Construction of tubewells for government projects is exempt from payment of service tax, the Central Board of Excise and Customs (CBEC) has said.

The clarification comes after Rajasthan Chief Minister Vasundhara Raje had written to Finance Minister Arun Jaitley last month on the issue as many contractors who were working with the Public Health and Engineering Department in Jhunjhnu, Sikar and Bikaner for tubewell construction had been served service tax notices.

Raje had sought a clarification noting that it could impact State finances as paying service tax on an essential State government service would mean transferring funds to the Centre.

“The exemption will cover a wide range of activities and services provided to a government, a local authority or a governmental authority and will include the activity of construction of tubewells,” the CBEC said in a circular to field formations.

Accordingly, it said that services provided to the government for construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipeline, conduit or plant for water supply, water treatment, and water supply are exempt from tax.

“The phrase ‘water supply’ is a general phrase. It will involve providing users access to a source of water… a plant for water supply need not involve a huge assembly of machinery and apparatus,” the CBEC further clarified.

The clarification is also likely to help other States in construction of tubewells for providing easy access to water for drinking and irrigation.