Builder’s Sub-Base Work For Agro-Plant Road Was Not Service-Taxable, CESTAT Sets Aside ₹1.39 Lakh Demand

The appellant undertook removal of earth, laying and compacting gravel and metal, and preparation of a granular sub-base for a proposed paver road at the premises of Vaigai Agro Products Ltd.

The Department classified the work as Site Formation and Clearance, Excavation and Earthmoving and Demolition Service, and demanded service tax of ₹1,39,755 for 1 April 2011 to 31 March 2012, with interest and penalties.

The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld it. The appellant appealed to the Tribunal.

Section 65(25b) of the Finance Act, 1994 excluded road construction from Commercial or Industrial Construction Service; Notification No. 17/2005-ST exempted specified site-formation, excavation and earthmoving services when undertaken in the course of constructing roads, without limiting the exemption to public or Government-owned roads.

CBEC Circular No. 110/4/2009-ST distinguished road construction from maintenance or repair, while the Board’s 27 July 2005 instructions clarified that road construction was not liable to service tax under the relevant construction category and that qualifying site-formation services in the course of road construction were exempt.

The Tribunal relied on Ganesh Builders v. Commissioner of Central GST & Central Excise, which treated essential preparatory road works as part of road construction, and on SEM Construction v. Commissioner of Central Excise, ST, Rajkot and Shilpa Constructions Pvt. Ltd. v. Commissioner of Service Tax, Ahmedabad.

It also applied Commissioner of Central Tax, Bengaluru v. P.J.B. Engineers Pvt. Ltd. for the principle that a restriction not stated in Notification No. 17/2005-ST could not be read into it.

Under Section 73(1), the extended period required the requisite grounds, including wilful suppression with intent to evade tax; penalties under Sections 77(2) and 78 could not stand where the tax demand and the necessary grounds for penalty were absent, and Section 80 provided relief from penalties where reasonable cause existed.

The work order expressly described the work as preparation of a granular sub-base for a proposed road and required earth removal, spreading and rolling of gravel, and preparation of the base with metal, gravel and quarry fines.

The Tribunal found these activities to be essential stages of the road project, not independent land development; subsequent laying of paver blocks by the recipient did not justify dividing the integrated road work for classification purposes.

In any event, the work was performed in the course of road construction and fell within Notification No. 17/2005-ST, which contained no public-road or Government-ownership restriction.

On limitation, the SCN relied on the appellant’s work order, bill, correspondence and audit report, but did not establish that these records had been concealed or withheld.

The dispute concerned classification and exemption, and no positive material showed wilful suppression with intent to evade tax.

It further held that the extended period was unavailable and that the demand and consequential interest and penalties were unsustainable; the penalties were also unjustified in light of the reasonable cause found under Section 80.

The impugned Order-in-Appeal and Order-in-Original were set aside, and the appeal was allowed with consequential relief in accordance with law.