Centre, through a notification issued on July 27, 2009, provided exemption from service tax to management, maintenance or repair of roads

The level of development in any country is determined by the network of roads the country has for smooth movement of man and goods. Development of road transport is an essential element of any growing economy and boosts the trade and business activities within the country. A country like India, which has vast territorial jurisdiction, relies heavily on road transport. Roads play as pivotal a function as arteries and veins play in a human body. India has a network of national highways and state highways connecting villages, towns, cities and capitals, forming the economic backbone of the country. Realising the importance of infrastructure development by construction and maintenance of roads, every year a substantial chunk of the revenue outlay is allotted for this purpose by the union and state governments in their respective budgets.

The importance of developing new roads is not lost on the government even while forming the various laws designed to ensure revenue income. Service tax, which has over a period of time donned the role of one of the major contributor of revenue to the government, specifically excludes construction services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams while imposing tax on commercial or industrial construction service.

Although the definition of commercial or industrial construction service excludes from its scope construction services provided in respect of roads, the Circular No. 110/4/2009-S.T., dated 23-2-2009 issued by department of revenue clarifies that while construction of road is not a taxable service, management, maintenance or repair of roads are in the nature of taxable services attracting service tax.

This circular further elaborates that the activities like resurfacing, renovation, strengthening, relaying and filing of potholes will be covered under maintenance and repair of roads. However, laying of a new road, widening of narrow road to broader road (such as conversion of a two lane road to a four lane road) and changing road surface (gravelled road to metalled road/ metalled road to blacktopped/ blacktopped to concrete etc) are activities which are a part of construction activities and therefore specifically excluded as taxable services under the category of construction or industrial construction services. According to this clarification, all activities which form a part of maintenance or repair activities are covered under the category of taxable services under construction or industrial construction services.

Overriding the clarifications issued in this circular, the union government realising the importance of the activities of repairs and maintenance of roads, issued Notification No. 24/2009-ST, dated 27-7-2009 providing for exemption from service tax to management, maintenance or repair of roads. This notification didn't extend similar benefits to other infrastructure projects like airports, railways, transport terminals, bridges, tunnels and dams.

This notification was subjected to amendment by issue of Notification No.54/2010-Service Tax, dated December 21, 2010 extending the benefit of repairs and maintenance to other projects like bridges, tunnels, dams, airports, railways and transport terminals and thus exempting even these projects from levy of service tax under management, maintenance or repair services.

Maintenance or repair activities play a major role in extending life and utility of an asset. These activities being of a recurring nature is always a heavy strain on the union or state budgets. The cost of construction or development of any infrastructure or management, repairs and maintenance therefore, although many a time undertaken by private institutions or organisation at the instance of the central or state governments, the ultimate financial burden is borne by the tax payers of this country. The exemptions providing for relief from service tax in respect of development, construction, management, repairs and maintenance of roads, bridges, tunnels, dams, airports, railways and transport terminals, is sure to have a positive effect on the infrastructure development in the country and will also contribute substantially in the quest of the country to emerge as a financial superpower in the years to come.

Taxable Services: Management Maintenance