The construction of pipelines for a water and sewerage board performing sovereign functions, despite some commercial-like operations, does not automatically classify as 'Commercial or Industrial Construction Service' under Section 65(25b) of the Finance Act, 1994 for tax purposes.

JUDGMENT: (per Hon’ble Sri Justice Narsing Rao Nandikonda)

This appeal is filed by the appellant-respondent under Section 35G of the Central Excise Act, 1944 (for short, ‘the Act, 1944’) against the Final Order No.819 of 2010, dated 17.05.2010 passed in Appeal No.AT/73/2008 by the learned Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, FKCCI-WTC Building, K.G. Road, Bangalore (for short, ‘CESTAT’).

2. Heard Sri A.Rama Krishna Reddy, learned Senior Standing Counsel for Central Excise, appearing for the appellant and Sri Vedula Srinivas, learned Senior Counsel representing Smt.Chitralekha, learned counsel appearing for the respondent.

3. The brief facts of the case are that M/s. Nagarjuna Construction Company Limited is having its Registered Office at Nagarjuna Hills, Hyderabad, (for short, ‘NCCL’) and obtained Centralized Registration with Hyderabad-II Commissionerate, Customs, Central Excise & Service Tax, for the purpose of discharging its service tax liability for certain taxable services under the Finance Act, 1994 (for short, the Act, 1994’) provided at various places all over India under Service Tax Registration No.AAACP4709NST001.

4. It is stated that NCCL is registered with the department as provider of taxable service falling under the category ‘Commercial or Industrial Construction Services’, ‘Consulting Engineers Services’, ‘Erection, Commissioning or Installation Services’ etc. The NCCL was awarded contract for laying of long distance pipelines in the State of Gujarat under a contract awarded to them by M/s. Gujarat Water Supply and Sewerage Board (GWSSB). Basing on the Intelligence gathered by the Directorate General of Central Excise Intelligence (DGCEI), Ahmedabad Zonal Unit, Ahmedabad, it was found that the respondent was not paying appropriate Service Tax on the said Taxable Services and an inquiry was initiated and investigation was conducted by the DGCEI, Ahmedabad Zonal Unit.

5. It is further stated that basing on the said findings of the inquiry, a Demand-cum-show cause notice in F.No. DGCEI /AZU /12(4)27/ 2005- Nagarjuna, dated 30.07.2007 was issued by the Additional Director General, DGCEI, Ahmedabad Zonal Unit to the assessee, proposing total demand of Rs.7,15,36,082/- towards the Service Tax payable by the assessee. But, the same was not paid by the assessee on the said Taxable Service of CICS during the period 16.06.2005 to 31.03.2007 under Section 73 of the Act, 1994 by invoking the extended period of five years as per proviso to sub section (1) of Section 73 of the Act, 1994. A show cause notice was issued proposing charging of interest on the said tax amount in terms of Section 75 of the Act, 1994 and also penalty under Sections 76 and 78 of the Act, 1994.

6. It is stated that the said show cause notice was answerable to the Commissioner, Customs, Central Excise & Service Tax, Hyderabad-II Commissionerate, being the Jurisdictional Adjudicating authority. It is further averred that the Commissioner, Customs, Central Excise and Service Tax, Hyderabad-II Commissionerate, Hyderabad vide Order-in-Original No.19/2008-ST, dated 31.10.2008 confirmed the demand of Service Tax of Rs.7,15,36,082/- under Section 73(2) of the Act, 1994 along with interest under Section 75 of the Act, 1994 and imposed penalties (i) at the rate of two percent per month on the service tax amount, starting with the first day after due date till the date of actual payment, however not exceeding the service tax payable, in terms of Section 76 of