Brief Facts of the Case s3
BRIEF FACTS OF THE CASE:
1. M/s. Sadbhav Engineering Ltd having registered office at Sadbhav House, Opp. Law Garden Police Chowki, Ellisbridge, Ahmedabad (herein after referred to as “M/s. SEL” for the sake of brevity) is engaged in providing services of “Mining of minerals, oil or gas services, Site formation services, Work contract service, Management consultant service and Erection, commissioning and installation service, GTA services” and registered with service tax department at Ahmedabad and hold STC No. AADCS0852QST001.
2 Intelligence gathered by the Directorate General of Central Excise Intelligence, Ahmedabad Zonal Unit, Ahmedabad (here-in-after referred to as ‘DGCEI’ for the sake of brevity) indicated that Maharashtra State Road Development Corporation Ltd (herein after referred to as “M/s. MSRDC” for the sake of brevity) awarded BOT project of modernization of border check posts of Maharashtra State to M/s. Maharashtra Border Check Post Network Ltd.(herein after referred to as “M/s. MBCPNL” for the sake of brevity), an SPV promoted by a consortium led by M/s. SEL to construct, operate, maintain and transfer 22 integrated border check posts equipped with modern basic amenities. M/s. MBCPNL has split this project into three EPC contracts such as 1) to carryout work relating to road; 2) to carryout work relating to buildings and 3) IT work of for development and installation of software / hardware for integration of checks post with interlinking of checkpost and to head office at Mumbai. The intelligence indicated that the contracts relating to road works and building works were awarded to M/s. SEL. Two EPC contracts awarded to M/s. SEL were artificially bifurcated into building works and road works so as to evade payment of service tax on road works. There was no exclusive mention of construction of road in BOT contract awarded by M/s. MSRDC to M/s. MBCPNL. Further, value of road work was inflated disproportionately in order to short pay service tax on building works and take advantage of exemption available to work contract relating to roads.
2.1 In furtherance of intelligence, investigation was initiated under summon proceeding dated 27-04-2011 with M/s. MBCPNL as well as M/s. SEL.
INQUIRY CONDUCTED WITH M/S. MBCPNL:
3.1(i) Statement of Shri Darshan Bhatt, Senior Manager (Finance & Accounts) of M/s. MBCPNL was recorded on 27-04-2011wherein he inter-alia stated that he is the employee of M/s. Ahmedabad Ring Road Infrastructure Ltd and draws salary from this company. However, as per the direction of the director of his company, he is looking after work relating to Sadbhav Group companies viz.,
a) Ahmedabad Ring Road Infrastructure Limited
b) Aurangabad Jalna Toll Way Limited
c) Nagpur Seoni Express Way Limited
d) Maharashtra Border Check Post Network Limited
e) Sadbhav Infrastructure Project Ltd.
f) Bijapur Hungund Tollway Private Limited
g) Hyderabad Yadgiri Tollway Private Limited
h) Rohtak Panipat Tollway Private Limited
3.1(ii) M/s. MBCPNL has been incorporated in the month of March, 2009 for the purpose of project named as “Modernization and computerization of integrated border check posts at 22 locations in the state of Maharashtra on Build, Operate and Transfer basis”. This project was awarded by the Maharashtra State Road Development Corporation Limited (MSRDC) vide concession agreement dated 30-03-2009.
3.1(iii) The bid was participated by a consortium comprising of M/s. SEL, M/s. SREI Infrastructure Finance Ltd and M/s. SREI Sahaj e-village Ltd. with M/s. SEL as its lead member. Later on M/s. MBCPNL was incorporated for the execution of the project and concession agreement was signed by M/s. MBCPNL with Government of Maharashtra. Currently M/s. MBCPNL is a subsidiary of M/s. SEL which holds 63% of equity, 27% is held by M/s. Sadbhav Infrastructure Project Ltd and 5% each is held M/s. SREI Infrastructure Finance Ltd & M/s. SREI Sahaj e-village Ltd as on 27-04-2011.
3.1(iv) Regarding the scope of the work awarded, he stated that GOM has granted / authorized M/s. MBCPNL to modernization and computerization of integrated border check posts at 22 locations in the state of Maharashtra on Build, Operate and Transfer basis. The scope of contract includes to investigate study, design, engineer, procure, finance, construct, operate and maintain the project / project facilities and to exercise and / or enjoy the rights, powers, privileges, authorization and entitlement as set forth in the concession agreement. It includes the right to levy, demand, collect and appropriate service fee from vehicles and persons liable to payment of service fee for using the project / project facilities. The work has been subcontracted to M/s. SEL and M/s. Sadbhav Infrastructure Project Ltd.
3.1(v) The activities relating to road construction work and building construction work have been sub-contracted to M/s. Sadbhav Engineering Limited. M/s. MBCPNL had entered into two separate agreements with M/s. SEL both dated 18-06-2009 for execution of the road work and building work respectively. M/s. MBCPNL has entered into EPC (Engineering, Procurement and Construction) contract for execution of road work of the project with M/s. SEL. It includes procuring, constructing, testing and completing the road work. Detailed scope of the work is as per the EPC agreement. Similarly M/s. MBCPNL has entered into EPC contract for execution of building work of the project with M/s. SEL. It includes procuring, constructing, testing and completing the building work. Detailed scope of the work is as per the EPC agreement.
3.1(vi) On being asked regarding the present status of the Project, he stated that till date M/s. MSRDC has handed over the possession of the 11 Check Post out of total 22 Check Post of the project. The work has been started by M/s. SEL on these 11 check post. The total work done till March – 2011 is as under:-
Road Work – Rs. 8.74 crores
Building Work – Rs. 91.40 crores
IT Related Work – Rs. 13.89 crores
The work for balance 11 check posts shall start as and when the same shall be handed over by GOM (Government of Maharashtra). Since M/s. MBCPNL is not providing any service to any person, it has not obtained registration under the Finance Act 1994. Further M/s. SEL has not charged service tax separately in the invoices raised by them because the EPC contracts executed with them are for the fixed price as mentioned in Clause 4 of respective agreements. Service tax liability, if any, shall be borne by the contractors themselves and hence they are not charging any service tax separately in the invoices raised by them.
3.2(i) In order to examine the status of work execution and scope of work order of modernization of border check-post project, Shri C. S. Venkatachalam, Chief Operating Officer of M/s. MBCPNL was summoned. His statement was recorded on 17-05-2011 wherein he inter-alia stated that M/s. MBCPNL is awarded BOT contract for modernization and computerization of 22 integrated border check-posts in the state of Maharashtra. There are 3 major check posts with fifteen lanes on each side, 2 big check posts with thirteen lines on each side, 7 medium check-posts with ten lanes on each side and 10 small check-posts with seven lanes on each side. M/s. MBCPNL has awarded contracts to M/s. SEL and M/s. Sadbhav Infrastructure Project Ltd (SIPL) relating to modernization of BCP project. Work relating to construction of roads and buildings are awarded to M/s. SEL and works relating to electrical, IT, weighbridge, canopy and booth are awarded to M/s. SIPL. Out of 22 check posts to be modernized as per BOT contracts, only for 11 BCPs land has been handed over to them. Work is in progress in these 11 check posts. None of the BCP’s work is completed as on date. All works can be commenced only after approval of drawings by the independent consultant appointed by M/s. MSRDC.
3.2(ii) M/s. SEL’s scope of work relating to building work includes construction of administrative buildings, transport office, hotels, dormitory, go-downs, toilets and facility centre. Building work consists of all concreting work, brick, masonry, plaster, doors and windows, sanitary and plumbing, roof water proofing, all ceilings, and painting and finishing works.
3.2(iii) The scope of the road work awarded to M/s. SEL includes the following: -
a) Excavation / cuttings;
b) Embankment;
c) Sub-grade (500 mm thickness);
d) GSB (Granular Sub Base – 150 mm thickness);
e) DLC (Dry Lean Concrete – 150 mm thickness);
f) PQC (Paver Quality Concrete – 300 mm thickness);
g) Median or island (Dividers with adequate space for plantation);
h) Road curbs;
i) Cross drainage;
j) Exit and entry connections;
3.2(iv) On being specifically asked regarding the activities done in respect of development of parking area, detention area and pavement parking, etc. and in which contract these activities are covered, he stated that work relating to parking area, detention area and pavement parking is not yet started. These works are similar to road work except the top layer PQC will be 150 mm thickness instead of 300 mm thickness which is in the road work. These activities are covered in the work contract of road project awarded to M/s. SEL. Parking area, detention area and pavement parking will be used for parking the vehicles diverted for examination by the state Government authorities or individual truck drivers parking for taking rest, or for refreshment. For first six hours no parking fee is payable. However, parking beyond six hours will attract parking charges. As per his understanding, development of rest areas and amenities means development of facility center such as dabha (food court), and some other shops. These work is covered under building contract given to M/s. SEL.
3.2(v) On being asked regarding the activities done in respect of construction of compound wall along with periphery of the premises of each Border Check Post and also along with the various demarcated areas as shown in the drawings, he stated that for construction compound wall and along with periphery of the premises of each Border Check Post and also along with the various demarcated areas is to be done with brick and plaster with masonry work. Therefore it should fall under building work. On being asked regarding the activities done in respect of designing and construction of proper drainage arrangement in the entire premises of the Border Check Posts and discharge of the total drainage safely into the nearby water streams, he stated that drainage scheme for draining rain water from the premises of entire Border Check Post is under preparation. As he understood, drainages can be open drain, hume pipes, culverts, or brick work constructed for discharge of the total drainage safely into the nearby water streams.
INQUIRY CONDUCTED WITH M/S. SEL:
4.1 M/s. SEL vide their letter dated 27-04-2011 furnished the copy of agreement dated 18-08-2009 entered between M/s. SEL and M/s. Maharashtra Border Check post Network Ltd, ledger accounts of the years 2009-10 and 2010-11 pertaining to building work and road work relating to the above agreement, ledger accounts of sub-contractors of the above works of building work and road works, copies of ST-3 returns, list of bank accounts at Head Office, etc.
4.2(i) In furtherance of investigation, statement of Shri Kapil Bokadia, Senior Manager (Taxation) of M/s. SEL was recorded on 12-05-2011 wherein he interalia stated that M/s. SEL is registered with service tax office at Ahmedabad for the services of GTA, mining of mineral, oil or gas, site preparation, renting of immovable property, management consultancy, and works contract. M/s. SEL is mainly engaged in construction of road, canal and mining. Activities carried out in connection with road and canal are exempt from payment of service tax. However, activities carried out in connection with mining of mineral, oil or gas attracts service tax. M/s. SEL has been paying service tax under mining of mineral, oil or gas service. M/s. SEL also provides services such as GTA service (as recipient of service), management consultancy, renting of immovable property, site preparation and work contract service. Details of services provided is as under:-
MANAGEMENT CONSULTANCY:
SEL provides service such as feasibility study, traffic intensity survey, etc. in connection with road projects of other companies. Amount charged for these services fall under management consultancy service. M/s. SEL pay service tax payable thereon.
GTA SERVICES:
SEL avail services of GTA to receive goods and material at their work site from the sources of goods and materials. M/s. SEL pay service tax on the value of GTA bills as a recipient of service as provided under Rule 2(1)(d)(v) of the Service Tax Rules, 1994.
RENTING OF IMMOVABLE PROPERTIES:
M/s. SEL have rented their office premises of Sadbhav House, Opp. Law Garden Police Chowki, Ellisbridge, Ahmedabad – 380 006 to their group companies. M/s. SEL charges rent from the group companies for usage of office premises. Initially they have charged and paid service tax on value of rent received. However, after decision of Delhi High Court, they stopped charging service tax from their group companies and accordingly, not paid service tax on rents.
MINING OF MINERAL, OIL OR GAS SERVICE:
SEL carry out work of such as removing of over burden of first dig, removal of all types of materials in all kinds of strata and evacuation of coal from quarry face and transportations to surface. At present mining activity is carried out at nine different locations viz., Beena(Uttar Pradesh), Bhavnagar(Gujarat), Mangrol(Gujarat), Wani(Maharashtra), Junad (Maharastra), Lakhanpur (Orissa), Khadiya(Uttar Pradesh), Managuru(Andhra Pradesh), Navinkundra(Maharashtra). We have been paying service tax on mining of mineral, oil or gas service. Mining contracts at locations of Lakhanpur (Orissa) and Khadiya(Uttar Pradesh) are executed by their own company. Mining contracts in other than these two locations are executed through by other contractors on their company’s behalf on back to back basis.