TAXABILITY OF SITE FORMATION AND CLEARANCE SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on site formation and clearance services rendered to any person by any other person engaged in provision of such services by the Finance Act, 2005 with effect from 16th June, 2005 vide Notification No. 15/2005-ST, dated 7-6-2005. The gross amount charged to or total consideration received from any person in relation to site formation and clearance services shall be chargeable to service tax.

Meaning of Site Formation and Clearance, Excavation and Earthmoving and Demolition

Section 65(97a) defines ‘site formation and clearance, excavation and earthmoving and demolition’ as under –

“site formation and clearance, excavation and earthmoving and demolition” includes —

(i) drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or

(ii) soil stabilization; or

(iii) horizontal drilling for the passage of cables or drain pipes; or

(iv) land reclamation work; or

(v) contaminated top soil stripping work; or

(vi) demolition and wrecking of building, structure or road,

but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies”.

The services of site formation and clearance, excavation, earthmoving and demolition are defined as an inclusive definition with certain exclusions. According to the definition, the services of site clearing and clearance broadly covers four areas –

(a) site formation and clearance

(b) excavation

(c) earthmoving

(d) demolition services

It appears that with this category of service, all types of services in relation to real estate or immovable properties have been subjected to tax. Construction, maintenance and property management and cleaning services are also covered under other taxable categories. Thus, creation, management and destruction of immovable properties, all three types of services are taxable services.

Site formation and clearance etc. services includes and excludes certain services:

Includes

(a) Drilling, boring and core extraction services for —

(i) Construction

(ii) Geophysical purpose

(iii) Geological purpose

(iv) Other similar purpose

(b) Soil stabilization

(c) Horizontal drilling for passage of cables or drain pipes

(d) Land reclamation work

(e) Contaminated soil stripping work

(f) Demolition and wrecking of any—

(i) building,

(ii) structure, or

(iii) road

Excludes

(a) Services in relation to agriculture

(b) Services in relation to irrigation

(c) Services in relation to watershed development

(d) Specified services in relation to water sources/bodies—

(i) drilling

(ii) digging

(iii) repairing

(iv) renovation

(v) restoration

The intention of legislature seems to cover all other types of services, activities or contracts which may otherwise not fall under the definition of commercial construction services or construction of complex services or interior decorator services.

The definition of site formation and clearance, excavation and earthmoving and demolition is an inclusive definition and the activities specifically mentioned are indicative and not exhaustive. Prior to construction of buildings, factory or any civil structure, activity of mining or laying of cables or pipes, preparation services of site formation and clearance, excavation and earthmoving or levelling are normally undertaken for a consideration to make the land suitable for such activities. Such services include blasting and rock removal work, clearance of undergrowth, drilling and boring, overburden removal and other development and preparation services of mineral properties and sites, and other similar excavating and earthmoving services.

Demolition of structures, buildings, streets or highways is also undertaken for a consideration as a preparatory activity for subsequent construction activity or for clearing the site for any other purpose. All such activities fall within the scope of this service.

However, site formation and clearance, excavation and earthmoving and demolition services when provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies are specifically excluded and not within the scope of this service.

Notification 17/2005-ST dated 7-6-2005 exempts this service provided in the course of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams, major and minor ports.

Taxable Service

Section 65(105)(zzza) defines taxable service as under —

“any service provided or to be provided to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities”.

To be a taxable service, the service rendered or to be rendered must be –

(a) Provided by service provider to another person, i.e., on behalf of other person

(b) Service provider can be any person and not necessarily a commercial concern.

(c) Service should relate to any one or more of the following —

(i) Drilling, boring and core extraction services for construction, geophysical, geological or similar purposes

(ii) Soil stabilization

(iii) Horizontal drilling for the passage of cables or drain pipes

(iv) Land reclamation work

(v) Contaminated top soil stripping work

(vi) Demolition and wrecking of building, structure or road

(d) Services as above must be in relation to —

(i) site formation and clearance

(ii) excavation

(iii) earthmoving

(iv) demolition

(v) such other similar activities

(e) services shall exclude aforesaid services rendered in relation to —

(i) agriculture, irrigation and water shed development

(ii) drilling, digging, repairing, renovating or restoring of water sources/water bodies.

The use of words, ‘such other similar activities’ enlarges the scope of taxable services and other services, not specifically mentioned in the definition but which can be considered similar to such services will also fall in the scope of taxable services. The taxable services will not cover services like dredging services, construction services or interior decoration services as these are separate taxable services. The examples of taxable services will include —

(a) clearing of any site for any purpose

(b) land and site development of any site

(c) any treatment of land or site

(d) digging bore wells

(e) specified services as anciliary services in relation to construction of buildings etc.

(f) contracts for demolition and destruction of buildings and all types of structure.

(g) Mountain/rock cutting, moving and wrecking

(h) Any structure will include structures other than civil construction.

In M. Ramakrishna Reddy v. CCE & C, Tirupathi 2007 -TMI - 100113 - (CESTAT, BANGALORE), where assessee was awarded the work of mining barytes ore (excavation and removal of ore alongwith loading, transportation, unloading and levelling and revenue contended that it was covered under site formation and clearance, excavation, earthmoving and demolition service and where assessee contended it to be a mining service which came into force in 2007, it was observed that definition of site formation and clearance – is an inclusive definition and activities specially mentioned are only indicative and not exhaustive. Tribunal ordered for part pre-deposit.

Consulting engineer’s service cover consultancy, advice or technical assistance rendered by a consulting engineer in any discipline of engineering whereas in the instant case, service provider is engaged in rendering construction related services. While doing so, it also renders survey and soil testing as well as site clearance etc. which are the preparatory services for construction. These specific services were made taxable from specified dates and cannot be taxed prior to such date. Undoubtedly, such service rendered shall be covered in these two categories only and that too from 16.6.2005 only. [Refer Dr Lal Path Lab Pvt. Ltd v. CCE 2006 -TMI - 761 - Appellate (Tribunal, New Delhi), Central Power Research Institute v. CCE 2006 -TMI - 666 - Appellate (Tribunal, Bangalore), Geo Foundations & Structures Pvt. Ltd. v. CCE, Cochin 2009 -TMI - 33994 – (CESTAT, BANGALORE)].

In Essar Construction (India) Ltd. v. CCE, Visakhapatnam 2009 -TMI - 202109 – (CESTAT, BANGALORE), it was held that desilting of dam, construction of tailing dam and connected works are not covered under site formation services.

Specific Exemption

(i) Taxable services rendered in the course of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams, ports etc. is exempt vide Notification No. 17/2005-ST dated 07.06.2005

(ii) Site formation and clearance, excavation and earth moving and demolition services are exempt from whole of service tax, if provided within a port or an airport vide Notification 41/2010-ST dated 28.6.2010

Person Liable

Any person (including individuals) providing site formation and clearance services or activities to any other person shall be liable to pay service tax and shall be treated as an assessee for service tax purposes. 

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