Kovalam artificial reefs a damp squib, waste of money

THIRUVANANTHAPURAM: Not only have sheaths of torn geo-textiles washed ashore, the artificial reef project in Kovalam has also resulted in unnecessary expenditure to the tune of nearly Rs 2 crore as a result of shoddy contract management and even breach of tax laws by the harbour engineering department (HED).

The artificial reef project, which was funded under the Centre’s tsunami rehabilitation programme, was executed by the New-Zealand-based Artificial Surfing Reef (ASR) Ltd.

The project involves placing six geo-textile bags filled with sand about 2-3 metres from the shore. According to Service Tax Rules 1994, when the service-providing foreign company does not have an office or a contactperson in India, the liability for the payment of service tax falls on the service recipient. The service tax payable was at the rate of 10.30 per cent of contract value.

The work was awarded in March 2008 and the limit fixed was 10 months. The terms of agreement included extra payment towards statutory taxes and levies as applicable such as service tax, VAT, and contribution to the Kerala construction workers welfare fund.

According to the Comptroller and Auditor General, the HED had neither taken registration under Service Tax Rules facilitating payment of service tax at compounded rate nor paid service tax at the prevailing rate.

The failure of HED to meet the requirements of service tax regulations had resulted in the following lapses: One, because of the failure to obtain legal opinion while executing an agreement with a foreign firm, HED was liable to pay tax to the extent of Rs 76.57 lakh at the rate of 10.30 per cent instead of Rs 28.57 lakh at compounded rate of 4.12 per cent.

Two, as the balance service tax amounting to Rs 48 lakh was not paid with interest, the benefit of waiver of penalty to the extent of Rs 57.43 lakh was lost. Three, HED was also liable to pay penalty for non-payment of service tax to the extent of Rs 76.57 lakh.