Applicability service tax to NHAI

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Murali dhar (Querist)
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07 December 2009 Dear Sir,
We(X) are awarded Highway(Roads)from NHAI regarding shifting & removl of Electricl poles. inturn we are giving a contract to Mr'X' for above work.

Q: 'Y' party has to put a bil include of service tax(specially mentioned) on behlf of SPV(X) to NHAI. can "Y" get service tax from NHAI?
1) As per provision of service tax, Execution of works contract is exempted service( roads, Airports, Dams, Bridges.ships).
2) erection, Installation and commessioning of Electricl works is taxable serive but it is exempted for Roads.
3. Can Y claim service tax from NHAI.

4. The party has argued that, it will leivable on my turnover.what is laibilty on NHAI?

CA Sumat Singhal

CA Sumat Singhal (Expert)
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18 February 2012 READ THIS
The government has issued a circular which is reproduced below. Jaiprakash Associates – a well known infrastructure contractor had made a representation wherein they appealed the government to give relief to sub - service providers (mind-well I am not using the term SUB CONTRACTOR) to infrastructure companies like the architects - so far so good - noble intentions are never rewarded - and thats the story - now read the circular - the question asked was X and the answer given is X+Y. I dont know why a contractor is exempt for constructing a road whereas an architect or an engineer is not - but holistically and strictly in accordance with today’s written law I tend to agree with the circular but the circular goes ahead and concludes that - sub-contractors are not exempt from providing these infrastructure services like roads.

The circular is saying that the classification of the service provided by the sub-service providers must be classified in categories other than WCS - that is absolutely correct as per law – how can an architect or an engineer be classified under WCS – but when the circular uses the word “sub-contractor” – the officers in the field with limited knowledge and unlimited views will take it to its illogical conclusion and this in turn will create big round of litigations. I will try to analyse this circular through a live example.

Example:

A XYZ company gets a contract to built a 100 kms highway from NHAI – he in turn sub-contracts 25 kms of it to another contractor on back to back basis and starts construction of the rest of the 75 kms by himself for which he appoints following outside agencies

Engineering Firm
Excavation company
A company which will install the traffic signals and so on

The implication of the circular will be as under:

1. The sub-contractor who is going to construct the 25 kms of road will be fully exempt even though he is a sub-contractor as his service will still fall within the WCS head where roads are exempt

2. Engineering firm will be taxable as its services fall under consulting engineering services head (this was the legal position earlier also)

3. Excavation company will fall under the site preparation services – where there is a exemption notification for roads – hence it will not be taxable

4. The company which will install the traffic signals will be taxable as its services will fall within the erection services definition – here there will be problems as similar definition is there in WCS also – so now litigation will start on this.

CA Sumat Singhal

CA Sumat Singhal (Expert)
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18 February 2012 Toll collection on behalf of NHAI would come under the category of Business Auxiliary Service ; NHAI only a statutory authority and not a constitutional authority.

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