/s Megha Engineering & Infrastructure Ltd.,

M/s P. V. Krishna Reddy,

MD of M/s Megha Engineering & Infrastructure Ltd.,

M/s L&T KBL JV\M/s Sudhakar Polymers Ltd.

M/s L&T KBL JV

M/s IVRCL-KBL-MEIL-JV

M/s IVRCL-KBL-JV

M/s SCL Infratech Ltd.

M/s Ramky Infrastructure Ltd. –VSM JV

M/s Megha Engg. & Infrastructure Ltd.

M/s PES-SEW-JV

Versus

CC,CE&ST, Hyderabad                                          Respondent

Service Tax Appeal Nos. 25019,  25358, 25369, 25529, 25532, 25725, 25754, 25802, 26382, 26428, 26452, 26453 & 28834  of  2013

M/s Bhoorathnom Construction Co. Pvt. Ltd.           Appellants

M/s Maytas NCC JV

M/s IVRCL-SEW-Prasad JV

M/s RM Mohite & Co. Bhooratnam JV

M/s IVRCL-SEW-WPIL-JV

M/s Krushi Infras India Pvt. Ltd.,

M/s GH Reddy Associates & KK Reddy Co. JV

M/s KVR Constructions Ltd.

M/s NCC Limited

M/s Viswa Infrastructures & Services Pvt. Ltd.

M/s Koya & Co. Construction Pvt. Ltd.,

M/s Koya & Co. Construction Pvt. Ltd.,

M/s Patel Engineering Limited

Versus

CC,CE&ST, Hyderabad                                                    Respondent

Service Tax Appeal Nos. 20224, 20285, 20893, 20921,

20922 & 21218 of  2014

M/s Sri Venkateswara Pipes Limited                       Appellants

M/s Kirloskar Brothers Limited

M/s Navayuga-IVRCL-SEW-JV

M/s NEC-NCC Maytas JV

M/s SEL-GKC Projects JV

M/s Ch VV Subba Rao

Versus

CC,CE&ST, Hyderabad                                          Respondent

Appearance:

Shri V. Sridharan, Shri S. R. Ashok, Sh. S. Ravi, Sr. Advocates; Shri B.V. Kumar, G. Natarajan,  Md Shafi, K. Vijay Kumar, R. Murlidhar and Ms. Nisha Bineesh; Advocates for the appellant- assessee.

Shri Govind Dixit and Shri Amresh Jain, ARs for the Respondent-Revenue

Coram:        Hon’ble Mr. Justice G. Raghuram, President

Hon’ble Ms. Archana Wadhwa, Member (Judicial)

Hon’ble Mr. B.S.V. Murthy, Member (Technical)

No.

Per: Justice G. Raghuram:

We have heard learned Sr. Counsel  Shri V. Sridharan, Shri S. R. Ashok and Sh. S. Ravi; learned Counsel Shri B.V. Kumar, G. Natarajan, Md Shafi, K. Vijay Kumar, R. Murlidhar and Ms. Nisha Bineesh, for the appellants – assessees; and  Dr. Anil Nigam, Shri R. Gurunathan, Shri Mohd. Yusuf, Shri Govind Dixit and Shri Amresh Jain, learned ARs for the respondent/ Revenue.

2. 2. By the order dated 15.09.2014, Hon’ble Supreme Court in Civil Appeal Nos. 8847 to 8849 of 2014 directed 47 appeals (from a list submitted by Shri Radhakrishnan, ld. Sr. Counsel appearing for the Revenue) alongwith other connected cases pending adjudication before the regional Bench, CESTAT at Bangalore to be heard by a full Bench, presided by the President and to be disposed of by 15.03.2015.
3. 3. The full Bench assembled on 15.12.2014 to hear the appeals (in terms of the direction of the Hon’ble Supreme Court), after issue of notices to parties concerned. The appeals were heard during 15.12.2014 to 19.12.2014.  79 matters were listed on the Board of the full Bench.  Of these, in 19 appeals stay applications were pending disposal and Revenue contended that these appeals  be not disposed of without considering waiver of pre-deposit and grant of stay.  It was also urged that in ST Appeal Nos. 03174/2011 and 26382/2013, stay applications are pending consideration. In ST Appeal Nos. 3146/2011, 3147/2011, 254/2012 and 25302/2013, appellants Counsel contended that some substantive issues and regarding quantum of pre-deposit to be made, were pending before the Andhra Pradesh High Court.  On behalf of Revenue, the contention on behalf of assessees that some aspects of the issues involved in these appeals were pending consideration before the Andhra Pradesh High Court, was not contested. Shri B. V. Kumar, learned Counsel also pointed out that in S. T. Appeal No. 3394 of 2012, the liability is also confirmed on the basis that the appellant (SCL Infratech Ltd.) had also provided Business Auxiliary Service and was the recipient of Management and Business Consultancy Service wherefor the liability was confirmed on reverse charge basis, erroneously.
4. 4. Appellants are the assessees, who had provided construction related and other categories of composite, bundled services, which inhered deemed sales (transfer) of property in goods together with rendition of associated services involved in execution of “works contract”, as this expression has come to be recognized in the world of commerce, in law and in jurisprudence. In some of the listed appeals, contracts/ agreements were entered into and the execution thereunder commenced prior to 01.06.2007 and continued thereafter as well.  In other appeals constructions were subsequent to 01.06.2007.  In appeals involving execution which commenced prior to 01.06.2007 and continued thereafter the transactions were classified (in respective adjudication orders impugned), as ‘Erection, Commissioning or Installation Service’ (ECIS) for the period prior to 01.06.2007; and as works contract service (WCS) [under sub-clause (e) of Explanation (ii) in Section 65(105)(zzzza)] for the period subsequent to 01.06.2007.
5. 5. Senior Counsel Shri V. Sridharan, S.R. Ashok and S. Ravi and other learned Counsel contended that in some of the appeals a substantial issue involved is also whether “works contract” is a taxable service only w.e.f. 01.06.2007 i.e. after introduction of sub-clause (zzzza) in Section 65(105) of the Finance Act, 1994 (the Act) by the Finance Act, 2007; and whether prior to 01.06.2007 works contract was not a taxable service falling within the ambit of any of pre -existing taxable services pertaining to construction such as ECIS; Commercial or Industrial Construction Service (CICS);  or Construction of Complex Service (COCS).

The issue whether works contract was taxable prior to 01.06.2007 was heard and reserved for judgment by a special Bench (five Members) of the CESTAT.  The judgment on this issue was not pronounced (as on the date of conclusion of arguments in the batch of appeals).  We therefore informed the Bar that this issue and in the circumstances cannot appropriately be decided by this Bench and must  await the  decision by the special Bench.

6. 6. Learned Counsel and learned ARs also submitted that there are several disputed factual positions with regard to the nature and interpretation of the contracts/ agreements in issue (in the several appeals); with regard to other taxable services; and other disputes with regard to valuation, which ought to be considered in each of the appeals, separately.
7. 7. In the above circumstances, we indicated that we would hear and dispose of issues which are common, excluding the issue whether works contract was a taxable service prior to 01.06.2007. All parties agreed to this course of action.  On behalf of the several Counsel, five issues were identified for disposition by this Bench.  Revenue does not demur.  The issues presented for our consideration are:

Issues:

16. A) Whether laying of pipelines for lift irrigation systems, transmission and distribution of drinking water or sewerage, undertaken for Government/ Government undertakings  should be classified under ECIS  as  erection, commission or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise; or installation of plumbing, drain laying or other installations for transport of fluids, enumerated in Section 65(105)(zzd) and defined Section 65(39a), during 16.06.2005 to  05.2007; or must be classified under CICS, as amounting to construction of pipeline or conduit; and if classifiable under the later provision,  whether the activity is not taxable since it is not used or to be used, engaged or to be engaged primarily for industry or commerce;
17. B) Whether construction of canals for irrigation purposes and laying of pipelines including as part of lift irrigation systems, undertaken for the Government/ Government undertakings is liable to service tax under WCS as  turnkey projects, including engineering, procurement and construction or commissioning projects  under clause (e) of Explanation (ii) in the definition of WCS or is excluded from the ambit of WCS since it is in respect of  a “Dam” and thus stands  excluded  from  WCS, as defined;
18. C) Whether, turnkey projects, including engineering, procurement and construction or commissioning (EPC) projects specified in clause (e) is merely an enumeration of the mode of execution of taxable services specified in  clauses (a) to (d) or is a wholly distinct taxable service and is exigible to service tax as an independent species of works contract service;
19. D) Whether, even if clause (e) in Explanation (ii) of WCS is considered  a distinct and independent service, where construction  of canals for irrigation purposes and laying of pipelines either as part of lift irrigation systems or  for transport and distribution of water is undertaken for Government/ Government undertakings, the same is more appropriately covered under clause (b) of WCS i.e. construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, by applying principles of classification set out in Section 65A(2)(a) & (b) and thus fall outside the ambit of levy, since the activity is not primarily for the purpose of commerce or industry; or whether a contrary view that clause (e) being an independent entry, activities falling thereunder would be taxable even if the rendition of service  thereby or thereunder, was not primarily for non commercial or non industrial purposes; and
20. E) Where execution of the whole or a part of the work is sub-contracted  on back to back basis by the main contractor (which is a  joint venture) to sub contractors,  in the absence of any transfer of property in goods involved in the execution of such works, from the main contractor to the Government/ Government undertakings, whether levy of service tax in the hands of appellant (main contractor) is valid under WCS, in the light of the judgment  in State of A.P. vs. L & T Ltd. [1].
21. 8. In view of submissions by respective parties adverted to above (of not hearing appeals where stay applications are pending and where substantive issues involved are pending consideration before the A.P. High Court), 56 appeals are left for consideration. In view of the submission that disputed questions of fact; of issues pertaining to other taxable service; of interpretation of terms of the agreements in issue; valuation disputes; and issue of taxability of WCS prior to 01.06.2007 are involved, we take up the five issues set out in the preceding paragraph, for consideration and determination.   After recording our conclusions on the five issues we shall remit the appeals for determination on merits, to the appropriate Bench, to be disposed of, in accordance with law and the conclusions recorded by this Bench, on the five issues we pronounce our conclusions on.
22. 9. Counsel for appellants furnished a consolidated list of appeals, setting out the respective appeal numbers; description of the appellant; the period involved; the quantum of service tax and penalties confirmed; the nature of the work undertaken, specifying whether the confirmed demand is on the appellant as the main contractor, while the actual work was wholly executed by a sub-contractor. From the consolidated tabulated list provided by ld. Counsel we have retabulated the appeals into those where works were executed entirely by a sub-contractor while the demand is confirmed against the main contractor as WCS; other appeals where the WCS was provided by the appellant itself without sub contracting.  There are also certain appeals where ld. Counsel contended that the majority of the works were sub contracted and only some of the works were executed by the appellant, a Joint Venture.  We have tabulated this category of appeals separately.
23. 10. In the following appeals the works are claimed to have been wholly sub contracted by the appellant and executed exclusively by the sub-contractor.

TABLE – A

11. 11. In the following appeals the execution was undertaken by the appellant itself, not sub-contracted.

TABLE – B

12. 12. In the following appeals (according to ld. Counsel) the majority of the several works undertaken were sub-contracted on back to back basis and only few of the works were executed by the appellant itself.

TABLE – C

13. 13. Since we are not disposing of the appeals on merits, we have recorded assertions by ld. Counsel as to the nature of works executed, the period stated to be involved, and whether the execution was wholly sub-contracted, executed by the appellant itself or partly by the appellant and partly sub-contracted, as per the information furnished in the consolidated list. In its written submissions Revenue does not contest these assertions by ld. Counsel for the appellants, presumably since appeals are not being finally disposed of by this Bench.  In the circumstances, all contested issues of fact including as to  the nature of the works executed and whether some of them were sub-contracted or otherwise and other issues not determined by this Bench, will be determined by the appropriate Bench which hears the appeals substantively.  The determination by this Bench is, in the circumstances, confined to consideration of the five issues set out in para 7 (supra).

ANALYSES:

14. 14. ISSUE (A):

In view of the issue framed for determination we set out relevant provisions of the Act defining ECIS and CICS and provisions enumerating these to be taxable services.  The period covering the transactions in issue (prior to 01.06.2007) is 16.06.2005 to 30.05.2007. During this period laying of pipelines for lift irrigation, transmission and distribution of drinking water or sewerage was undertaken by appellants for Government/ Government undertakings and were classified in the adjudication orders under appeal as ECIS, while negating claims by appellants that these transactions be classified as CICS.  In view of the dispute as to classification of the works  undertaken by appellants during the above period, we set out the relevant provisions including amendments made thereto from time to time.

ECIS

W.e.f. 01.07.2003, a service provided or to be provided to a customer by a commissioning or installation agency, in relation to commissioning or installation was enumerated to be a taxable service in Section 65(zzd).  Section 65(28) defined:

‘Commissioning or Installation’ to mean:

Any service provided by a commissioning or installation agency in relation to commissioning or installation of a plant, machinery or equipment.

Section 65(29) defined “commissioning and installation agency” as:

any agency providing service in relation to commissioning or installation.

W.e.f. 10.09.2004 Section 65(zzd) was amended as:  any service provided or to be provided to a customer, by a commissioning or installation agency, in relation to erection, commissioning  or installation.  Section 65(28) was omitted w.e.f. this date and Section 65(29) amended to insert the word “erection” before “commissioning or installation”.  Also from this date, Section 65(39a) defined “erection, commissioning or installation” to mean:

Any service provided by a commissioning or installation agency in relation to erection, commissioning or installation of plant, machinery or equipment.

W.e.f. 16.06.2005 Section 65(39a) was again amended.  Since the transactions in issue fall on and since this date, we extract definition of ECIS as it stands w.e.f. 16.06.2005.

From 16.06.2005:

Section 65(39a): “erection, commissioning or installation” means any service provided by a commissioning and installation agency in relation to,-

• Erection, commissioning or installation of plant, machinery or equipment; or
• Installation of-
• Electrical and electronic devices, including wirings or fittings therefor; or
• Plumbing, drain laying or other installations for transport of fluids; or
• Heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work; or
• Thermal insulation, sound insulation, fire proofing or water proofing; or
• Lift and escalator, fire escape staircases or travelators; or
• Such other similar services;”

The definition was further amended w.e.f. 01.05.2006. It now reads:

From 01.05.2006:

Section 65 (39a): “erection, commissioning or installation” means any service provided by a commissioning and installation agency, in relation to,-

• Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre fabricated or otherwise; or
• Installation of–
• Electrical and electronic devices, including wirings or fittings therefor; or
• Plumbing, drain laying or other installations for transport of fluids; or
• Heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work; or
• Thermal insulation, sound insulation, fire proofing or water proofing; or
• Lift and escalator, fire escape staircases or travelators; or
• Such other similar services;”

CICS

“Construction Service” was introduced w.e.f. 10.09.2004.  Section 65(105) (zzq) provided that this taxable service means any service provided or to be provided to a person by a commercial concern in relation to construction service.  Section 65(30a) defined “construction service” to mean:

• Construction of new building or civil structure or a part thereof; or
• Repair, alteration or restoration of, or similar services in relation to, building or civil structure,

Which is-

• Used, or to be used, primarily for; or
• Occupied, or to be occupied, primarily with; or
• Engaged, or to be engaged, primarily in,

Commerce or industry, or work intended for commerce or industry, but does not include road, airport, railway, transport terminal, bridge, tunnel, long distance pipeline and dam;”

W.e.f. 16.06.2005 Section 65 (30a) was substituted to insert therein a new service termed: “construction of complex” service (COCS), on relocating and redesignation of the extant “construction service” as “commercial or industrial construction” service and incorporating this service in Section 65(25b).  W.e.f. this date CICS is defined in Section 65(25b) as:

From 16.06.2005:

Section 65(25b): “Commercial or industrial construction service “means-

• Construction of a new building or a civil structure or a part thereof; or
• Construction of pipeline or conduit; or
• Completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
• Repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,

Which is-

• Used, or to be used, primarily for; or
• occupied, or to be occupied, primarily with; or
• engaged, or to be engaged, primarily in,

commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;”

W.e.f. 16.6.2005, Section 65(105)(zzq) was also amended to reflect the re-designation and re-definition of “construction service” as “commercial or industrial construction service”.  An Explanation was added to sub-clause (zzq) w.e.f. 01.07.2010, which is however not relevant to this lis.

Counsel for the appellants point out that w.e.f. 16.06.2005 a service known as “site formation” service was introduced and specified to be a taxable service in Section 65(105)(zzza); defined in Section 65(97a) to mean a service provided or to be provided to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition  and such other activities.

Section 65 (97a): “Site formation and clearance, excavation and earthmoving and demolition” includes, –

• drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or
• soil stabilization; or
• horizontal drilling for the passage of cables or drain pipes; or
• land reclamation work; or
• contaminated top soil stripping work; or
• demolition and wrecking of building, structure or road,

but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies;”.

From the definition of CICS (as amended from time to time) it is apparent that a service falling under this definition was taxable only if it is primarily used for or is engaged in commerce or industry or work intended for commerce or industry.  This service when provided in relation to roads, airports, railways, transport terminals, bridges, tunnels, long distance pipeline and dams is however wholly excluded from the purview of the definition itself.  In the definition of ECIS however (as amended from time to time), there was no exclusionary clause specifying that it is taxable only when it is primarily for commerce or industry or intended for commerce or industry.  The definition of ECIS does not also exclude the rendition of this service even if it be in respect of road, airport, railway, transport terminal, bridge, tunnel and dam.  By exemption Notification No. 17/2005-ST, dated 07.06.2005, Government exempted levy of service tax on ECIS provided in the course of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams, ports or other ports.

It is therefore essential to examine the contours of ECIS and CICS, as these services are defined and to normatively ascertain in what circumstances and which category of transactions fall within either ECIS or CICS.

To the extent relevant for the analyses on issue (A), it requires to be noticed  that w.e.f. 16.06.2005 the definition of ECIS enjoins that this service means any service provided by a commissioning and installation agency in relation to:

• erection, commissioning or installation of plant, machinery or equipment; or
• installation – plumbing, drain laying or other installations for transport of fluid.

W.e.f. 16.06.2005, CICS is defined to mean (to the extent relevant for our purposes)

• construction of a new building or a civil structure or a part thereof; or
• construction of a pipeline or conduit; or
• completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and well papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
• repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is used or to be used; engaged or to be engaged, primarily in commerce or industry or work intended for commerce or industry. There is however exclusion of CICS when provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

From the several decisions cited before us (covering the period prior to 01.06.2007), it is seen that Revenue had not adopted a uniform approach to classification of laying of pipelines for lift irrigation, supply of drinking water or sewerage purposes undertaken for Government/ Government undertakings.  In some instances Revenue adopted the position that such activities fall within CICS and in others that these fall within the ambit of ECIS.  We shall shortly advert to the relevant rulings.

Though, we are not deciding the appeals finally, we shall briefly refer to the nature of the contract in issue in Service Tax Appeal No. 501 of 2012 [enumerated in Table ‘B’ in para 11 (supra)] since the period of the transaction involved in this appeal is June 2005 to March 2010 (part of the period falling prior to 01.06.2007).  The activity was classified (in the adjudication order impugned in this appeal) as ECIS, for the period upto 31.05.2007.  The appellant was apparently required to lay pipelines for several lift irrigation and water supply projects of State Government and the work involved laying of pipelines and associated works such as preparing and digging the soil, trenching, laying of pipes, closing the trenches, construction of pumping houses and other related electro-mechanical works.  The basic designs pertaining to the project were provided by the Government. The appellant’s claim that the contract considered as a whole falls outside the scope of ECIS (during the period prior to 01.06.2007), was rejected by the adjudicating Authority.

15. ANALYSES OF CASE LAW:

Now we advert to decisions where the scope of ECIS and CICS, in the context of works involving laying of pipelines, was considered.

(i)      In Indian Hume Pipe Co. Ltd. vs. Commissioner of C. Ex. Trichy[2], the appellant was a manufacturer of pre-stressed concrete pipes (PSC) which were cleared to the Tamil Nadu Water Supply and Drainage Board for use in a water supply project.  The appellant also undertook laying of pipelines and associated works and was assessed to service tax for having provided commissioning or installation during 01.07.2003 to 09.09.2004 and ECIS during 10.09.2004 to 30.09.2006.  Appellant preferred an appeal to CESTAT against the adjudication order. Revenue contested the appellant’s claim as under:

7. The ld. Consultant for the Revenue argued that the pipelines supporting machinery like pumps etc., sumps and other supporting civil structures built by the assessee could very well be called a plant. The erection, commissioning or installation service and the corresponding entry since 1.7.03.  Argument that the pipeline was not installed or commissioned by IHPL was misleading.  The activity involved laying, jointing, testing and commissioning of PVC pipes which resulted in emergence of a pipeline.  The works contract between IHPL and its clients against the turnkey contracts prescribed completing the entire work satisfactorily and commissioning within the stipulated period and maintaining the scheme for the specified period.  Pipes were used for transporting water for distribution and hence fell within the definition of equipment.  Equipment was a set of necessary tools, clothing etc. for a particular purpose.  The exclusion of long distance pipeline from construction service did not mean that same item could not be charged to tax under another heading.  Clause (30a) underwent a change in 2005 budget omitting this exclusion.  The impugned service was not in the course of commerce and had to be classified under erection, installation or commissioning service.  The Daelim Industrial Company (supra) was not relatable to the present case.  The Daelim Industrial Company case decided that a works contract could not be vivisected and the service portion subjected to tax.  SLP filed against this order was dismissed by the Apex Court without assigning reasons.  Order of the CESTAT in the case of L&T Ltd. vs. CCE, Cochin reported in 2006 (3) STR 223 (Tribunal) = 2004 (174) ELT 322 (Tri. Del.), was made following the ratio of Daelim Industrial Co. Ltd.  The Apex Court admitted SLP against this order.  Therefore, ratio of Daelim Industrial Co. Ltd. was no longer binding on the Tribunal.  In Asian Techs vs. CCE [2005 (189) ELT 420 (Tri. LB)], it was held that though the appellant in that case had supplied PSC girders to M/s Konkan Railway Corporation for construction of bridges under a works contract, excise duty was leviable on PSC girders.  It is submitted that in principle, in the face of specific charging provision to levy service tax on certain specified services, the mechanism of agreement to provide and receive services in the form of a composite contract or works contract could not vitiate levy itself, Erection, installation or commissioning was already leviable to service tax.

Repelling Revenue’s contention and allowing the appeal, the Tribunal held:

8. We have considered the rival arguments.  The dispute involves the meaning of the expression and legislative intent behind scope of the levy of erection, commissioning or installation.  The impugned order found that up to 16.6.95, the assessee had rendered the taxable activity of erection, commissioning or installation of a plant.  The Commissioner found that “plant represented a fixed investment for carrying out certain institutional activity for business”.  The water supply system involving pipelines is therefore seen as a plant.  The activity undertaken by IHPL is construction of pipeline by earthwork excavation, conveying and lowering of PSC/MS pipes and MS specials, AC pipes, PVC pipes, CI/GI pipes and jointing materials into the trench; laying to proper grade and alignment; refilling the trenches with excavated soil after laying of pipes, construction of sluice valve pits, scour valve pits, air valve pits, thrust blocks, etc.

            8.1        We find ourselves in agreement with the appellants’ reading of the expressions contained in the relevant entry, namely, ‘erection, commissioning or installation’.  We find it elementary that ‘erection’ connotes construction of building of a structure and laying of pipeline does not involve erection.  We find no ambiguity in the expression installation.  It applies to machinery already made which are formally made ready to operate at the site.  Installation implies setting up the machinery ready for use, like giving power connections or installing driver software in the case of a machine run with the aid computer software.  Commissioning involves the operationalisation of the machinery after which it starts functioning regularly.  In laying of long distance pipeline, earth is dug and pipes laid and jointed, and the pipes pass through sumps with boosters at intervals, if necessary.  This activity will not involve erection.

            8.2       As rightly argued by IHPL, the CBEC Circular No. 62/11/2003-ST., dated 21.8.2003, inter alia, clarified the levy to the same effect as follows:

                                    1.2       As commonly understood, the activity of installation means the act of putting an equipment, machinery or plant into its place and making it ready for use.  The activity of installation will start after erection which would refer to putting up civil structures, commissioning of a plant would mean operationalising an installed plant/ equipment/ machinery.

            Whereas erection became part of the entry only from 10.09.2004, from 16.6.05 onwards meaning of ‘erection, commissioning or installation’ [Section 65(39a)] was enlarged to include installation of various devices and equipments.  An entry “plumbing, drain laying, or other installation for transport of fluids” was introduced under sub-section (ii)(b).  The impugned order found that the service involved was specifically covered from 16.6.05 under the same head by the entry “plumbing, drain laying, or other installation for transport of fluids.  We are inclined to agree with the appellants that this entry covers such facility provided in a building as it appears in the company of air-conditioning system, lifts, electronic devices including wiring etc. which are installed in a building.  The Commissioner found that “plant represented a fixed investment for carrying out certain institutional activity for business”.  The ld. Consultant for the department has tried to defend the interpretation of the Commissioner of the expression plant.  The Commissioner’s interpretation of a plant would cover a long distance pipeline.  We find it difficult to accept the above reading of the word plant in the context it is used.  It is an inappropriate selection of the various meanings of this simple word.  Plant in popular usage means a cluster of buildings or a building in which machinery are installed usually for manufacture of goods.  Long distance pipeline is not even remotely associated with this common understanding of the word plant.  We also find that a water supply project is an infrastructure facility and a civic amenity the State provides in public interest and not an activity of commerce or industry.  The impugned order also did not hold it to come under a service of commercial or industrial nature as submitted by the ld. Consultant for the Revenue.  Therefore, the impugned order demanding duty on the activity of laying of pipeline interpreting it to be erection, commissioning and installation of a plant is totally misconceived and unacceptable.

(ii)      The decision in Indian Hume Pipe Co. Ltd. (supra) was followed in A. Sekar vs. CCE, Trichy[3]; Dinesh Chandra Agrawal vs. A. Infracon Pvt. Limited[4]; in an interim order in Surindra Engineering Co. Limited vs. CC, Mumbai[5], and in Lalit Constructions vs. CCE, Raigad[6] (Tribunal Decisions).   The Madras High Court in Strategic Engineering Pvt. Ltd. vs. Additional Commr. C. Ex. Mumbai[7] allowed the writ petition against an adjudication order classifying pipeline laying as ECIS.

During 10.09.2004 to 16.06.2005, “construction service” defined in Section 65(30a) excluded service when provided in relation to “long distance pipeline”, from the scope of the definition.  W.e.f. 16.06.2005 “construction of pipeline of conduit” was included in the definition of CICS, defined in Section 65(25b).  Apart from the decisions referred to above which consistently ruled that construction of a pipeline for transmission of water or sewerage falls outside the scope of ECIS, it requires to be noticed that construction of pipelines involves associated works such as digging trenches, construction of supporting masonary structures, jointing of pipes; and in cases of construction of pipelines for lift irrigation, pumping / booster stations and other electro-mechanical works as well. Therefore construction of a pipeline does not amount to “other installations for transport of fluids”, a clause in Section 65(39a)(ii)(b), but is more appropriately classifiable under CICS, falling within the ambit of Section 65(25b)(b) i.e., “construction of pipeline or conduit”; and that is also the purport of the rulings above.

We also note the several shades of meaning of “conduit”, as revealed from dictionaries.  According to Merriam-Webster, the word means “someone or something that is used as a way of sending something from one place or person to another”.  According to Macmillan Dictionary – “A pipe or passage that water flows through, to go from one place to another.  According to Collins Dictionary – “a pipeline or channel for carrying fluid”.  According to the Dictionary of Civil Engineering by John S. Scott, “conduit” means – “Any open channel pipe, etc. for flowing liquid”.  Water Works Engineering – Planning, Design and Operation (Ed. Syed R. Qasim, Edward M. Motley and Guang Zhu) states that various types of conduits are used for transporting water.  Topography, available head, construction materials and practices, economics and water quality are primary considerations in selecting suitable conduits for water conveyance systems.  Water conduits are classified as open channels or pressure conduits.  Open channels have a free water surface in contact with the atmosphere, while pressure conduits have a confined water surface.  Under each of these general classifications there are several types of conveyance systems in common use.  Pressure Conduits are enclosed pipes where water flows at a pressure higher than the atmospheric pressure.  S. B. Sarkar’s Words and Phrase of Customs and Excise (4^th Edition) states that “conduit” is a channel, pipe, tube or duct through which a fluid, liquid  or gas may pass; a channel for conveying water or other fluid or liquids.

Section 65A enacts provisions for classification of taxable services.  This provision reads:

65A.   Classification of taxable services

• For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of section 65.

• When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:-

• The sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;

• Composite services consisting of a combination of different services which cannot be classified in the manner specified in clause(a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion is applicable;

• When a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.

The Board addressed a communication dated 07.01.2010 forwarding a clarification on an advice sought from the Commissioner of Central Excise, Mysore with regard to leviability of service tax on construction of integrated structures by KSRTC, which were to serve as a commercial complex and a bus terminal.  The Board after stating that a single construction contract for construction of a commercial complex  as well as a transport terminal cannot be vivisected for the purpose of levy of service tax, added that a solution must be found as  laid down in Section 65A(2) of the Act.  The Board clarified: Though, this provision is intended to be applied to cases where two distinct taxable services are provided in a composite manner, the principle laid down therein can nonetheless be extended to different portions of a single taxable service as well; and that the part (of the contract) that gives the essential character to the entire project will determine its nature and this would be determinative of its classification.  We consider this a salutary clarification.  Provisions of Section 65A are applicable to composite agreements comprising, integrated services which cannot and ought not to be vivisected for identifying each constituent component as a distinct taxable service. The transaction, considered as a whole must be ascertained and a composite agreement comprising a combination of different services must be classified as if they consisted of the service which gives them the essential character, in so far as this criterion is applicable, vide Section 65A(2)(b).

Considered in the light of the precedents referred to herein above; the definitions of ECIS and CICS; the Board clarification dated 07.01.2010; the Dictionary meanings ascribed to the word “conduit”; and provisions of Section 65A(2)(a) and (b), we conclude that construction of a pipeline / conduit for transmission of water/ sewerage and involving associated works like digging of the earth, supporting masonry structures, refilling the earth, jointing of different lengths of pipes for laying the pipeline/ conduit, construction of pumping stations together with associated machinery and other construction works, including for transmission of water in lift irrigation projects, cannot be classified under ECIS. These services are only classifiable as CICS.  Where the pipeline/ conduit laying is executed for Government or Government undertakings as part of irrigation, water supply, or sewerage projects, the works are not exigible to service tax under CICS (prior to 01.06.2007), since these are not primarily for commercial or industrial purposes and are excluded from the scope of the taxable services qua the exclusionary clause definition of CICS, in Section 65(25b) of the Act.

16. 16. ISSUES (B); (C) and (D):

These issues overlap and invite integrated analyses. W.e.f. 01.06.2007 (by the Finance Act, 2007) sub-clause (zzzza) was inserted in Section 65(105) to bring “works contract” within the ambit of service tax.  This provision reads:

(zzzza) to any person, by any other person in relation to the execution of a works contract excluding works contract in respect of roads, airports railways, transport terminals, bridges, tunnels and dams.

Explanation: For the purposes of this sub-clauses, “works contract” means a contract wherein,-

• Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

• Such contract is for the purposes of carrying out,-
• erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

• Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

• construction of a new residential complex or a part thereof; or

• completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or

• turnkey projects including engineering, procurement and construction or commissioning (EPC) projects.

17. Contentions on behalf of assessees–

• The legislative intention underlying introduction of “works contract” as a taxable service is to bring to tax, service components of specified composite contracts. This is evident from the Budget speech by the Hon’ble Finance Minister (while introducing the Finance Bill, 2007-2008);  the relevant portion reads:

154. State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract.  However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract.

The legislative intention is reinforced by Board Circular No. 123/5/2010 dated 24.05.2010, which reads:

(i)         Commercial or industrial construction services’, in brief, cover construction of and the completion, finishing, repair, alteration, renovation, restoration or similar activities pertaining to buildings, civil structures, pipelines or conduits.  Therefore, only such electrical works that are parts of (or which result in emergence of a fixture of) buildings, civil structures, pipelines or conduits, are covered under the definition of this taxable service. Further, such activities undertaken in respect of roads, railways, transport terminals, bridges, tunnels and dams are outside the scope of levy of service tax under this taxable service.

(ii)        Under ‘Erection, commissioning or installation services’, the activities relevant to the instant issue are (a) the erection, commissioning and installation of plant, machinery, equipment or structures; and (b) the installation of electrical and electronic devices, including wiring or fitting therefor.  Thus, if an activity does not result in emergence of an erected, installed and commissioning plant, machinery, equipment or structure of does not result in installation of an electrical or electronic device (i.e. a machine or equipment that uses electricity to perform some other function) the same is outside the purview of this taxable service.

(iii)       Works contract incorporates the inclusions and exclusions of the aforementioned two taxable services (amongst others) and it is the nature of the contract (i.e. a contract wherein the transfer of property in goods involved is leviable to a tax as sale of goods) rather than the nature of activities undertaken, that distinguishes it from the previously stated taxable services.  Thus, even in the case of ‘works contract’ if the nature of the activities is such that they are excluded from aforesaid two services then they would generally remain excluded from this taxable service as well.                         (emphasis added).

• Section 65(105)(zzzza) Explanation (ii)(e) specifies “turnkey projects including engineering, procurement, construction or commissioning (EPC) projects”, as a works contract. The terms “EPC / Turnkey” denote the mode of and the integers embedded in execution of large projects.  There is no statutory definition provided of these terms. The following are the definitions of EPC / turnkey contracts as per technical Dictionaries.
• Dictionary of Civil Engineering – John S. Scott (4^th). Turnkey contracts/ design and build contract/ design and construct contract / package deal contract –

An agreement between client and a trusted contractor for the contractor to both design a job and build it.  The best work is done by contractors who have all consultants on their staff: architects, civil, structural, mechanical and electrical engineers, and quantity surveyors.  It may be a lump-sum contract.  One real advantage for the client, especially one whose professional staff are overloaded, is the need to speak to only one responsible person, not to four or five consultants.  So the turnkey contractor must be both trustworthy and competent.

• Duncan Wallace – Building and Engineering Contracts – “Turnkey” is a contract where the essential design emanates from, or is supplied by the Contractor and not the owner, so that the legal responsibility for the design, suitability and performance of the work after completion will be made to rest with the contractor. Turnkey is treated as merely signifying the design responsibility of the contractor.

• Campbell R. Harvey Dictionary – Turnkey Construction contract: A type of construction contract under which the construction firm is obligated to complete a project according to prescribed criteria for a price that is fixed at the time the contract is signed.

• Farlex Financial Dictionary – A construction contract in which the price is fixed at the time the contract is signed. As a result, the construction company is held responsible for exceeding the budget. Turnkey construction contracts reduce the risk to the buyer of the construction services and provide an incentive for the company to stay within the budget.

• International Federation of Consulting Engineers; Extract from “applicability of different patterns of General Conditions of Contract”.

• “EPC / Turnkey Contract

1. Is it a Process Plant or a Power Plant (or a factory or similar) where the Employer – who provides the finance – wishes to implement the project on a Fixed-Price Turnkey Basis?

When the Employer wishes the Contractor to take total responsibility for the design and construction of the process or power facility and hand it over ready to operate “at the turn of a key”.

• and the Employer wishes a higher degree of certainty that the agreed contract price and time will not be exceeded
• and the Employer wishes – or is used to – the Project being organized on a strictly two party approach, i.e. without an “Engineer” being involved.
• and the Employer does not wish to be involved in the day-to-day progress of the construction work, provided the end result meets the performance criteria he has specified
• and the Employer is willing to pay more for the construction of his Project (than would be the case if the Conditions of Contract for Plant and Design-Build were used) in return for the Contractor bearing the extra risks associated with enhanced certainty of final price and time”.
• EPC – Engineering Procurement Construction

EPC stands for Engineering, Procurement, Construction and is a prominent form of contracting agreement in the construction industry.  The engineering and construction contractor will carry out the detailed engineering design of the project, procure all the equipment and materials necessary, and then construct to deliver a functioning facility or asset to their clients.  Companies that deliver EPC Projects are commonly referred to as EPC Contractors.

The EPC phase of the project is also known as the Execution phase which normally follows what is know as a FEED or Front End Engineering Design phase.  The FEED is a basic engineering design used as the basis for the EPC phase.  The FEED can be divided into separate packages covering different portions of the project. The FEED packages are used as the basis for bidding on when the client offers the EPC work to the market.

Normally the EPC Contractor has to execute and deliver the project within an agreed time and budget, commonly known as a Lump Sum Turn Key (LSTK) Contract.  An EPC LSTK Contract places the risk for schedule and budget on the EPC Contractor.

The Project Owner or client to the EPC Contractors will normally have a presence in the EPC Contractors offices during the execution of the EPC Contract.  The client places what can be termed a Project Management Team or PMT to overlook the EPC Contractor.  The client PMT may require specialist help and bring on board Project Management Consultants or PMC’s to assist.  The PMT/ PMC will ensure the EPC Contractor is carrying out the works in accordance with the agreed scope of works and in accordance with the Contract.  It is quite common for the Engineering and Construction Contractor which delivered the FEED to be offered to Project Management Consultancy (PMC) Contract.

In some instances which can be related to the time a project owner would like the project delivered, and engineering and construction company can be given work on a direct reimbursable basis to start with followed by conversion to LSTK once sufficient time and resources can be allocated to quantifying  and pricing the scope of works.  One method to convert from a reimbursable to LSTK Contract is called an Open Book Estimate or OBE in which the Contractor will open all their working documentation or books for representatives of the client to assess what the total scope of works for delivering the project will be.  An agreed LSTK scope of works and price will be negotiated and agreed between EPC Contractor and Project Owner during the execution of EPC activities.

• Extracts from “Understanding and Negotiating Turnkey and EPC Contracts”, by Joseph A. Huse (2002)

Under an EPC agreement, the contractor provides all of the engineering, procurement and construction.  Under a turnkey contract, the contractor supplies the final design of the project.  From the perspective of the author these terms are largely interchangeable.

Design Build, EPC and Turnkey.

The “turnkey” arrangement (also known as the “package deal”, “design and build”, “cle-en main”, “design and construct” or “EPC”) places the duty to design and construct solely on the contractor.  The term “turnkey” tends to mean the most extreme form of placing design and construction responsibility on the contractor, such that after completion the employer need only to turn the key.  Notwithstanding this, the term “turnkey” will be used here to describe the more general global arrangement of placing all design, procurement and construction responsibilities on one contractor. The turnkey system generally uses the lump sum pricing method”.

• Distinction between “EPC” and “Turnkey” contracts – Wikipaedia–

EPC is a contract comprising Engineering, Procurement and Construction.  Turnkey is a contract comprising Engineering, Procurement and Construction.  If you look at the definition, you may find no difference between two concepts, but there are some differences between the two concepts, as follows.

1. In EPC, there is an employer who will provide basic engineering to contractor and the later shall perform detailed design based on received basic design.
2. In turnkey, employer only will provide certain technical specifications of the project and that is the responsibility of the contractor to prepare basic and detail design of the project.
3. In turnkey, contractor is responsible to perform construction and commissioning, start up and take over of the plant to the employer but in EPC, may be it is responsibility of the other third person to do commissioning and start up.

• From the above meanings of “EPC/ Turnkey”, it is apparent that these are modes of execution of contracts involved in large, complex projects, where the scope of the contract commences from the engineering or design stage on to completion of the project in its entirety and is normally for a lumpsum, with full responsibility on the contractor for effective execution of all stages thereof. Thus, clause (e) The definition of WCS cannot, on a true and fair construction of the clause in the definition considered as a whole, be considered as a distinct taxable service component.  Clause (e) must be interpreted as effectuating the legislative intention to cover several components of “works contract” service enumerated in sub-clauses (a) to (d) i.e. even when more than one of these services  and associated with other services are provided by way of turn key projects including EPC.
• While clauses (a) to (d) in the definition of WCS are drawn from pre-existing definitions of taxable services such as ECIS, CICS and COCS – defined in Section 65(39a) and (91a), 65(25b) and Section 65(30a) clause (e) is intended to cover all modes of executing works contract falling within sub-clauses (a) to (d) including when executed as EPC/ Turnkey projects. The legislative intention is to tax all genres of services comprised in composite contracts involving deemed transfer of property in goods and rendition of associated services involved in the execution of works contract.  Thus,  EPC/Turnkey projects may comprise not merely services falling within the ambit of ECIS, CICS or COCS but other taxable services such as Architect Service (clause 6), Consulting Engineer Service – (clause 31) Design Services – (clause 36b) Intellectual Property Service – (clause 55b);  Interior Decorator Service – (clause 59) Real Estate Consultant Service – (clause 89), Site Formation and Clearance, Excavation and Earth Moving and Demolition Service (clause 97a), Technical Testing and Analyses Service – (clause 106); Technical Inspection and Certification Service – (clause 108), as well.

One of more of the above services, apart from defined components of ECIS, CICS or COCS would invariably be bundled into an “EPC/ Turnkey mode of execution of a works contract defined in Section 65(105)(zzzza).

(v)     Sub-clause (e) is introduced to avoid interpretational complexities and classification of complex and bundled services which are integers of agreements involving transfer of property in goods coupled with rendition of several varieties of services, involved in a works contract in execution of major infrastructure or development projects.

(vi)     In many of the appeals, earth excavation, forming embankment and construction of channels, excavation of feeder canals, flood flow canals, canal systems, canal lining with either cement concrete, geo-membrane or geo textiles etc. for irrigation, lift irrigation, water supply, or sewerage purposes, is involved.  Clause (b) of the definition of “works contract” includes “a pipeline or conduit, primarily for the purpose of commerce or industry”. The words “pipeline” and “conduit” are not defined.   “Conduit”, according to general and technical Dictionaries means a passage for water or any other liquid; and a conduit can be either closed like a pipeline or open as a canal.  Water Works Engineering, – Planning, Design and Operation by Syed R. Qasim etc. (referred to supra) observes that water canals are classified either as open channels (canal) or pressure channels (like pipelines).  The statutory definition adopted these two methods of water/ fluid conveyance systems. Long distance water transportation may involve digging of canals where the water could  flow by gravity and laying pipelines and associated supporting masonary and mechanical works, for pumping the fluids/ water  to higher elevation.  If “conduit” were not given the pluri-signative meaning as considered in general and technical Dictionaries and its commercially accepted purport, it would lead to the absurd consequence where a contractor engaged in pipeline laying work would fall outside the ambit of tax when the work is not for commercial or industrial purpose while a contractor executing canals for critical irrigation projects of the State would be liable to tax.  Wherever the gradient /contours enable flow of water by gravity open channels/ canals are constructed but where water has to be lifted to higher altitudes pipelines are used, as in “lift irrigation”.  All these works are comprised within the meaning of “pipeline” or “conduit”.  Where these are constructed (in the agreements in issue in the appeals) for Government / Government undertakings for irrigation, water supply or sewerage disposal purposes, the works are not for commercial or industrial purposes and would fall outside the scope of the definition in clause (b) of WCS.  The residual entry in clause (e) is an enactment ex abundant cautela. Further, in terms of Section 65A, the specific description/ definition of a taxable service must prevail over the generic description, which describes a mode of execution, as in clause (e).

(vii)    The definition of “works contract” excludes works contract in respect of a “dam”.  “Dam” is not defined.  We may notice the several meanings of “dam” as provided in dictionaries:

(i) Merriam Webster Dictionary – Barrier built across a watercourse for impounding water.  Barrier built across a stream, river, or estuary to conserve water for such uses as human consumption, irrigation, flood control and electric power generation.  Modern dams are generally built of earth fill, rock fill, masonry or monolithic concrete.  Earth-fill (or embankment) dams, are usually used across broad rivers to retain water.  Concrete dams may take various forms;

(ii)  Cambridge Dictionary – a wall built across a river that stops the river’s flow and collects the water, especially to make a reservoir (an artificial lake) that provides water for an area”;

(iii)  Oxford Dictionary –   a barrier constructed to hold back water and raise its level, forming a reservoir used to generate electricity or as a water supply;

(iv)  Collins Dictionary – a barrier of concrete, earth etc., built across a river to create a body water, as for domestic water supply; a reservoir of water created by such a barrier something that resembles or functions as a dam”; and

(v)  Wikipaedia – a dam is a barrier that impounds water or underground streams.  Dams generally serve the primary purpose of retaining water, while other structures such as floodgates or levees (also known as dikes) are used to manage or prevent water flow into specific land regions.  A dam can also be used to collect water or for storage of water which can be evenly distributed between locations

• From the above meanings of “dam” it is clear that it is a barrier erected for impounding water and serves the primary purpose of retaining water in the reservoir appurtenant thereto, to provide water for irrigation or drinking purposes and for supply to nearby villages /towns, by way of canals, feeder channels etc.  Without construction of channels / canals which are inlets/ outlets for conveying water to and from the dam, a dam would be wholly dysfunctional.  Construction of channels /canals is integral to a dam project and must therefore be treated as a work “in respect of” a dam and is thus excluded from the levy, in terms of the definition itself.
• The definition of “works contract” in sub-clause (zzzza) excludes works contract in respect of dams. The expression “in respect of” has been interpreted in several Dictionaries and judicial pronouncements as having the widest meaning and being wider in its connotation than the word “in” or “on”.  Hence, execution of channels/ canals not only amounts to construction of a conduit but is also covered by the exclusion clause in the definition of “works contract”, as a works contract ‘in respect of’ dam.
• An “EPC / Turnkey” Project refers to a contract where the entire responsibility for execution, from the stage of design is on the contractor and on completion the project is handed over to the client in a ready to use condition. In the several contracts in issue in the several appeals, Governments/ Government undertakings have used the term EPC/ Turnkey in a loose manner.  All the works are only for specified packages i.e. each package pertaining to a segment of the whole project and each package is awarded to a different contractor.  Under such agreements, each of the appellants would be constructing only a portion (reach) of the entire stretch of the channel/ canal/ pipeline, awarded under the specified package.  Unless the entire length of the channel/ canal/ pipeline is constructed, the project is incomplete.  In the circumstances, works executed by each of the appellants comprising only a part / segment of the entire project cannot be considered EPC/ turnkey.  In some of the appeals, only preparatory work such as execution or strengthening of embankment of the canal work is awarded but is yet called as EPC / turnkey.  Such works cannot under any circumstances be considered as EPC/ turnkey projects.  It requires to be noticed that while clause (b) of the definition of WCS, covers “part of a building or civil construction”, clause (e) dealing with EPC/ turnkey projects does not specify a part of EPC/turnkey projects as the taxable service.  In all appeals, since the appellants executed only a part/ package of the overall project, for a limited distance of the whole, the work cannot be considered as EPC/ Turnkey, notwithstanding its description as such in the relevant agreements.
• Section 65(97a) defines “Site Formation and Clearance, Excavation Earthmoving and Demolition”, which service is defined to include-

(i) drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or

(ii)          soil stabilization; or

(iii)         horizontal drilling for the passage of cables or drain pipes; or

(iv)         land reclamation work; or

(v)          contaminated top soil stripping work; or

(vi)         demolition and wrecking of building, structure or road,

But does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies”.

The various activities awarded in agreement in issue in some of the appeals include earthmoving, excavation during construction of canals, strengthening of embankment etc.  The definition of this taxable service excludes the activity when it is provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies.  In the EPC / turnkey mode of execution of construction services, site formation and clearance components would also be included as part of the bundled services provided. It would lead to absurd and legislatively unintended consequences if site formation and clearance services provided in respect of agriculture, irrigation etc. are excluded from the levy but are included by treating clause (e) as a distinct service.  Similarly services provided under clause (b) for non-commercial, non industrial purposes stand excluded from the levy but when provided under the EPC/ turnkey mode would be liable to tax, an interpretation reductio ad absurdum.

17. 17. CONTENTIONS ON BEHALF OF REVENUE:

(i)      In several of the appeals under consideration the works executed comprise a bundle of services including construction of a new building or a civil structure or a part thereof; a pipeline; irrigation, commissioning or installation of plant, machinery, equipment or structures; and plumbing, laying of drains or other installations for transport of fluids.  Other activities involved are in the nature of designing of structures to be executed; Design and Engineering, Procurement and Installation; Commissioning and like works.  Taken together, the several activities can not be classified in anyone of the clauses (a) to (d) of WCS.  The several categories of works executed under the agreements considered as a whole fall specifically under clause (e), since this is the comprehensive sub-clause which enumerates activities of Engineering Procurement and Construction or Commissioning (EPC) or turnkey;

(ii)      ex hypothesi even if assumed  that the activities are classifiable under clause (b), it would not be excluded from the levy since the activities are for industrial purposes.  One of the works involves lifting 4.50 TMC of water from Godavari river near Kannepally (v) near Kaleswaram of Karimnagar District to feed an ayacut of 45,000 acres.  This work is not only for the of the population residing in these areas but also to farms, industrial areas, commercial establishments, complexes, malls etc., of those areas;

(iii)     In view of the decision in Bangalore Water Supply and Sewerage Board and Others vs. R. Rajappa and Others[8], whether a particular body is an industry is not dependent on whether the activity thereunder is undertaken by corporate body in the discharge of its statutory functions or even by the State itself. It is only the process involved in the activity, objectively viewed which is the determinative factor in deciding whether the activity is an industry.  Hence, it cannot be said that supply of water or creation of an irrigation distributory scheme or a lift irrigation project is not for industrial purposes.

(iv)     “Dam” (which is excluded from the scope of the taxable service in the definition of WCS), means only the civil construction and installation of gates extending to the stretch of the river or stream. A “Dam” is confined to that portion of the structure which obstructs the natural flow of water in a river or a stream.  No civil construction, structure or installation extending beyond the main Dam structure would fall within the meaning of the word “Dam”. Thus, canal systems which originate beyond the main “Dam” structure cannot be considered as part of the “Dam”.  “Dams” and “Canal systems” are independent species and the exclusionary clause in the definition of WCS is inapplicable to canal systems.

(v)     It is an established principle of interpretation that where the language of the statute is clear, the Court must give effect to the legislative intention as expressed.  Only if there is an ambiguity in the language of a provision may the Court adopt purposive construction; or if the legal construction leads to an absurdity is it permissible to resort to external aids.  The Act excludes “Dam” from the scope of WCS in the definition.  In defining “Site Formation Service” the Act employs a different exclusionary formula and excludes from this service works provided in relation to irrigation, water shed development etc. Since the Act consciously excludes “Dams” from the purview of WCS and in “Site Formation Service” works provided in relation to Irrigation, Water shed Development etc. while defining the later taxable service, this distinction must be noticed and given effect to.  Consequently, the meaning of “Dam” cannot be extended to canal systems under a Dam, as these would pertain to irrigation, which is excluded only under “Site Formation Service”.

(vi)     In respect of “Site Formation Service” Government issued exemption Notification No. 17/2005/ST dated 16.03.2005, exempting the said service when provided “in respect of dams”.  Similarly, in respect of WCS, Notification No. 41/2009/ST dated 23.10.2009, granted exemption in respect of works contract provided in respect of canals. These Notifications, issued under Section 93 of the Act, establish that works contract in respect of canals is otherwise included within the scope of the taxable service and that execution of canals is outside the purview of “Dam”, which alone is the excluded component.

(vii)    The definition of WCS uses both the expressions – “In relation to” and “in respect of”.  “In relation to” means “in the context of”, “in connection with”.  On the other hand, “in respect of” means “as regards”, “with reference to”.   Thus, the expression “in relation to” has a wider connotation than “in respect of”.  Consequently, since works contract “in respect of” “Dam” is excluded from the scope of the definition, it must be given a narrow construction and irrigation and canal systems fall outside the scope of exclusion.

(viii)   Assessees contention that where contracts involve only a package or a specified distance out of the overall project, it would not constitute an EPC/ Turnkey Project and only when the entirety of the larger project is executed by one entity it would amount to EPC/ Turnkey project, is misconceived.  The definition of WCS, in clause (e) under Explanation (ii) thereof does not specify any such requirement.  Even if a portion, package or a reach of the entire and larger project is awarded to a contractor and that portion, package or reach answers the description of EPC/ turnkey, the same would be taxable under clause (e).  In each of the contracts in issue, the terms thereof stipulate that it is an EPC / turnkey project.  All these contracts therefore fall within the ambit of EPC turnkey projects, under clause (e) under Explanation (ii) of WCS.

18. 18. ANALYSES OF ISSUES (B); (C) and (D):

(a)     WCS was introduced by the Finance Act, 2007 w.e.f. 01.06.2007 by insertion of sub-clause (zzzza) in Section 65(105) of the Act.  The provision reads:

Section 65 (105) (zzzza): to any person, by any other person in relation to the execution  of a works contract, excluding works contract in respect of roads, airports, railways, transports terminals, bridges, tunnels and dams.

Explanation.- For the purposes of this sub-clause, “works contract” means a contract wherein,-

(i)  transfer of property in goods involved in the execution of such contract is leviable to tax  as sale of goods, and

(ii)  such contract is for the purposes of carrying out, –

• Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or airconditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
• Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
• Construction of a new residential complex or a part thereof; or
• Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
• Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;

From the definition of WCS, it is clear that only specified categories of works contract are considered for levy of service tax. These are enumerated in clauses (a) to (d) of Explanation (ii) in the definition.  Clause (e) refers to –

Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects.

The question is whether clause (e) signifies a distinct category of service, distinct from those enumerated in clauses (a) to (d); or is merely descriptive of the mode of execution of taxable services comprised in  clauses (a) to (d).  Assessees contend that clause (e) merely describes the mode of execution of taxable services enumerated in clauses (a) to (d) and is intended to cover works contracts involving bundled services which may comprise more than one component of the taxable services enumerated in each of the clauses (a) to (d) and contracts where in addition to one or more of the taxable services enumerated in clauses (a) to (d), there are other services / activities bundled into the agreement, which may or may not be taxable services elsewhere enumerated in the Act to be so.

1. b. Before proceeding to a detailed analyses of these issues, it is necessary to consider whether EPC/ turnkey projects were taxable prior to 01.06.2007 and if so how such projects ought appropriately be classified amongst the several taxable services that were in force prior to 01.06.2007.

In Alstom Projects India Ltd. vs. Commissioner of Service Tax, Delhi[9]; a Division Bench of this Tribunal concluded that EPC contracts are chargeable to service tax even prior to 01.06.2007.  The following observations in para 6.2 of this judgment are relevant:

(2)  The entry “Service in relation to execution of work contract” as defined in Section 65(105) (zzzza) is different from services defined in other sub-clauses of Section 65(105).  In fact, as discussed above, Section 65(105)(zzzza) read with Rule 2A of Service Tax (Determination of Value) Rules, 2006 and work Contract (Composite Schemes for Payment of Service Tax) Rules, 2007 only provide a new machinery provision for assessment of service tax on “Erection, installation or Commissioning Contracts”, “Commercial or industrial construction contracts”, “Residential Construction Service Contracts” and “EPC Contracts” involving transfer of property in goods on which Sales Tax/ VAT is chargeable.  But it does not mean that these contracts were not liable to Service Tax prior to 01.06.2007 as, as discussed above, “erection, installation or commissioning services”, “commercial or industrial construction service”, Residential constructions services were taxable even prior to 01.06.2007, even if the same involved use/ supply of goods on which Sales Tax/ VAT was payable.  Similarly in respect of EPC contracts which are divisible contracts for design & engineering, procurement of goods, erection, installations & commissioning, service tax was chargeable even prior to 01.06.2007 on these taxable service component.  The taxable services covered by Section 65(105)(zzq) (Commercial or industrial construction service) and Section 65(2105)(zzzh) [residential construction service] are overlapping.  While w.e.f. 01.06.2007, following the principle of harmonious construction, it can be said that while Section 65(105)(zzzza) would cover the services defined by Section 65(105)(zzd), Section 65(105)(zzq), Section 65(105)(zzzh) and EPC contracts which involve transfer of  property is goods on which tax as sale of goods is leviable, and Section 65(105)(zzd), 65(105)(zzq) and Section 65(105)(zzzh) will cover erection, installation or commissioning service, ‘commercial or industrial construction services’ and ‘residential construction services’ respectively not involving transfer of property in goods, but it does not mean that prior to 01.06.2007, the services covered by Section 65(105)(zzd), 65(105)(zzq) and 65(105)(zzzh) involving transfer of property of goods were not taxable.          (emphasis added).

In view of Alstom Projects India Limited, since an EPC/ turnkey contract (which is also a works contract) is taxable prior to 01.06.2007 as well, bundled services in a composite, indivisible contract of this nature require to be classified under any one of the extant (prior to 01.06.2007) taxable services, by employing classification guidelines set out in Section 65A of the Act.  Normally, since the dominant intention underlying such a contract would be the construction of a civil structure such as a “Dam” or a canal system under a dam (and not merely the designing or planning etc., thereof), an EPC/ turnkey contract must be classified (prior to 01.06.2007), under CICS. The special Bench decision in the recent Larsen & Toubro Limited reference ruled that works contract is taxable prior to 01.06.2007 as well.  Earlier, in Indian Hume Pipe Co. Limited (supra considered in para 15(i)], Revenue contended that the contract in issue was a turnkey contract.  We concur with the ruling in Alstom Projects India Limited that turnkey/ EPC contracts were taxable prior to 01.06.2007 as well, on classification under the appropriate taxable service applicable.  Where such construction is for Government / Government undertakings, for providing irrigation, water supply, sewerage disposal or lift irrigation facilities, the activity being not primarily for commercial or industrial purposes but for delivering the affirmative obligations of the State or a State instrumentality under the Constitution, the transaction would stand excluded from liability to tax under CICS, as not being primarily for commercial or industrial purposes.

          We notice that another Division Bench, in Ramky Infrastructure Limited vs. CST, Hyderabad[10]  expressed a contrary view to that expressed in Alstom Projects India Ltd. (supra) on the aspect whether turnkey/ EPC contracts were chargeable to service tax prior to 01.06.2007.  Para 8.4 of Ramky Infrastructure Limited  notes Revenue’s contention that turnkey /EPC contracts per se were not chargeable to service tax prior to 01.06.2007.  Revenue did advert to the decision in Alstom Projects India Limited.  In para 10.10, Ramky Infrastructure Limited  concludes that transfer of property in goods exigible to sales tax is not involved in rendition of services defined under clauses (25b) and (97a) of Section 65 i.e. CICS and ECIS, whereas such transfer is necessarily involved in execution of works contract.  This conclusion is clearly contrary to the decision of the special Bench of CESTAT in the Larsen & Toubro Limited reference (dated 19.03.2015).  In para 10.6, Ramky Infrastructure Limited  concludes, based on the premise that only where dams were built by an appellant in execution of an EPC contract and along therewith construction of canals etc. is also undertaken, the exclusionary clause in the definition of WCS excluding works contract “in respect of dams” would come into play.  For the reasons earlier recorded herein and for the reasons to follow, this conclusion in Ramky Infrastructure Limited is erroneous.  Works contract “in respect of dams” is excluded from the purview of WCS.  A true and fair construction of the definition of WCS and the exclusionary clause “works contract in respect of dams”, indicates no requirement that works contract executions of structures ancillary or integrated into a dam project should be taken up along with construction of the main dam structure and by the same contractor, to come within the exclusionary clause. This conclusion in Ramky Infrastructure Limited is therefore, with respect, erroneous and is overruled.  In para 10.8, Ramky Infrastructure Limited negated  plea of the appellants therein that where a works contract is assigned to sub-contractors and the transfer of property in goods used in the execution of such contract  was only from the sub-contractors to the Government and not from the appellants, the same would not be covered under the definition of WCS.  The Tribunal held that the definition of “works contract” does not so stipulate and proceeded to hold “it is enough if transfer of property in goods is involved in the execution of the contract and the same is exigible to sales tax as is the case under consideration”.   This conclusion is per incurium the judgment of the Supreme Court in Larsen & Toubro Limited (SC.2008), which we shall advert to in detail, later herein.

In view of the special (5 member) Bench decision in the Larsen & Toubro Limited reference, it follows that a works contract is exgibile to service tax even prior to 01.06.2007.  In view of Indian Hume Pipe Co. Limited; and Alstom Projects India Limited it follows that a turnkey / EPC contract is exigible to service tax prior to 01.06.2007, under the appropriate taxable service such as ECIC, CICS or COCS.  From this position it inexorably follows that clauses (a) to (e) of the definition of WCS in Explanation (ii) thereof are enumerations of taxable services drawn substantially from definitions and integers of existing taxable services such as ECIS, CICS and COCS.  From the decision in Indian Hume Pipe Co. Limited and other decisions  [referred to in paras 15(i) and (ii) (supra)], it is clear that laying of pipelines/ conduits for transmission of water or for disposal of sewerage falls within the ambit of CICS and not ECIS; and  where provided to Government/ Government undertakings and for supply of water for irrigation or consumption or for disposal of sewerage, the activity is non-commercial, non-industrial, is covered by the exclusionary clause in the definition of CICS and is not exigible to service tax.  Since a turnkey/ EPC contract would inhere elements of several services, consisting of combination of different services, the service which gives such contract its essential character would be laying of pipelines or conduits. A turnkey/ EPC contract for laying of pipeline/ conduit should therefore logically be classified under clause (b), Explanation (ii) of Section 65(105)(zzzza), on and from 01.06.2007 as well.  This is the consequence of applying Section 65A(2)(b) of the Act and this position is clarified in Board Circular No. 123/5/2010-TRU dated 24.05.2010 (considered in detail in sub-para (o) infra].

For the same reasons as recorded in the preceding sub-para construction of canals for transmission of water or sewerage disposal would also be classifiable under clause (b) of the definition of WCS.

Revenue, apart from relying on Ramky Infrastructure Limited has also adverted to an interim order passed in Patel Engineering Limited vs. CCE, Hyderabad-II[11]. Suffice to notice that this interim order records only prima facie conclusions in respect of the various aspects dealt with therein. In para 5 of the above order, Tribunal observes that whether in enacting distinct taxable services such as CICS w.e.f. 2004 and WCS w.e.f. 01.06.2007, works contract is a distinct and stand alone taxable entity or is carved partly or wholly from the earlier CICS, is  inappropriate for a detailed analysis at an interim stage of the proceedings.

We are also informed at the Bar that against the pre-deposit ordered in Patel Engineering Limited (supra), the appellant preferred an appeal which is pending before the High Court of A.P. wherein an interim order was passed modifying the quantum of pre-deposit to be made, reported in 2014 (35) STR 297 (A.P.).   It is also urged that an appeal is preferred against the judgment (final order) in Ramky Infrastructure Limited which is also pending before the High Court, though no particulars were provided, of the appeal preferred.  We are only stating these facts for completion of the narrative at the Bar.

(c).    The definition of WCS in sub-clause (zzzza) of Section 65(105) of the Act, to the extent relevant for this part of our analyses, defines the service as one provided or to be provided “in relation to” the execution of a works contract, excluding works contract “in respect of, ……Dams”.  On its text, the definition of WCS excludes works contract “in respect of” dams.  The expression “in respect of”  means:

(i)       P. Ramanatha Aiyar’s – The Law Lexicon:

         In respect of.  The words ‘in respect of’ convey some connection or relation between the plaintiff’s claim and the personal injuries that he sustained.  Paterson vs. Chandwick (1974) 2 All ER 772, 775 (QBD). (Administration of Justices Act, 1970, S.32 (1)).

                        Giving the words ‘in respect of’  ‘their widest meaning viz. ‘relating to’ or ‘with reference to’ it is plain that this relationship must be predicated of the grant, renewal or continuance of a lease and a lease must come into existence simultaneously or nearabout the time that the money is received. Tularam Relumlal v. State of Bombay, AIR 1954 SC 496. (Bombay Rents, Hotel and Lodging House Rates (Control) Act (57 of 1947) S. 18 (1)).

“The expression “in respect of” is wider in its connotation than the word “in” or “on”.  Therefore a class of municipal tax, though not a tax on the premises or buildings will nevertheless be a tax in respect of the premises or building used for the business. I.T. Commissioner vs. Chunilal, AIR 1968 Pat 364 at 367. [Constitution of India preamble].

                        The words “in respect of” are wide enough to permit charges being made as terminals so long as any of these things, viz, station, sidings, wharves, depots, warehouses, cranes and other similar matters have been proved and are being maintained.  The words “in respect of” used in S.3 (14) mean “for the provision of” and not “for the user of”.  Sahadasa Saharanpur Light Railway Co. Ltd. v. Upper doab Sugar Mills Ltd. AIR 1960 SC 695, 701, 702 (Railways Act 1890, S.3.(14)).

                   In Respect of Any Employment The words “in respect of any employment” used in Art. 16(2) must include all, matters relating to employment as specified in Art. 16(1). General Manager Southern Railway v. Rangachari, AIR 1962 SC 36, 41 [Constitution of India Art.16(2)].

(ii)      S. B. Sarkar’s Words & Phrases of Excise & Customs–

In respect of – (Canada). “The words ‘in respect of’ are, in my opinion, words of the widest possible scope.  They import such meanings as ‘in relation to’, ‘with reference to’, or ‘in connection with’.  The phrase ‘in respect of’ is probably the widest of any expression intended to convey some connection between two related subject-matters”.   Nowegijick v. Canada [1983] 1 SCR 29, (Words & Phrases Legally Defined.  Butterworths. 3^rd edition. 1997 Supplement).

“it cannot be said to have a precise legal meaning.  Fowler’s Modern English Usage’ does it justice by recommending that it be used as seldom as possible”.  (New Zealand Court of Appeal in – Phonographic Performances (NZ) Ltd. v. Lion Breweries Ltd.- (1980) PSR 383 (1979). (Garner).

(iii)              Mitra’s- Legal & Commercial Dictionary–

          In respect of.  The words ‘in respect of’ used in s. 3(14) of the Indian Railways Act, may be taken to mean ‘for the provision of’ and ‘for the user of’.  Therefore, irrespective of the actual user by any particular consignor of the stations, sidings and other things mentioned therein, terminal charges are leviable by reason of the mere fact that these things have been provided by the Railway Administration. Sahadara (Delhi) Saharanpur Light Railway v. Upper Doabs Sugar Mills Ltd. AIR 1960 SC 695: (1960) 2 SCR 926.

            The words in respect of are of very wide amplitude and the suit must have relation to or must have reference to an act purporting to be done by a public officer in his official capacity. State v.  Venkata Durga AIR 1957 AP 675.

(iv)    The expression “in respect of”, occurring in Section 23(1b) of the Foreign Exchange Regulation Act, 1947 was considered in Union of India (UOI) and Anr. Vs. Vijay Chand Jain[12], the Court explained:

The words “in respect of” admit of a wide connotation; Lord Greene M1, in Canard’s Trustees v. Inland Revenue Commissioners 174 L.T. Rep. 133 calls them colourless words.  This Court in S.S. Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. and Anr. MANU/SC/0011/1960: 1983 CriLJ1044 construing these words in Section 3(14) of the Indian Railways Act, 1890 has held that they are very wide.  It seems to us that in the context of Section 23(1B) ‘in respect of’  has been used in the sense of being ‘connected with’,  and we have no difficulty in holding that the currency in respect of which there has been contravention covers the sale proceeds of foreign currency, sale of which is prohibited under Section 4(1).  The intention of the legislature is clear from the explanation to Sub-section (1B) of Section 23 which provides that “for the purposes of the Sub-section (1B) of Section 23 which provides that “for the purposes of the Sub-section property in respect of which contravention has taken place shall include deposits in a bank, where such property is converted into such deposits”.  If for this sub-section any property in respect of which a contravention has taken place includes deposits into which the property may be converted and can be reached even where the deposits are in a bank, it is not reasonable to think that the sale proceeds in Indian currency of any foreign exchange would be outside the scope of Section 23(1B0 and therefore not liable to be confiscation.  In our opinion the High Court was wrong in quashing the order of confiscation which we consider valid and lawful.

(v)     In S. S. Light Railway Co. Ltd. vs. Upper Doab Sugar Mills Ltd. & Another[13], the expression “in respect of” in 3(14) in Indian Railways Act, 1890 was explained.  The Court held:

A further question thus arises as regards the interpretation of the phrase “in respect of”.  Does it mean charges for the mere provision and maintenance of stations, sidings, depots, wharves, warehouses, cranes and other similar matters are the terminals or does it, contemplate charges only for use of sidings, stations, wharves, warehouses, cranes and other similar matters?  The wide enough to permit charges being made as terminals so long as any of these things, viz., stations, sidings, wharves, depots, warehouses, cranes and other similar matters have been  provided and are being maintained.  The question is whether the import of this generality of language should be cut down for any reason.  It is well-settled that a limited interpretation has to be made on words used by the legislature in spite of the generality of the language used where the literal interpretation in the general sense would be so unreasonable or absurd that the legislature should be presumed not to have intended the same.  Is there any such reason for cutting down, the result of the generality of the language used present here?  The answer,  in our opinion, must be in the negative.  It is true that in many cases stations, sidings, wharves, depots, warehouses, cranes and other similar things will be used and it is arguable that in using the words “in respect of” the legislature had such user in mind.  It is well to notice however that the legislature must have been equally aware that whereas in some cases accommodation provided by stations will be used, in some cases sidings will be used, in other wharves, in other warehouses and in other cases cranes, and in certain cases several of these may be used, in most cases there will be no use of all of these.  From the practical point of view it is impossible to regulate terminal charges separately in respect of user of each of these several things mentioned.  When therefore the legislature authorised the Central Govt., to fix terminals leviable would not depend on how many of these things would be used.  It is also worth noticing that the user of a depot, warehouse and cranes would necessarily mean some service rendered “thereat”.   If terminals did not include charges in respect of the provisions of depots, warehouses and cranes unless these were  used, there would be no need of including these in the first portion as they would be covered by the second part of the definition, viz., “of any services rendered thereat”. Far from there being any reason to cut down, the consequence of the generality of language used viz., “in respect of”, there is thus good ground for thinking that the legislature used this language deliberately to cut across the difficulty of distinguishing in a particular  case as to which of these things had been used or whether any of them had been used at all.  Innumerable people carry goods over the Railways and many of them, for the purpose of the carriage make use of the stations, sidings, wharves, depots, warehouses, cranes and other similar matters, while many do not.  Though at first sight it might seem unreasonable that those who had not used would have to pay the same charge as those who had made use of these, it is obvious that the interminable disputes that would arise between the Railway Administration  and the Railway users, if the fact of user of stations, sidings and other things mentioned had to determine the amount payable, would  be unhelpful not only to the Railway Administration but also to the using public.  The sensible way was therefore to make a charge leviable for the mere, provision of these things irrespective of whether any use was made thereof.  That was the reason why such wide words “in respect of” was used.   We are therefore of opinion that the words “in respect of” used in S. 3(14) means “for the provision of” and not “for the user of”.  It is worth considering in this connection that the definition of “terminal charges” in the Indian Act is a verbatim reproduction of the definition appearing in the English Railway and Canals Traffic Act, 1888 and that only three years before the English Parliament passed that Act an English Court had held in Hall & Co. v. London, Brighton and South Coast Rly., Co. (2), that for the purposes of interpretation of section 51 of the London, Brighton, and South Coast Rly. Act, 1863 which  did not include such a definition of terminal charges, the words “any service incidental to the  duty or business of a carrier”, does comprise providing such station accommodation and  such sidings, and such weighing, checking and labelling as is incidental to the  duty which they undertake, of collecting and dealing with the goods as carriers”.  It is reasonable to think that the English Parliament in defining “terminal charges” in the Railway and Canals Act, 1889 intended to give effect to this view that provision of station accommodation and sidings entitled the Railway Administration to levy “terminal charges”.  When the Indian Legislature adopted the same definition in its own Act it is proper to think that it also was aware of the view taken in Hall’s  case (2).  This consideration fortifies the conclusion which we have already reached on an examination of the scheme of our own Act, apart from authorities, that the words “in respect of” used in s.3(14) in the definition of (2) (1885) 15 K.B. 505.

(vi)    The Orissa High Court in Godavaris vs. Nandkisore Das[14]; The Madras High Court in State of Madras vs. Chitturi Venkata Durga Prasadarao and Ors.[15]; the Patna High Court in Commissioner of Income Tax vs. Chunilal Rameshwar Lal[16];  the Allahabad High Court in Har vs. Hans Ram and Ors.[17];  and the Delhi High Court in Commissioner of Income Tax vs. Bharat Heavy Electrical Ltd.[18] [19], uniformly interpreted the phrase “in respect of” as a comprehensive expression,  to be construed in a broad sense  and as bearing a wider connotation and compass.

The Canadian Supreme Court in Nowegijick v. The Queen[20] explained that “in respect of” are words of the widest possible scope and import such meanings as “in relation to”, “with reference to” or “in connection with; and that “in respect of” is probably widest of any expression intended to convey some connection between two related subject matters.

(vii)    Board Circular No. 116/10/2009-ST dated 15.09.2009 clarified the issue regarding leviability of service tax on construction of canals for Government projects.  Paras 1 and 2 of this Circular dealt with the leviability of service tax under CICS, defined in Section 65(25b) of the Act. The Board clarified that since canal systems built by Government or as Government projects would not be for industrial or commercial purposes, the activity is not exigible to service tax.  Para 3 of this Circular dealt with the position under clause (e) in Explanation (ii) of the definition of WCS.  The Board clarified:

3. The second issue is about Government taking up construction activity of dams, irrigation projects, buildings or infrastructure construction etc. through EPC (Engineering Procurement & Construction) mode. The said service is covered under section 65(105)(zzzza) of Finance Act, 1994.  The said section itself excludes works contract in respect of dams, road, airports, railways, transport terminals, bridges & tunnels executed through EPC mode.  Hence works contract in respect of above works even if done through EPC mode are exempt from payment of service tax.

The above Board circular represents the executive construction of the scope of EPC/ turnkey contracts in the light of the exclusionary clause in the definition which excludes works contract in respect of Dams, from the purview of the definition itself.

(viii)   Notification No. 41/2009-ST dated 23.10.2009 (issued under Section 93 of the Act) exempts the taxable WCS in respect of canals, other than those primarily used for the purposes of commerce and industry, from the whole of the tax leviable thereon under Section 66 of the Act.  This being an exemption Notification and not having been made specifically retrospective cannot be given a retrospective connotation vide Commissioner of Customs, Bangalore vs. Spice Telecom[21]. However, an exemption Notification per se cannot be a legitimate guide to interpretation of the scope of provisions in an Act.  Revenue’s contention, that since Notification No. 41/2009-ST (prospectively) exempts execution of works contract in respect of canals, other than those primarily used for the purposes of commerce and industry from the levy of tax, it must be presumed that but for this exemption, construction of canals is taxable under WCS, is misconceived.  Whether construction of canals is excluded from the levy of tax under WCS must be considered independent of an exemption Notification, on primary analysis of the relevant provision; and if on such construction this activity is found to be excluded from the purview of the definition of WCS, an exemption Notification cannot negate the proper interpretation to be put upon the definition of WCS.

(ix)    With introduction of the negative list regime w.e.f. 01.06.2012, Section 66B of the Act is the charging provision and enjoins levy of service tax on the value of all services, other than those specified in the negative list, provided or agreed to be provided.  The negative list of services is specified in Section 66D. Clause (h) of Section 66E (enumerating Declared services) specifies “service portion in the execution of the works contract” to be a declared service.  “Declared Service” is defined in Section 65B, to mean any activity carried on by a person for another for consideration and declared as such under Section 66E.  As a consequence of the above provisions, construction of canals, dams or other irrigation works, pipeline, conduit or plant for (i) water supply (ii) water treatment; or (iii) sewerage treatment or disposal also fall within the service tax net. Notification No. 25/2012-ST dated 20.06.2012 was issued (w.e.f. 01.06.2012), under Section 93 of the Act (as a mega Notification), exempting a variety of taxable services from the levy of tax charged under Section 66B.  Paragraph 12(d) and (e) of this Notification specify canal, dam or other irrigation works; and pipeline, conduit or plant for (i) water supply; (ii) water treatment; and (iii) sewerage treatment or disposal, as exempted from levy.

(d)       Revenue’s contention that a canal system could also be for servicing industries within the territory of the system and would therefore be ineligible for exclusion, on the basis of the Supreme Court decision in Bangalore Water Supply and Sewerage Board (supra), is a contention that is stated to be rejected.  The exclusionary clause does not exclude the rendition of CICS if it be even incidentally or also for industrial purpose.  The exclusionary clause would be inapplicable only when the activity is primarily for industrial purposes.

(e)     Board Circular No. 80/10/2004-ST dated 17.09.2004 (issued to clarify the scope of construction services introduced w.e.f. 10.09.2004) clarifies about the non taxability of civil constructions used inter alia for providing  civic amenities by the Government or Government agencies – vide para 13.2 and 13.4 thereof.

(f)      The position then would be (if Revenue’s contentions are accepted),   (a) EPC / turnkey project for civil constructions in respect of dams, canal systems for irrigation and pipeline/ conduit laying for water supply or sewerage disposal, is not taxable (prior to 01.06.2007) under CICS; (b) Canal systems executed as turnkey/ EPC projects are not taxable even under WCS w.e.f. 01.06.2007 in view of para 3 of the Board Circular dated 15.09.2009, but would be taxable if the Board Circular is contrary to the true interpretation of WCS; (c)  Works contract in respect of canals, other than those primarily used for the purposes of commerce or industry (even under turnkey /EPC mode) is specifically exempted from levy qua  Notification No. 49/2009-ST dated 23.10.2009; and (d) w.e.f. 01.06.2012, on introduction of the negative list, construction of canals, dams or other irrigation works, pipeline conduit or plant for water supply, water treatment or sewerage treatment or disposal is exempt w.e.f. 01.06.2012 itself, vide exemption Notification No. 25/2012-ST dated 20.06.2012.

(g)     Nevertheless, Revenue would argue, construction of canals under EPC/ turnkey mode of execution is leviable to tax under sub-section (e) to Explanation (ii) of Section 65(105)(zzzza).

(h)     EPC/ turnkey projects for construction of dams and canal systems for irrigation, water supply or sewerage disposal, laying of pipelines for transmission of water as in the case of lift irrigation systems or for transmission of sewerage, clearly fall within the ambit (prior to 01.06.2007) of CICS, in view of the decision in Alstom Projects India Limited.  A Larger (special) Bench of this Tribunal in the reference in the case of Larsen & Toubro Limited (vide the majority judgment dated 19.03.2015)  ruled that a works contract is taxable even prior to 01.06.2007 under appropriate existing taxable services identified by applying the relevant classification  guidelines.  Laying of pipelines for transmission of water or sewerage does not amount to ECIS but falls within the ambit of CICS, is the principle settled by the Tribunal decisions in Indian Hume Pipe Co. Limited; A. Sekar; Dinesh Chandra Agarwal; Lalit Constructions; Strategic Engineering Pvt. Limited and the interim order in Surindra Engineering Co. Limited [vide the analyses in para 15(i) and (ii) (supra)].  Turnkey/ EPC projects executed for Governments / Government undertakings in respect of construction of dams, canal systems, laying of pipelines for transmission of water for irrigation, human consumption or for disposal of sewerage would be an activity not liable to tax (prior to 01.06.2007) in view of the exclusionary clause in Section 65(25b), defining the scope of CICS, since the activity would not primarily be for industrial or commercial purposes.

(i)    W.e.f. 01.06.2007 the question then arises, whether turnkey / EPC projects for execution of canals under dams for transmission of water for irrigation of drinking water purposes or laying of pipelines again for transmission of water for irrigation of drinking water purposes as in the case of lift irrigation systems or for sewerage disposal is taxable under clause (e), Explanation (ii) in Section 65(105)(zzzza).  W.e.f. 23.10.2009, exemption Notification No. 41/2009-ST  exempted works contract in respect of canals other than those primarily used for the purposes of commerce or industry from the levy of service tax, by specifically referring to WCS defined in Section 65(105)(zzzza).  The only issue that survives is therefore whether turnkey/ EPC projects pertaining to execution of works contract for canal systems in respect of dams is taxable during 01.06.2007 to 23.10.2009.

(j)      Para 3 of  Board Circular No. 116/10/2009 dated 15.09.2009 clarified that works contract in respect of dams, roads, airports, railways, transport terminals, bridges & tunnels even if executed through the EPC mode is exempt from tax in view of the definition of WCS in Section 65(105)(zzzza). Whether construction of canals or pipelines/conduits for transmission of water by gravity or in lift irrigation systems as the case may be ought be interpreted as a works contract “in respect of dams” is the question.  If so, construction of canals or laying of pipelines/ conduits would not be taxable in view of the exclusionary clause in the definition of WCS.  Section 65(105)(zzzza) defines WCS (in the pre ambular portion) as an activity “in relation to the execution of a work contract  excluding works contract in respect of  dam, road, airports, railways, transport terminals, bridges, tunnels and dams”.

(k)     Is construction of canal systems under works contract not a works contract in respect of dams?

On a true and fair construction of the definition of WCS (extracted in the preceding sub para), the provision employs the expression “in respect of …….. dams” as an activity excluded from the scope of the levy.  Earlier in the analyses herein we have noticed that the expression “in respect of” is an expression having a wider connotation and bears the widest possible scope.  The decision in S.S. Light Railway Co. Ltd. (supra) rules that the expression “in respect of” may be taken to mean “for the provision of”. Supreme Court in Vijay Chand Jain ruled that the expression “in respect of” admits of a wide connotation and has been used in the sense of “being connected with”.  The Orissa, Madras, Patna, Allahabad and Delhi High Courts also interpreted the phrase “in respect of” as a comprehensive expression to be constructed in the widest sense and as having a wide connotation and compass.  The Canadian Supreme Court in Nowegijick (supra) explains that “in respect of” are words of widest possible scope and import such meaning as “in relation to”, “with reference to”, or “in connection with”.

(l)  Canals construction, in particular for transmission of water for irrigation or drinking water purposes including where such canals are under a dam; or the laying of pipelines for conveyance of water for irrigation or drinking purposes or transmission of sewerage, even when executed under turnkey/ EPC mode is classifiable under CICS during the period upto 01.06.2007.

(m)    From the structural arrangement of the  definition of works contract set out in Explanation (ii) of Section 65(105)(zzzza), it is apparent that the several species of activities brought within the scope of this taxable service were drawn from pre-existing taxable services.  Thus, clause (a) substantially reproduces the integers of the taxable service ECIS defined in Section 65(39a).  Clause (b) is drawn from essential elements of CICS defined in section 65(25b), in particular, sub-clauses (a) and (b) thereof.  Clause (c) under Explanation (ii) of the WCS definition is drawn from the definition of COCS, in particular sub-clause (a) thereof.  Clause (d) of WCS is substantially an extract of clauses (c) & (d) of the definition of CICS and COCS in Section 65 (25b) and (30a), respectively.

(n)     In view of the decision in Alstom Projects India Limited, it is clear that turnkey/ EPC projects were taxable even prior to 01.06.2007 and turnkey/ EPC contracts ought to be classified either as ECIS, CICS or COCS depending upon the dominant intent or objectives for which the relevant agreements are entered into.  Construction of canal systems or construction of pipelines/ conduits for transmission of water or sewerage would be classifiable under CICS prior to 01.06.2007; this is the law declared in CESTAT decisions.  Could Parliament have intended, when introducing clause (e) in Section 65(105)(zzzza), to treat EPC/ turnkey projects as a new species of work contract after 01.06.2007?

(o)     To clarify and resolve disputes that had arisen in several parts of the country regarding taxability of the different activities, taking into account the scope of related taxable services such as site formation, CICS, ECIS or WCS as well as new services introduced by Finance Act, 2010, the Board issued a clarificatory Circular No. 123/5/2010-TRU dated 24.05.2010.  In para 2 of the circular the scope of CICS and ECIS were clarified in clauses (i) and (ii).  Clause (iii) in para 2 deals with WCS.  Clause (iii) sets out the following clarification:

          (iii) Works Contract’ incorporates the inclusions and exclusions of the aforementioned two taxable services (amongst others) and it is the nature of the contract (i.e. a contract wherein the transfer of property in goods involved is leviable to a tax as sale of goods) rather than the nature of activities undertaken, that distinguishes it from the previously stated taxable services.  Thus, even in the case of ‘works contract’ if the nature of the activities is such that they are excluded from aforesaid two services then they would generally remain excluded from this taxable service as well.

From this clarification, it follows that since construction of canals is for irrigation, water supply or pipelines/ conduits for lift irrigation, water supply or sewerage disposal, such contracts are classifiable under CICS prior to 01.06.2007 (in view of the several decisions of the Tribunal and  of the Madras High Court adverted to earlier herein) .  The services are however excluded from the levy since these are not primarily for commercial or industrial purposes (in view of the exclusionary clause in the definition of CICS), even when executed under a turnkey/ EPC mode (in view of the decision in Alstom Projects India Limited).   We consider the above Board clarification to be consistent with the legislative intention underlying the enactment of WCS as a distinct taxable service, with elements drawn from pre-existing taxable services such as ECIS, CICS and COCS.  Revenue has not contended before us that this clarification by the Board is inconsistent with the provisions of the Act and therefore of no legal consequence or force.

(p)     As earlier noted, prior to 01.06.2007 construction of canal systems or pipelines/ conduits for Government/ Government undertakings for transmission of water or sewerage would be in the nature of infrastructure projects to provide civic amenities or to augment irrigation and this being a non industrial, non commercial purpose would be outside the scope of CICS. Since 23.10.2009, vide Notification No. 41/2009-ST works contract in respect of canals, other than those primarily used for the purposes of commerce or industry is exempt from the levy under WCS.  Since works contract in respect of dams is excluded from the definition of WCS by the provision itself, exemption Notification No. 41/2009-ST should be considered as issued under a misconception that construction of canals under a dam though not primarily for purposes of commerce or industry is nevertheless taxable, which it is not.

(q)     We are thus left with the activity of construction of pipelines/ conduits under the turnkey / EPC mode.  When the construction is for Government/ Government undertakings and for water supply or sewerage disposal purposes, prior to 01.06.2007 this activity is classifiable under CICS and is excluded from the purview of the definition.  Under clause (b) under Explanation (ii) of the definition of WCS, construction of a pipeline or a conduit primarily for the purposes of commerce or industry is an activity falling within the definition of WCS.  This provision in the definition of WCS is extracted from the definition of CICS, in pari materia. Construction of pipeline or conduit (otherwise than  under a turnkey/EPC mode), when executed for Government/ Government undertakings for transmission of water or sewerage would be outside the ambit of levy of tax, in terms of the definition itself, since this would undisputedly fall within the ambit of sub-clause (b) of WCS.

(r)      What then could be the legislative intention in not excluding levy on construction of a pipeline or conduit when executed under a turnkey/ EPC mode.  Revenue does not explain this incongruity while contending that works contract executed under turnkey/ EPC project mode even in respect of canals, pipelines conduits for Government/ Government undertakings is taxable even if for non commercial, non industrial purposes!

(s)     In Radius Corporation Ltd. vs. CCE, Raipur[22]; the issue  was whether pre-construction work undertaken by an assessee like levelling of ground, construction of culverts, earthen bunds, stone pitching of reservoir bund, construction of pumping station, staff quarters and the activities are covered under the definition of CICS or under site formation and clearance, excavation earthmoving & demolition service.  The Tribunal ruled that such activity undertaken by the assessee was preparatory to construction of a reservoir and other civil works and is therefore outside the purview of site formation service.  The relevant paragraph of this decision reads:

“6.   We find that Engineering, procurement and Construction contracts were signed by the appellant for construction of Major Ground Balancing Reservoir, for raising the height of existing major ground reservoir and for protection work of existing major ground reservoir and extension of secondary reservoir.  Activities undertaken in relation to these contracts neither fit in the definition of site formation and clearance, excavation and earthmoving and demolition service nor these relate to repairing/ renovating water sources as water sources in present case is river.  Some part of site formation, excavation and earthmoving done by the appellant was for preparing of further construction of reservoir and other civil works.  We therefore are of the view that these activities undertaken by the appellant are out of purview of Site Formation, and Clearance Excavation and Earthmoving and Demolition Service as defined under Section 65(97a) of the Act”. (Emphasis supplied)

(t)      In Dr. Lal Path Labs Pvt. Ltd. vs. CCE, Ludhiana[23]; it was held that once there is a specific entry for an item in the tax code, the same cannot be taken out of such specific entry and taxed under any other entry.  This principle is enacted in Section 65A of the Act and as per clause (2)(b) of this provision, in case of composite services the classification must be on the basis of a service which gives them their essential character, insofar as this criterion is applicable.  The decision in Dr. Path Lab Pvt. Ltd. was confirmed by the Punjab & Haryana High Court in CCE, Ludhiana vs. Dr. Path Labs Pvt. Ltd.[24].  The principle that what is excluded under one entry (category) cannot be taxed under another was reiterated in respect of outbound roaming service under Telecommunication Service.  The issue was whether services provided by a foreign telecom service provider could be taxed under Business Auxiliary Service (BAS) since it is not taxable as Telecommunication Service as a foreign telecom service provider is not a Telegraphic Authority as per Indian law.  Board circulars dated 15.07.2011 and 19.12.2011 clarified that telecommunication service provided by a foreign telecom service provider could not be taxed under BAS.  The Tribunal in Infosys Limited vs. CST, Bangalore[25]; also ruled that service provided by a foreign telecom service provider cannot be classified under BAS.

(u)     In the several appeals before us proceedings were initiated on the basis that contracts awarded to appellants are “Engineering Procurement and Construction and Commissioning (EPC)/ turnkey” contracts.  The expression “EPC/ turnkey” was used in the relevant contracts.  Revenue assumed that “EPC” is a species of the genus “turnkey”.  This assumption by Revenue is predicated on the basis of clause (e) in the definition of WCS, which reads:

            Turnkey projects including Engineering, Procurement and Construction or Commissioning (EPC) projects. 

          Neither “turnkey” nor “Engineering, Procurement and construction or Commissioning EPC” is defined.  We therefore refer to lexicographic assistance for definition of  “turnkey projects”.

1. Law Lexicon by P. Ramanatha Aiyar (2010: Lexis Nexis)

Turnkey contract: A contract under which the contractor assumes responsibility to the client for constructing productive installations and ensuring that they operate effectively before turning them over to the client.

Contract, found especially in the computer and construction industries, in which a supplier provides a complete customised package to a client (who has merely to “turn the key” and take over the package).

1. MacGraw – Hill-Dictionary of Scientific and Technical Terms –

Turnkey contract:  A contract in which an independent agent undertakes to furnish for a fixed price all materials and labour, and to do all the work needed to complete a project.

• Black’s Law Dictionary (Fifth Edition) –

Turnkey contract: Term used in building trade to designate those contracts in which builder agrees to complete work of building and installation to point of readiness for occupancy.  It ordinarily means that builder will complete work to certain specified point, such as building a complete house ready for occupancy as a dwelling and that builder agrees to assume all risk.

1. Understanding & Negotiating Turnkey and EPC Contract, 2^nd By Joseph A. Huse:

‘The Turnkey’ arrangement (also known as the ‘package deal’, ‘design and build’, ‘cle-en-main’, ‘design and construct’ or ‘EPC)’ places the duty to design and construct solely on the contractor.  There is no accepted definition for each of these terms in the construction field.

1. Black’s Law Dictionary (Eighth Edition) –

Engineering, Procurement and Construction Contract (EPC) contract –

A fixed price, schedule – intensive construction contract – typically used in the construction of single –purpose projects, such as entry plants – in which the contractor agrees to a wide variety of responsibilities, including the duties to provide for the design, engineering, procurement and construction of the facility, to prepare start-up procedures; to conduct performance tests; to create operating manuals; and to train people to operate the facility – Also termed turnkey contract.

1. Major Law Lexicon of P. Ramanatha Aiyar (2010: Lexis Nexis)

EPC Contract: Engineering, Procurement and Construction contract (i.e. turnkey construction contract)

From the guidance derived from the above expositions, it is clear that EPC contracts are synonymous and are referred to as turnkey contracts as well.

Now we consider whether the word “including” employed in clause (e) under Explanation (ii) of the definition of WCS must be construed in an expansive or a restrictive sense.

• The word “includes” is generally used in interpretation or definition provisions in order to enlarge the meaning of words or phrases occurring in the body of the provision. When so used these words or phrases ought to be construed  as  comprehending not only such things as they signify according to the natural import but those things as well which the interpretation clause declares that they shall “include”.

(ii)      However, the word “includes” is susceptible to another construction which is equally compelling. If the context of the Act indicates that it was not employed merely for the purpose of adding to the natural significance of the words or expressions defined, the word “includes” must be interpreted as indicating “mean and include”; and in such a case the word indicates an exhaustive explanation of the meaning of the words and phrases in the provision which, for the purposes of the provision must invariably be attached to those words or phrases.  Ordinarily “includes” indicates that what follows this word is comprised or is contained in the whole of the words or phrases preceding and the nature of the included terms would not only partake the character of the whole but may be construed as clarificatory of the whole.

(iii)     In South Gujarat Roofing Tiles Manufacturers Association and Anr. Vs. The State of Gujarat and Anr.[26]; the word “include” in Entry 22 in Part I of the Schedule to the Minimum Wages Act, 1978, fell for consideration.  The Court explained the circumstances in which the word “include” which is generally used as a word of enlargement, in appropriate cases suggests a different intention, restrictive and exhaustive.  The Court observed:

Though ‘include’ is generally used in interpretation clauses’ as a word of enlargement, in some cases the context might suggested a different intention.  Pottery is an expression of very wide import, embracing all objects made of clay and hardened by heat.  If it had been the legislature’s intention to bring within the entry all possible articles of pottery, it was quite unnecessary to add an Explanation.  We have found that the Explanation could not possibly have been introduced to extend the meaning of potteries industry or the articles listed therein added ex abundant cautela.  It seems to us therefore that the legislature did not intend every thing that the potteries industry turns out to be covered by the entry.  What then could be the purpose of the Explanation? The Explanation says that, for the purpose of entry 22, potteries industry ‘includes” manufacture of the nine articles of pottery named therein.  It seems to us that the word ‘includes’ has been used here in the sense of ‘means’, this is the only construction that the word can bear in the context.  In that sense it is not a word of extension, but limitation; it is exhaustive of the meaning which must be given to potteries industry for the purpose of entry 22.  The use of the word ‘includes’ in the restrictive sense is not unknown. The observation of Lord Watson in Dilworth v. Commissioner of Stamps (1899)A.C. 105, which is usually referred to on the use of ‘include’ as a word of extension, is followed by these lines:  “But the word ‘include’ is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined.  It may be equivalent to ‘mean and include’, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions”.  It must therefore be held that the manufacture of Mangalore pattern roofing tiles is outside the purview of entry 22.  (Emphasis added)

(iv)     The significance of the word “includes” was again considered in the context of Prize Chits and Money Circulation Schemes (Banning) Act, 1978, 1978, in Reserve Bank of India vs. Peerless General Finance and Investment Co. Ltd. and Ors.[27] The following passage in the judgment elucidates the different significations of “includes”, depending on the context of the provision in issue and the legislative intention of the relevant enactment read as a whole:

35. Much argument was advanced on the significance of the word ‘includes’ and what an inclusive definition implies.  Both sides relied on Dilworth’s case.  Both sides read out the well known passage in that case where it was stated,

The word “include” is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include.  But the word “include” is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined.  It may be equivalent to “mean and include”, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions.

            Our attention was also invited to Ardeshir Bhiwandiwala v. State of Bombay MANU/SC/0236/1971; C.I.T. Andhra Pradesh v. Taj Mahal Hotel [1971] 82 ITR 44 (SC) and S.K. Gupta v. K.P. Jain [1979] 4 SCC 54.

36. We do not think it necessary to launch into a discussion of either Dilworth’s case or any of the other cases cited.  All that is necessary for us to say is this: Legislatures resort to inclusive definitions (1) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the statute wishes to attribute to it, (2) to include meanings about which there might be some dispute, or, (3) to bring under one nomenclature all transactions possessing certain similar features but going under different names.  Depending on the context, in the process of enlarging, the definition may even become exhaustive.  We do not think that by using the word ‘includes’  in the definition in Section 2(a) of the Act, the Parliament intended to so expand the meaning of prize chit as to take in every scheme involving subscribing and refunding of money.  The word ‘includes’,  the context shows, was intended not to expand the meaning of ‘prize chit’ but to cover all transactions or arrangements of the nature of prize chits but under different names.

• In the context of Entry 62 of List II of the Seventh Schedule of the Constitution, the Supreme Court in Godfrey Phillips India Ltd. and Anr. Vs. State of U.P. and Ors.[28] considered whether “includes” could in certain contexts be a word of limitation. The Court explained:

69. It has also been held that the word ‘includes’ may in certain contexts be a word of limitation (South Gujarat Roofing Tiles Manufacturers v. MANU/SC/0314/1976 State of Gujarat): [1977) 1 SCR 878. In the context of Entry  62 of List II this would not mean that the word ‘luxuries’ would be restricted to entertainments, amusements, betting and gambling but would only emphasise the attribute which is common to the group.  If luxuries is understood as meaning something which is purely for enjoyment and beyond the necessities of life, there can be no doubt that entertainments, amusements, betting and gambling would come within such understanding.  Additionally, entertainments, amusements, betting and gambling are all activities.  ‘Luxuries’ is also capable of meaning an activity and has primarily and traditionally been defined as such.  It is only derivatively and recently used to connote an article of luxury.  One can assume that the coupling of these taxes under one entry was not fortuitous but because of these common characteristics.

70. Where two or more words are susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from and are qualified by each other, the meaning of the general word being restricted to a sense analogous to that of the less general.  As said in Maxwell on the interpretation of Statues 12^th Edn. P.289.

“Words, and particularly general words, cannot be read in isolation; their colour and their content are derived from their context, A-G v Prince Ernest Augustus of Hanover (1957) AC 436, per Viscount Simonds, at 461.”

71. Put in other words the included words may be clarificatory or illustrative of the general word.

Thus in U.P. State v. MANU/SC/0273/1966: Raja Anand; [1967] 1 SCR 362, while construing Article 31A (2) as enacted by the Constitution (Seventeenth Amendment) Act, 1964 the relevant excerpt of which read as:-

“31A(2) in this article-

• the expression ‘estate’ shall in relation to any local area, have the same meaning as that expression or its local equivalent has in the existing law relating to land tenures in force in that area and shall also include–

(i) xxx xxx      xxx

(ii)xxx              xxx      xxx

(iii)       any land held or let for purposes of agriculture or for purposes ancillary thereto, including  waste land, forest land, land for pasture or sites of buildings and other structures occupied by cultivators of land, agriculture labourers and village artisans;

this  Court said:-

“In our opinion the word “including” is intended to clarify or explain the concept of land held or let for purposes ancillary to agriculture.  The idea seems to be to remove any doubt s on the point whether waste land or forest land could be held to be capable of being held or let for purposes ancillary to agriculture”.

72. In the present context the general meaning of ‘luxury’ has been explained or clarified and must be understood in a sense analogous to that of the less general words such as entertainments, amusements, gambling and betting, which are clubbed with it . This principle of interpretation known as ‘noscitur a sociis’ has received approval in Rainbow Steels Ltd.  MANU/SC/0408/1981: CST [1981] 2 SCR 727.

(vi)     In Karnataka Power Transmission Corpn. And Anr. Vs. Ashok Iron Works Pvt. Ltd.[29]; the Court reiterated the principle that interpretation of a word or expression must depend on  the word and the context.  The resort to the word “includes” often indicates intention of the Legislature that it wanted to give an expansive and enlarged meaning to such expression.  Sometimes, however, the context may suggest that the word “includes” may have been designed to mean “means”.  The setting, context and object of an enactment would provide sufficient guidance for interpretation of the word “includes” for the purposes of such enactment.

(vii)    The above exposition of the meaning of the words “includes” i.e. that it could have a restrictive connotation, was reiterated in CC, New Delhi vs. Caryaire Equipment India Pvt. Ltd. [30];

(v)     From the guidance provided by the above precedents and in view of the fact that in the commercial world and practice, in legal and technical Dictionaries, “EPC contracts” are synonymously  known and referred to as “turnkey contracts” as well, we conclude that in clause (e) under Explanation (ii) of the definition of WCS, turnkey projects and EPC projects are employed to signify similar, not dissimilar transactions, to indicate contracts in which a builder agrees to execute the whole of the enterprise awarded to him and if the agreement so provides from the stage of design and planning till execution and completion of the whole work entrusted; and undertakes wide variety of other responsibilities which may include design, engineering, procurement, construction of the facility, conduct of performance tests and other associated activities pre or post construction.

(w)    Counsel for the appellants/ assessees further contended that in most of the agreements in issue the work entrusted to each appellant was not the whole of the canal or pipeline but only certain packages (segments) of a specified length or “reach”.  On this basis it is contended, since the entirety of a canal or pipeline project is not entrusted, the transaction does not amount to a “turnkey or EPC project”.  Counsel further contended that unlike works contract services enumerated in clauses (b) and (c) in the definition of WCS, clause (e) does not indicate that a part of a turnkey or EPC project would also be taxable.  The textual basis of this contention is not in dispute.  While clauses (b) and (c) enumerate certain types of WCS (specified therein) and enact that the specified service or a part thereof would also amount to the taxable service, this is however not the language in clause (e).  Revenue does not, specifically address this contention.

The above contention on behalf of assesses does not however, in our considered view, exclude them per-se from the liability to service tax. Earlier in our analyses (on the present issues), we concluded that clause (e) in the definition of WCS is not indicative of a distinct works contract service but is an ex abundanti cautela and descriptive provision, intended to embrace genres of works contract which contain elements other than those indicated in each of the clauses (a) to (d) and which may include elements of other services as well, bundled into a comprehensive contractual exertion, agreed between the parties to be executed.  We have also ruled that even an EPC /turnkey contract must be classified to identify the services embedded therein which gives the contract its essential character; and on such ascertainment of the essential character, the contract must be classified as falling within any of the enumerated works contract services set out in clauses (a) to (d), by application of the principles set out in Section 65A(2)(a) and (b).  Consequently, if an EPC/turnkey contract falls to be classified under clause (b) or (c), it cannot be contended that since only a part of the whole or a larger project is executed by a particular appellant, there is no liability to tax.

(x)

(i)      Before recording our conclusions on these issues  [Issues (B), (C) & (D)], we advert to other contentions advanced by Shri V. Sreedharan. Counsel contends that the contracts in issue are single, indivisible agreements whereby the transfer of property in goods involved in the execution thereof does not pass to the employer as soon as goods are brought to the site by the contractor.  The transfer property in the goods takes place only when these are incorporated into the construction and get transformed as immovable property i.e. the property in the goods involved passes by accretion.  In this class of works contract there is neither a separate agreement for the sale of goods involved in the execution of the works nor does the transfer of property in such goods takes place prior to the construction.  The transfer takes place only at the time of construction by incorporation and as and when immovable property is constructed.

On the basis of this assertion, Counsel contends that the phraseology of Section 65(105)(zzzza) would apply only to

(i)      a divisible works contract (where distinct and separate contracts are entered into), whether in one or more instruments, one for the transfer of the goods qua goods, for consideration and the other for rendition of services or work done; or

(ii)      to an indivisible works contract with a material vesting clause (where no separate agreement for the sale of material exists but there is a term in the composite agreement that the title to the material or goods would pass to the employer as soon as these are brought to the site by the contractor).  Counsel contends in elaboration, that the relevant provision of the Act does not employ the phrase “whether as goods or in some other form” in Explanation (i) of the definition.  This provision in the definition of WCS reads:

“65(105)(zzzza) …….. Explanation (i):  For the purposes of this clause “works contract” means a contract wherein,  transfer of property in goods involved in the execution of such contract is leviable to tax as  sale of goods.

According to Counsel since there is no transfer of property in goods qua goods but in some other form i.e. by accretion or transformation as  immovable property on incorporation, such transactions are not intended to fall within the scope of WCS.

(ii)      Revenue has not responded to this contention of Shri Sreedharan, either in its oral or written submissions.  We are however of the view, for the analyses to follow, that this contention does not merit acceptance.

(iii)     Sub clause (b) of Article 366 (29A), inserted in the Constitution by the 46^th Amendment authorises levy of tax on the sale or purchase of goods by expanding the definition of “tax on the sale or purchase of goods”, to include: (b) a tax on transfer on property in goods (whether as goods or in some other form), involved in the execution of a works contract.

(iv)     What then is the position of a works contract involving accretion sale of goods as regards sales tax; in the case of a composite contract where the title in the goods passes to the employer on incorporation / accretion to the immovable property (i.e. does not pass as soon as goods are brought to the site by the contractor but only on incorporation / accretion), would such a transaction be exigible to sales tax?

(v)     This question is no longer res–integra.  It stands concluded by the decision in Larsen & Toubro Limited vs  State of Karnataka[31].

(vi)     One of the issues considered by the Supreme Court in the above decision was whether an agreement for sale of a constructed building preceded by the construction thereof is an agreement to transfer the immovable property as an indivisible whole, by execution of a conveyance or whether there is in such a transaction a works contract as well.  The Court summarised the legal position (to the extent relevant for our purposes), as under:

(i)           For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract and (three) the property in those goods must be transferred to a third party either as goods or in some other form.

(ii)           For the purposes of article 366 (29A)(b), in a building contract or any  contract to do construction, if the developer has received or is entitled to receive valuable consideration, the above three things are fully met. It is so because in the performance  of a contract for construction of building, the goods (chattels) like cement, concrete, steel, bricks, etc . , are intended to be incorporated in the structure and even though they lost their identity  as goods but this factor does not prevent them from being goods.

(ii)           Where a contract comprise of both a works contract and a transfer of immovable property,  such contract does not  denude it of its character as works contract. The term “works contract” in  article 366 (29A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in article 366 (29A)(b) limits the terms “works contract”.

(vii)   In view of the above ruling in Larsen & Toubro Limited, it is clear that even where goods are procured by a contractor and incorporated into a construction whereupon such goods get transformed into immovable property and the property in such goods passes to the employer only thereafter, the bundling of goods and services into the construction of a building / structure would nevertheless amount to a works contract and be leviable to sales tax as such.  If there could be no escape from the liability to sales tax on such an activity the question is whether the liability to service tax is excluded in the light of the definition of works contract in Explanation (i) of Section 65 (105)(zzzza).

(viii)   In our considered view, works contract service, as we have noticed, is inter alia defined to mean “a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods”.  In drafting the definition of WCS and in structuring the aforesaid definition the draftsman is seen to have employed a shorthand incorporating the post 46^th amendment accretion of legislative powers in Entry 54 of List II, expanding States power to levy sales tax on deemed/ accretion sale of goods as well.  The mere omission of the phrase “whether as goods or in some and other form” in the definition of WCS does not denude the provision of its vitality  to reach out to works contract (of the non material vesting clause variety) where property or goods passes by accretion  or incorporation into a construction.  It is axiomatic that even in works contract of the above category the transfer of property in goods involved therein, is leviable to sales tax.  This is what the definition of WCS clearly enacts.

On the above analyses, contentions of Shir Shreedharan do not commend acceptance.  We reject the same.  We hold that even in works contract where the transfer of property in goods involved in the construction of a building or civil structure passes by accretion, the transaction is exigible  to service tax under Section 65(105)(zzzza).

19. 19. On the aforesaid analyses we hold [on issues (A), (B) & (C)] that construction of canals under a dam for transmission of water or sewerage; or construction of pipelines or conduits for conveyance of water for irrigation, domestic consumption or sewerage disposal even where executed as turnkey/ EPC contracts; (i) would be classifiable under clause (b), Explanation (ii) of Section 65(105) (zzzza); (ii) construction of canals, pipelines or conduits for Government/ Government undertakings for augmentation of irrigation, water supply or sewerage disposal would be for a non-commercial, non-industrial purpose or user and thus excluded in view of the exclusionary clause in clause (b) of WCS definition; and (iii) construction of canals, pipelines or conduits for transmission of water including by lift irrigation would be, when these works are conceived as integrated to a dam project, works contract “in respect of a dam” and thereby excluded from the purview of WCS.
20. 20. Issue (E):

To recapitulate, the issue is, where the whole of the work is sub-contracted; and in the hands of the main contractor there occurs no transfer of property in goods involved in the execution of such work, to the principal employer, whether the transaction would be works contract as defined in Section 65(105)(zzzza).

In State of A.P. and Others vs. Larsen & Toubro Ltd. and Ors.[32], the respondent – contractor entered into agreements for civil constructions.  The contracts authorised the contractor, with the consent of the principal employer (contractee) to assign the work to sub-contractors.  In terms of the agreement, the contractor placed orders on sub-contractors and the overall work was done by sub-contractors.  The sub-contractors purchased goods and chattel like bricks, cement and steel and erected the structures.  An assessment order was passed against the contractor for levy of sales tax in respect of goods deemed to have been sold by it  to the contractee.  The adjudicating authority concluded that there were two deemed sales, one from the assessee (contractor)  to the principal employer (contractee) and the other from the sub-contractor to the assessee, in the event of the principal employer not having any privity  of contract with the sub-contractor.  The Supreme Court analysed the position obtaining consequent on the 46^th Amendment and insertion of Article 366 (29A) (b), the several precedents governing the field; and explained the position as follows:

In this case we are concerned with the Andhra Pradesh Value Added Tax Act, 2005. Section 4 is the charging section. It comes in Chapter III which deals with “incidence, levy and calculation of tax”. In this case, we are concerned with the taxability of works contract. That subject is dealt with by section  4(7) of the said 2005 Act. In our view, section 4(7) is a code  by itself. It begins with a non obstante clause. It, inter alia, states that every dealer executing a works contract shall pay tax o the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under the Act. The point to be noted is that section 4(7)(a) of the 2005 Act indicates  that the taxable event is the transfer of  property in goods involved in such goods takes place when the goods are incorporated in the works, the value of the goods which constitutes the measure for the levy of the tax  is the value of the goods  at the time of the incorporation  of the goods in the works. What is stated hereinabove also finds place in Rule 17(1)(a) of the APVAT Rules, 2005, quoted hereinabove. It is important to note that  each of the sub- contractors of L & T is registered dealer. None of them are unregistered. Under section 4(7)(a) read with rule 17(1)(c), quoted above, where a VAT dealer awards any part of the contract to a sub-contractor, such sub-contractor shall issue a tax invoice to the contractor for the value of  the goods at the time of incorporation in such sub-contract. The tax charged in the tax invoice issued by the sub-contractor shall be accounted by him in his returns. Therefore, the scheme indicates that there is a “deemed sale” by the dealer executing the work i.e., the sub-contractor. It is only the sub-contractor who effects transfer of property in goods as no goods vest in the respondent-company (contractor) so as to be subject-matter of a retransfer. By virtue of article 366(29A)(b) of the Constitution once the work is assigned by the contractor (L&T), the only transfer of property in goods is by the sub-contractor(s) who is a registered dealer in this case and who claims to have paid taxes under the Act on the goods involved in the execution of the works. Once the work is assigned by L & T to its sub-contractor(s)., L & T ceases to execute the works contract in the sense contemplated by article 366 (29A)(b) because property passes by accretion  there is  no property  in goods with the contractor which is capable of a retransfer, whether as goods or in some other form.

The question  which is raised before us is whether the turnover of the sub-contractors (whose names are  also given in the original writ petition) is to be added to the turnover of L & T. In other words, the question which  we are required to answer is whether the goods employed by the sub-contractors occur in the form of a single deemed sale or multiple deemed  sales. In our view, the  principle of law in this regard is clarified by this court in the case of Builders Association of India [1989] 73 STC 370 as under  (at page 400):

“ Ordinarily unless there is a contract to the contrary in the case of works contract the property in the goods  used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods   used are incorporated in the building “. (emphasis supplied by us).

As stated above, according the Department, there are two deemed sales, one from  the main contractor to the contractee and  the other from sub-contractor(s) to the main contractor, in the event of the contractee not having any privity of contract with the sub-contractor(s).

If one keeps in mind the above quoted observation of this court in the case of Builders Association of India [1989] 73 STC 370 the position becomes clear,  namely, that even if there is no privity of contract between the contractee and the sub-contractor, that would not  do away the principle of transfer of property by the sub-contractor by employing the same on the property belonging to the contractee. This reasoning is based on the principle of accretion of property in goods. It is subject to the contract to the contrary. Thus, in our view, in such a case the work executed by a sub-contractor, results in a single transaction and not multiple transactions. This reasoning is also borne out by section 4(7) which refers to value of goods at the time of incorporation in the works executed. In our view, if  the argument of the Department is to be accepted it would result in plurality of deemed sales which would be contrary to Article 366 (29)(b) of the Constitution as held by the impugned judgment of the High Court. Moreover, it may result in double taxation which may make the sale 2005 Act vulnerable to challenge as violative  of articles 14, 19(1)(g) and  265 of the Constitution of India as held by the High Court in its impugned judgment.           (emphasis added)

The above authoritative ruling concludes the issue.  Even where an appellant had entered into a turnkey/ EPC project agreement or other works contract but had sub-contracted the whole or part of the works awarded (under terms of the agreement which authorised such sub-contracting); and the incorporation of goods into the construction/ structures  was by the sub-contractor and not by an appellant, there is no rendition of WCS by such appellant, which is taxable under Section 65(105)(zzzza).  In Table (A) in para 10 (supra) we have set out particulars of appeals where (according to appellants) the works was assigned wholly to sub-contractors and there was no rendition of works contract by these appellants.  In Table (C) in para 12 (supra) we have set out appeals wherein (according to appellants), part of the works entrusted to them were sub-contracted.  Since we are not disposing of the appeals on merits, we avoid an analyses and determination of whether in fact the whole of the works in table (A) or part of the works in Table (C) were sub-contracted by the appellants concerned.  This fact must be determined on an analyses of the relevant facts on record in each of the relevant appeals by the appropriate Bench dealing with them on merits.

On issue (E) we conclude, on the basis of the judgment in Larsen and Toubro Ltd. (SC-2008) that where under an agreement (whether termed as a works contract, turnkey or EPC project contract), the principal contractor, in terms of the agreement with the employer/ contractee assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such contract passes from the sub contractor by accretion to or incorporation into the works, the principal contractor cannot be considered as having provided the taxable (works contract) service, enumerated and defined in Section 65 (105)(zzzza) of the Act.

21. 21. In the light of the foregoing analyses, we record our conclusions on the several issues framed, as follows:

(a)     Issue (A):  Laying of pipelines/ conduits for lift irrigation systems for transmission of water or for sewerage disposal, undertaken for Government/ Government undertakings and involving associated activities like trenching, soil preparation and filling, supporting masonry work, jointing of pipes, electro-mechanical works or pumping stations and like activity, is classifiable only under Commercial or Industrial Construction Service (CICS) for the period upto 01.06.2007 and not under Erection, Commissioning or Installation Service (ECIS);

(b)    Issues (B); (C) and (D):

(i)      Construction of canals for irrigation or water supply; construction or laying of pipelines/ conduits for lift irrigation conceived and integrated into a dam project, must be classified as works contract “in respect of dam” and is thus excluded from the scope of “Works Contract Service” defined in Section 65(105)(zzzza) of the Act, in view of the exclusionary clause  in the provision;

(ii)      Turnkey/ EPC project contracts, enumerated in clause (e), Explanation (ii) in Section 65(105)(zzzza) of the Act is a descriptive and ex abundant cautela drafting methodology.  In the light of the decision in Alstom Projects India Ltd., fortified by the Special Bench decision (dated 19.03.2015) in Larsen & Toubro Ltd. reference, a turnkey/ EPC contract is taxable prior to 01.06.2007 as well.  On and since 01.06.2007, turnkey/ EPC contracts must be classified on the basis of the essential character of the service provided thereby, with the aid of classification guidelines set out in Section 65A(2) of the Act. Consequently, a turnkey/ EPC contract must be classified under any of the clauses (a) to (d), Explanation (ii), Section 65(105)(zzzza).  The bundled bouquet of services provided as turnkey/ EPC contract, classifiable as Commercial or Industrial Construction Service (CICS) prior to 01.06.2007, would be classifiable under clause (b), Explanation (ii), Section 65(105)(zzzza) on and from 01.06.2007 and would not be exigible to service tax if the rendition of service thereby is primarily for non-commercial, non industrial purpose, in view of the exclusionary clause in clause (b) of the definition of WCS.

This is the only possible and harmonious interpretation possible of the several clauses under Explanation (ii) of Section 65 (105)(zzzza), a distinct taxable service defined with constituent elements thereof substantially drawn from elements of pre-existing taxable services like ECIS, CICS or COCS; and other services when bundled to amount to turnkey/ EPC;

(iii)     Construction of canals/ pipelines/ conduits to support irrigation, water supply or for sewerage disposal, when provided to Government/ Government undertakings would be for non-commercial, non–industrial purposes, even when executed under turnkey/ EPC contractual mode and would fall within the ambit of clause (b), Explanation (ii) of Section 65(105)(zzzza); and would consequently not be exigible to service tax, in view of the exclusion enacted in clause (b); and

(c)     Issue (E):  Where under an agreement, whether termed as works contract, turnkey or EPC, the principal contractor, in terms of the agreement with the employer/ contractee, assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such works passes on accretion to or incorporation into the works on the  property belonging to the employer/ contractee, the principal contractor cannot be considered to have provided the taxable (works contract) service enumerated and defined in Section 65(105)(zzzza) of the Act.

22. 22. We record our appreciation and gratitude to the several learned Counsel and learned ARs who assisted us with their painstaking presentation of the several shades of possible interpretations of the relevant provisions considered herein. We remit all the appeals to be disposed of on merits by the appropriate Bench, in accordance with law and in conformity with conclusions recorded on the five issues framed and determined herein.

Pronounced on 28.04.2015 at Principal Bench, New Delhi.

(Justice G. Raghuram)

President

(Archana Wadhwa)

Member (Judicial)

(B.S.V. Murthy)

Member (Technical)

Pant

[1] 2008-TIOL-158-VAT-SC

[2] 2008 (12) STR 363 (Tri. Chennai)

[3] 2010 (19) STR 82 (Tri. Chennai)

[4] 2011 (21) STR 41 (Tri. Ahm.)

[5] 2012 (27) STR 77 (Tri.Mumbai)

[6] 2012 (27) STR 138 (Tri. Mumbai)

[7] 2011 (24) STR 387 (Mad.)

[8] AIR (1978) SC 548

[9] 2011 (23) STR 489 (Tri.Del.)

[10] 2013 (29) STR 33 (Tri. Bang)

[11] 2014 (35) STR 235 (Tri. Bang.)

[12]  (1977) 2 SCC 405

[13] AIR 1960 SC 695

[14] AIR 1953 Ori 111

[15] AIR 1957 A.P. 675

[16] AIR 1968 Pat 364

[17] AIR 1966 All 124

[18] 2012-TIOL-727-HC-DEL-IT

[19] AIR 1953 Ori 111

[20] [1983] 1 SCR 29

[21] 2006 (203) ELT 538 (SC)

[22] 2014 (33) STR 416 (Tri. Del.)

[23] 2006(4) STR 527 (Tri. Del.)

[24] 2007 (8) STR 337 (P&H)

[25] 2014-TIOL-409-CESTAT-BANG

[26] (1976) 4 SCC 601

[27] (1987) 1 SCC 424

[28] (2005) 2 SCC 515

[29] (2009) 3 SCC 240

[30] 2012 (278) ELT 30 (SC)

[31] (2014) 1 SCC. 708

[32] 2008 (17) VST 1 (SC)