No Service Tax On Laying Telecom Or Optical Fibre Cables Under Or Alongside Roads: CESTAT Kolkata
Pranav B Prem
The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that amounts received for laying underground telecom and optical fibre cables under or alongside roads are not liable to service tax. Allowing the appeal filed by Precision Trenchless Laying Private Limited, the Tribunal set aside the entire service tax demand along with interest and penalty confirmed against the assessee. The Bench comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan relied on the clarification issued by the Central Board of Excise and Customs (CBEC) in Circular No. 123/5/2010-TRU dated May 24, 2010, which categorically states that laying of cables under or alongside roads does not constitute a taxable service under the Finance Act, 1994.
The appellant is a specialised contractor engaged in laying underground telecom and optical fibre cables using trenchless technology as well as conventional trenching methods for major telecom operators including BSNL, Airtel, Vodafone, Reliance and Tata. The scope of work included route survey, obtaining right-of-way permissions, trenching or horizontal directional drilling, laying of ducts, pulling or blowing of cables, jointing, splicing, installation of protection pipes and restoration of roads.
During the relevant period from 2008-09 to 2012-13, there was no uniform practice regarding payment of service tax on such activities. In some cases, customers paid service tax, while in others they disputed the taxability of the activity. The appellant deposited whatever service tax was collected from clients and filed returns regularly.
Following an audit, the Department issued a show cause notice alleging non-payment of service tax and proposed demands under multiple heads, including alleged undervaluation based on sundry debtors, point of taxation rules, denial of abatement, right-of-way reimbursements and reverse charge liability. The adjudicating authority confirmed a service tax demand of ₹93.69 lakh along with interest and imposed an equal penalty under Section 78 of the Finance Act, 1994.
Before the Tribunal, the appellant contended that the entire demand was unsustainable since all amounts received pertained exclusively to laying of cables under or alongside roads, an activity expressly clarified by CBEC as non-taxable. It was further argued that the demand was computed using an artificial formula based on sundry debtors without examining invoices or segregating taxable and non-taxable receipts. The appellant also challenged the invocation of the extended period of limitation, stating that all information was available in their records and returns.
The Tribunal examined the CBEC Circular and noted that it clearly clarified that laying of cables under or alongside roads is “not a taxable service under any clause of sub-section (105) of Section 65 of the Finance Act, 1994.” The Bench observed that the circular is clarificatory in nature and therefore applies retrospectively.
After analysing the facts, the Tribunal held that even though the demand was split into various categories, the underlying consideration in all cases related to the same non-taxable activity of laying cables under or alongside roads. It therefore concluded that the entire demand confirmed in the impugned order was unsustainable.
The Bench further held that since the service tax demand itself could not survive, the question of interest and penalty did not arise. On the issue of limitation, it was observed that there was no suppression of facts, as the demands were raised based on records maintained by the assessee, making invocation of the extended period impermissible.
However, the Tribunal clarified that although the activity was not taxable, the assessee would not be entitled to refund of service tax already paid, since the tax had been collected from clients and deposited with the government. In view of these findings, the CESTAT set aside the service tax demand along with interest and penalty and allowed the appeal with consequential relief, thereby granting full relief to the assessee.
Appearance
Counsel for Appellant/ Assessee: Shovendu Banerjee
Counsel for Respondent/ Department: R.K. Agarwal
Cause Title: M/s. Precision Trenchless Laying Private Limited v. Commissioner of Service Tax-II
Case No: Service Tax Appeal No. 76555 of 2016
Coram: Ashok Jindal (Judicial Member), K. Anpazhakan (Technical Member)
