Addendum

The Blog written on the issue of the recently issued circular on the leviability of Service tax on the activity of Repair of Roads. My interpretation was solely based on pure reading of legislation and many questioned the logic of it. Now the logic presented by me in the said article has been validated by order passed by Commissioner Appeals (Vizag).
The Commissioner held,
As seen from the definition the activity covers construction, completion and finishing and repair, alteration, renovation or restoration or similar services and the definition itself specifically excludes such services provided in respect of roads, airports, railways, transport terminal, bridges, tunnels and dams. From the above it is evident that not only construction services but also repair services provided in respect of roads are exempted from tax. Though the same may also fall under management, maintenance or repair service in terms of Section 65(64) of the Finance Act, 1994, in view of specific exclusion of repair services provided in respect of roads under Section 65( 25b ) of the Finance Act, 1994 the same cannot be subjected to any tax. If the intention of the government is to subject the repair services provided to roads to tax, then the definition given under ‘Commercial or Industrial Construction Service' should have been suitably amended by omitting the words “does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.” Reading the definitions of Commercial or Industrial construction service and management, maintenance or repair services together gives a meaning that repair of roads, airports, railways, transport terminals, bridges tunnels and dams are excluded from service tax liability in view of the specific exclusion provided in Section 65( 25b ) of the Finance Act, 1994. It also implies that management or maintenance of all immovable properties including roads, Airports, transport terminals, railways, bridges, tunnels and dams are liable to tax but not repairs in view of specific exclusion provided vide Section 65 ( 25b ) of the Finance Act, 1994.
The order of the Commissioner is sure to be challenged by Revenue, but the commissioner has opened a new avenue of repair and at least for some time Roads ATLEAST in Vizag can be repaired without service tax.

Changing of law through issuance of circulars !!!

Introduction:
Law till today on the subject of repairing and maintenance of roads and other infrastructural facilities was clear in the minds of all stake holders (barring a few Service tax commissionerates)
There was this discussion being held in many corners and some queries on this count were being raised that somehow Maintenance and/or repairing of Roads would be a taxable activity but a conclusive view came across from all those corners that no such taxing is possible because the law itself was clear enough.
This view was based on a sound principle of law which says that if a service activity is specifically excluded from the purview of taxation from one service category cannot be included in some other category unless and until specific inclusion thereof is provided for it in that section.
The Central Board of Excise and Customs (CBEC) – has now come up with a Circular No. 110/2009 dated 23.02.2009 clarifying the doubts in respect of levy of service tax on Repair/ renovation/ widening of roads.
The circular has tried to give extra-judicial meaning to 2 sections involved:
1. Commercial or industrial construction service [section 65(105) (zzq)]
2. Management, maintenance or repair service [section 65(105) (zzg)].

Legislative Background:

I. Commercial or Industrial Construction Service:
As per section 65(25b) of the Finance Act, 1994 (Act),
“Commercial or industrial construction service” means—
(a) construction of a new building or a civil structure or a part thereof; or
(b) construction of pipeline or conduit; or
(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,
which is—
(i) used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;]

As you can see, above defining section clearly spells out that all kinds of repairing, alteration, renovation, restoration or similar services provided in relation to any infrastructural facilities including roads is completely non taxable. Therefore it can be safely said that there was and still exists a specific exclusion from charging of service tax on repairing and related services in respect of roads.

II. Management, Maintenance or Repair Service:
As per section 65 (64) of the Act,
“management, maintenance or repair service means any service provided by—
(i) any person under a contract or an agreement; or
(ii) a manufacturer or any person authorised by him,
in relation to,—
(a) management of properties, whether immovable or not;
(b) maintenance or repair of properties, whether immovable or not; or
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle.]
[Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this clause,—
(a) “goods” includes computer software;
(b) “properties” includes information technology software;]

This section puts in place a charge on Management, Maintenance or repair services in relation to all movable and immovable goods and properties. This section was first amended w.e.f. 16.06.2005 to include maintenance services in respect of immovable properties and it was further amended from 1.05.2006 to include repairing services thereon also.

Legal Importance of circular:
It is an accepted rule of law that an Act passed by the Parliament is supreme in authority and its provisions cannot be re-defined by issuance of circulars. Circulars can only by guides of law and law cannot be over-defined by these instruments. Many circulars have been struck down by courts. In case of COMMISSIONER OF SALES TAX vs. INDRA INDUSTRIES (2001) 248 ITR 338 (SC), wherein the apex court has opined that,
“A circular by tax authorities is not binding on the Courts. It is not binding on the assessee.”
Hence circulars at best are instruments in the hands of administrators to clear doubts where they exist but unfortunately these are being used to create doubts where none exist.


Defining the Circular
The circular is issued in response to clarification sought by the Nashik Commissionerate on the issue. The circular has tried to clarify 2 issues –
a. Whether management, maintenance or repairs of roads is taxable under similar service head or not.
b. Segregation of activities in relation to roads into 2 distinct heads as under:

i. Maintenance & repair activities
1. Resurfacing
2. Renovation
3. Strengthening
4. Relaying
5. Filling of potholes

ii. Construction Activities
1. Laying of a new road
2. Widening of narrow road to broader road (such as conversion of a two lane road to a four lane road)
3. Changing road surface (graveled road to metalled road/ metalled road to blacktopped/ blacktopped to concrete etc)
In simple language as per this circular all activities of management, maintenance or repairing in respect of roads will be taxable with retrospective effect atleast from 1.05.2006 if not earlier. It has tried to define what activities are classifiable as Maintenance or Repair services and what can be defined as Construction. As there is no legal standing of the circulars – the impact of it cannot be prospective in nature.
If we believe this circular to be sacrosanct than atleast from 1.05.2006 all jobs of resurfacing, renovation, strengthening, relaying or filling of potholes in respect of roads will become taxable.
This can be stretched to mean that if a road is constructed once – all relaying work done on it for as many years to come – would be a taxable activity given that the quality of surface of the road is not changed from graveled road to metalled road/ metalled road to blacktopped/ blacktopped to concrete etc.

Mistake of omission:
The circular fails to recognize one important sub-clause of section 65 (25b) of the Act.
As explained earlier, this section defines the words – “Commercial or Industrial Construction” – wherein sub-clause (d) of section 65 (25b), clearly includes all kinds of repair, alteration, renovation, restoration or similar services. Thereby meaning that repairs is also a sort of Construction.
The definition further has an the exclusion clause which says that,
“but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;]”
The words “Such services” – refer to sub-clause 65 (25b) (a) to (d) – which means that all repairing, renovation etc jobs in relation to roads are NOT TAXABLE at all.
Why was this clause not referred before issuance of the impugned circular is a question that only the Board can answer but according to me it is clear that they have not considered this sub-clause and this mistake of omission would give birth to serious litigation issues for the infrastructure sector as a whole.

Conclusion:
As far as repairing jobs of roads etc is concerned there was no iota of doubt in the legislative intent because Infrastructure is the need of the day and upkeep of the infrastructural facilities is a core area in which the government is working hard, but unfortunately this circular is issued to undo all the good intentions of law.
It is not as if the law is silent on the issue, on the contrary the law is crystal clear and specifically excludes all kinds of repair jobs done in respect of all infrastructural facilities like roads, airports, railways, transport terminals, bridges, tunnels and dams as explained above.
This circular must be withdrawn with immediate effect and all efforts must be taken by all stake holders to force the Central Government into withdrawing it. The circular in any case according to me is Void-ab-initio and will not stand the scrutiny of Tribunals and courts in the long run but till that happens it would have done the mischief it is intended to do. The litigation creating potential of this circular is immense and immediate.
This circular would proverbially open a Pandora’s box for the maintenance and repairing of infrastructural facilities sector as a whole, because the logic of this circular if accepted would mean that similar services in relation to infrastructural facilities other that Roads – like Airports, tunnels dams etc will also be taxable and that too retrospectively.
This Circular has all the right ingredients to do all the wrong things.

Nitesh Jain
N.J. Jain & Associates
Chartered Accountants

FEAR - Now i understand what this word means !!!

What do terrorists want - they want to instill fear in the masses - their target audience is not the politician sluts but the ordinary public - and for the first time and after so many tragedies - i have started fearing them. Not because they have the weapons but because we do not have the will to fight those weapons.

We are so 'high on spirit' people that we forget that we need to respond not in the same way but in a decent but powerful way - I AM AFRAID BECAUSE WE DO NOT RESPOND - we only talk of responding - of taking suitable action but the promised action is never taken.

The NSG took a good 10 hours to reach the spot of terror - Why ????? who is answerable - why did the police handling the situation carrying only single shot rifles in hand - why werent they wearing bullet proof jackets. there are many such questions and i know for sure that these f...... su........ politicians will have a unique way of dodging these questions because they DO NOT CARE. I hope they come to realise what fear is - many say this - that had some politicians died in any of the terror attacks or taken hostage - then we would have got some concrete actions. But no one from thier class ever dies in these attacks - they live so that we can die. Back to the NSG - the attacks started at 9.15 pm and the NSG started its action at about 8 next morning - i am told that they were informed at 12.00 in the night to move - they were kept waiting at the airport for 2 to 3 hours for a plane to fly them down - then at the mumbai airport they were kept waiting for another 1 hour because some fool had not called in for a bus for them. If this is the standard of planning in India - God save us.

Next question is that more terror strikes have taken place in Mumbai then anywhere else - then why is the NSG not having a permanent base in mumbai. Will any politician of the highest rank - may be the PM or the Home Minister or defence minister asnwer these questions. I will ask question even in this hour of tragedy because some thing grave has happenned and it is repeating itself time and again and our governers keep filling TV studious creating a farce of discussions.

My suggestions for combating terror because i do not want to stop at taking jibes at the political class but also give some ideas :

1. Have united, robust and sustainable policy to cambat terror
2. Give the ropes of this policy (implementation) to an upright and Young officer having a good head on his shoulder (mind u not a beaurocrat) to run it
3. Give all the resources he wants - make that organisation the single window for combating terror - (if we can have a single window for foreign direct investment then why not one agency to combat terror)
4. Let this organisation have permanent bases in all major cities in India.
5. Give them full political backing and keep them immuned from the communal politics.
6. Have meritocracy as its sole guiding force. There should be no interference in their work.
7. Keep it out from the hands of politician and buearocrat - have an autonomous agency like the Election commission or TRAI to look after its affair - the board should have emminent experts from the relevant fields.
8. The agency should have its own inteligence gathering capabilities - the latest gadgets should be available to them. May be it should have its own fully equipped research and development wing with a 5000 crores budget.
9. They should be backed by a democratic but powerful law against terror.
10. Special fast track terror courts should be run for terror cases alone in all major cities. Judges delaying orders must be punished immidiately. The organisation must be free to take good legal advice from the most emminent lawyers for fighting there side of the case.
11. Once a death sentence is cleared by the Supreme court than the guilty must be hanged immidiately and the political class should not be allowed to play petty politicis over this.
12. The Parliament must announce a zero tolerance policy against terror and no government must be allowed to negotiate with hijackers or such hostage takers even if it means endangering the lives of innocent citizens.
13. They must be allowed to take action which is deemed fit by the agency in foreign land - offcource it may be covert or may be overt. Stop this nonsence that we will not cross the border - this crap will not be taken now.
14. All diplomatic help must be provided to this organisation.
15. They will report directly to either the PM or the Cabinet Committee on Internal Security.
16. This organisation must have Public relations wing which gives credible information to the media.
17. At the time of terror all the agencies of the state must come its wings - in other words they will take orders from one organisation only.
18. Joint mock exercises must be conducted with identical forces of major world powers like USA, UK, France, Israel and others to upgrade the training of our men.
19. Personnel working in this organisation must be given good pay structure with good Insurance policies.
20. The government must announce a consistent and uniform policy for awarding the ex-gratia amounts to the deceased or injured in terror attacks. The system must be responsive enough to complete the process in a month of a tragedy.
21. All major facilities of national importance must be charted out - and detailed plans of action in case of terror attacks must be formulated.

I have many such suggestions and i believe there better equipped people out there who suggest much better plans but the issue is that who will bell the cat.

I hope some one in the corridors of power - in the silence of his bedroom - has a tear in his eye - thinks hard about this menance not with eye on the coming press conference and how he will manipulate the vocabulary so that he come unhurt. A thought which guides him to do something drastic about the decease called terrorist. I hope such doctor comes forward and takes the call of his duty.

No one from my family has even come close to such a tragedy and i hope no ones family ever comes close to such events but just hopes wont do any good - this 'spirit of mumbai' cliche will not help us anymore nor has it helped in the past. So get up guys and do something about this or else just keep watching Television and political debates because thats what we are good at - Mera bharat mahan - 100 me se 80 be.............. -

Nitesh Jain

Chartered Accountant

nitesh@niteshjain.co.in