Works contracts for civic water and effluent treatment projects are exempt from service tax under the Mega Exemption Notification.

The appellant executed turnkey works contracts for water and effluent treatment plants for the Public Health and Engineering Department, Bhopal, and Jaipur Municipal Corporation projects at Delawas and Khor.

It had adopted the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, and continued paying service tax at 2.06% after the composition rate increased to 4.12% from 1 March 2008.

The Department raised demands for October 2011–June 2012, July 2012–March 2013, and April 2013–March 2014; the adjudicating authority confirmed them, and the Commissioner (Appeals) upheld the demands.

Before the Tribunal, the appellant also claimed exemption under Notification No. 25/2012-ST for services relating to water and effluent treatment plants provided to civic bodies.

1. Whether the appellant’s services for construction of water and effluent treatment plants for the relevant public bodies were exempt from service tax under Sl. Nos. 12 and 13(d) of Notification No. 25/2012-ST

2. Whether the demands confirmed in the impugned order could be sustained in light of that exemption

Section 93(1) of the Finance Act, 1994 empowers the Central Government to grant service-tax exemptions by notification.

Notification No. 25/2012-ST exempts, under Sl. No. 12, specified construction and related services provided to the Government, a local authority, or a governmental authority in respect of qualifying civil structures or original works; Sl. No. 13(d) exempts construction and related services for a pollution-control or sewage-treatment plant, except one located as part of a factory.

The Tribunal applied these notification provisions to the appellant’s works for public bodies and treatment plants.

The Tribunal confined the dispute to eligibility for exemption under Notification No. 25/2012-ST, notwithstanding the appellant’s separate arguments concerning the composition rate and a pending reference to a Larger Bench in another case.

It found that the appellant had executed composite turnkey contracts for the identified public bodies and that the Department had not disputed either the nature of the works or the status of the recipients as local bodies or governmental authorities.

On that basis, it held that the services fell within the exemption notification and that the demands could not stand.

It allowed all three appeals and granted consequential benefits, if any, in accordance with law.