SERVICE TAX ON UNDERGROUND CABLE LAYING WORK

[Dr. Sanjiv Agarwal]

Often the assessees provide services in relation to excavation of trenches, laying protective pipes, pulling of cable and carrying out other related  works for laying of telephone lines with the help of JCB machine (horizontal drilling- HDD) and doing digging  manually (open trench services). In such cases, the assessee is engaged in excavation of trenches, reinstatement work of trenches, laying of PLB pipes, GI pipes, pulling of cables, horizontal boring/drilling for cables, fixing of route indicators, other associated work including digging of pits, construction of chambers etc which may be  taxable under "Site Formation" , "Erection, commissioning  and installation service" and "Construction service" respectively."

Erection, commissioning and installation must be of any plant, machining, equipment or structure.

Erection, Commissioning or installation means any service provided by a commission or installation agency in relation to commissioning or installation of plant, machinery or equipment. Commissioning means to bring some thing into existence and working condition, e.g. a building, plant or machinery. Installation is the action or process of installing something or of being installed. The service should relate to:

        (i)      Erection, and/or

        (ii)     Commissioning and/or

        (iii)     Installation

This may include other activities as well such as construction, designing, erection, technical services etc. as a part of service.

Such a commissioning or installation must relate to one or more of the following -

        (i)      plant

        (ii)     machinery

        (iii)     equipment

        (iv)     structures - pre-fabricated or otherwise (as inserted by Finance Act, 2006, (w.e.f. 1-5-2006)

According to Lexicon Dictionary, the word 'installation' means the bringing of an entire piece of plant on to a site and putting into position on the site. It does not mean the putting together of parts, piece, pipe by pipe, bolt by bolt, weld by weld, until it gradually becomes one whole.

Normally, installation and commissioning process involves drawing and designing work for the purpose of installation, actual job of installation, commissioning of installed plant, machine or equipment and testing or trail runs. The definition would cover all services relating to installation and commissioning. Thus, works such as laying down foundation or construction of a raised platform or cabling work etc will also be covered.

The definition suggests that -

(a)     services will include erection, commissioning and installation

(b)     such services should be provided by commissioning and installation agency

(c)     services should be in relation to any plant, machinery or equipment

(d)     services may also include installation of:

   (i)  electrical and electronic devices, including wirings or fittings thereof

   (ii)  plumbing, drain laying or other installations for transport of fluids

   (iii)  heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work

    iv)  thermal insulation, sound insulation, fire proofing or water proofing

    (v)  lift and escalator, fire escape staircases or travelators

    (vi) such other similar services

(e)     services may be provided in any commercial or residential premises or for any purpose.

It may be noted that excavation and protective cabling is a neither erection nor a construction related activity.

In Indian Hume Pipe Co. Ltd. v. CCE 2008 -TMI - 30780 - CESTAT, CHENNAI, it was held that long distance pipeline could not be considered as plant and that activity of laying of long distance pipeline does not involve creation and as such, demand was set aside where assessee manufactured pre-stressed concrete pipes for use in water supply projects.

In A Sekar v. CCE, Trichy 2010 -TMI - 76172 - CESTAT, CHENNAI, it was held that laying of pipelines was not covered under erection, commissioning or installation service following Indian Hume Pipe Co. Ltd case (supra).

In CCE, Chandigarh v. Rajeev Electrical Works - 2010 -TMI - 76997 - PUNJAB & HARYANA HIGH COURT, the High Court held that laying of pipes in walls /roof/ floor etc or fixing cable trays and digging earth to lay cables etc is not liable to service tax under erection, commissioning and installation service. The court dismissed the revenue's appeal and held that such activities would not amount to installation of plant, commissioning, machinery and equipment and therefore, was not liable to service tax.

Thus, such activities undertaken by the assessees is not of wiring, fitting, drain laying, pipe work etc resulting in any erection, installation or commissioning of plant, machinery, equipment or structure. The same can also be verified from the nature / details of contract or counter verified from the records of service receiver.

Such taxable services provided by the assessees does not fall under the category of "Erection, Commissioning or Installation service" as the assessee has provided services of excavation of trenches and laying of protective pipes, pulling of cable and associated works which more appropriately fall under the taxable category of 'site formation and clearance, excavation, earthmoving and demolition services'.

Site Formation Services

According to section 65 (97a) of Finance Act, 1994 "Site formation and clearance, excavation and earthmoving and demolition" has been defined to include- 

(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" 

From the above definition, it appears that only horizontal drilling (HDD)  for the passage of cables or drain pipes are taxable under this category and manual drilling /digging  (open trench excavation  ) is not covered under taxable service.

Departmental Clarification

Moreover, CBEC vide its Circular No. 123/5/2010- TRU dated 24th May, 2010 has clarified the applicability of service tax on laying of cable under or alongwith roads and similar activities. This circular has examined the taxability of different activities taking into account the scope of all related services such as site formation, excavation/earth moving, erection, commissioning or installation services, commercial or industrial construction service, or work contract services.

According to this circular, 'Commercial or industrial construction services', in brief, cover construction of and the completion, finishing, repair, alteration, renovation, restoration or similar activities pertaining to buildings, civil structures, pipelines or conduits. Therefore, only such electrical works that are parts of (or which result in emergence of a fixture of) buildings, civil structures, pipelines or conduits, are covered under the definition of this taxable service. Further, such activities undertaken in respect of roads, railways, transport terminals, bridges, tunnels and dams are outside the scope of levy of service tax under this taxable service. Thus, the services in question are not covered.

Under 'erection, commissioning or installation services', the activities relevant to the instant issue are (a) the erection, commissioning and installation of plant, machinery, equipment or structures; and (b) the installation of electrical and electronic devices, including wiring or fitting there for. Thus, if an activity does not result in emergence of an erected, installed and commissioned plant, machinery, equipment or structure or does not result in installation of an electrical or electronic device (i.e. a machine or equipment that uses electricity to perform some other function) the same is outside the purview of this taxable service.

Accordingly to the said circular, 'site formation and clearance, excavation, earthmoving and demolition services' are attracted only if the service provider provide these services independently and not as part of a complete work such as laying of cables under the road.

Based on the foregoing, as explained in the circular,  the following would be the tax status of some of the activities in respect of which disputes have arisen,-

S. No.	Activity	Status
1.	Shifting of overhead cables/wires for any reasons such as idening/renovation of roads	Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
2.	Laying of cables under or alongside roads	Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
3.	Laying of electric cables between grids/sub-stations/transformer stations en route	Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
4.	Installation of transformer/ sub-stations undertaken independently	Taxable service, namely Erection, commissioning or installation services [section 65 (105] (zzd].
5.	Laying of electric cables up to distribution point of residential or commercial localities/complexes	Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
6.	Laying of electric cables beyond the distribution point of residential or commercial localities/complexes.	Taxable service, namely commercial or industrial construction' or 'construction of complex' service [section 65(105) (zzq)/(zzzh)], as the case may be.
7.	Installation of street lights, traffic lights flood lights, or other electrical and electronic appliances/devices or providing electric connections to them	Taxable service, namely Erection, commissioning or installation services [section 65 (105] (zzd].
8.	Railway electrification, electrification along the railway track	Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994