2018 (2) TMI 1027 - AT - Service Tax

Electricity generation not taxable as maintenance; Tribunal rules in favor of appellant

GVK Power And Infrastructure Ltd., GVK Energy Ltd. Versus CCE & C Viskahapatnam

The Tribunal held that the appellant's receipt for operating and maintaining power plants was not taxable as maintenance or repair services but rather ... Whether appellant herein engaged in operations and maintenance of power plants, as per the agreements entered with GVK industries Ltd., at various locations is liable to be taxed? - the contract is for operation and maintenance of the power plant to produce electricity and transmit it to the power grid. Appellants are challenging orders on two grounds i.e. production of electricity is manufacture of goods and that contracts cannot be vivisected and amounts are not received for maintenance and repair but for running of power plant effectively. Held that: - the amounts which are received by the appellant as consideration, are for running of the power plant and not only for maintenance and repair charges. The agreement is for operation of power plant for 24 x 7 in pursuance of such agreement, appellant prepares a detailed plan as to how to conduct maintenance of the power plant, repairs of various machinery and submits the plan to the power plant owners, in order to, give them advance intimation of the planned shutdown of the power plant - this maintenance under taken by the appellant is in order to keep the power plant in the working conditions; there is no interruption in power generation and transmission to the power grid. Similar issue came up before this Bench in the case CLP Power India Ltd., [2016 (11) TMI 645 - CESTAT MUMBAI] wherein the Bench after referring to various case laws and producing excerpts from them, concluded operation of power plant is not taxable under maintenance and repair services - decided in favor of appellant. Manufacture - whether Generation of the electricity is a manufactured product? - Held that: - the Tribunal in the case of NTPC Sail Power Co. Pvt Ltd., [2009 (5) TMI 59 - CESTAT, KOLKATA] have clearly held so and no other contrary decision is brought to our notice - decided in favor of appellant. Appeal allowed - decided in favor of appellant. Issues:Taxability of amount received by the appellant for operations and maintenance of power plants.Analysis:1. The appeals filed by the appellant were disposed of by a common order as they all revolved around the same issue of whether the appellant, engaged in operations and maintenance of power plants, is liable to be taxed.2. The appellant argued that the activity amounts to manufacturing of electricity, which is the ultimate outcome of the operations, and thus, no service tax liability arises. However, the revenue authorities contended that the appellant's receipt of compensation for maintaining and repairing the power plants falls under maintenance or repair services, making it taxable.3. The appellant maintained that the agreements with GVK Industries were for operation and maintenance of power plants to generate continuous electricity, ensuring the plants operate 24x7 efficiently. The appellant cited precedents like CLP Power India Pvt Ltd. and Pollydrill Engineers Pvt Ltd. to support their argument that operation of power plants does not constitute taxable maintenance and repair services.4. The Commissioner argued that the consideration received by the appellant for maintenance and operation of the power plants is taxable as maintenance or repair services, citing CBEC circulars and judicial decisions like Shapoorji Pallonji Infrastructure Capital Company Ltd. The Commissioner contended that the works contract services composition scheme applies to the appellant's contracts.5. Upon reviewing the contracts and agreements, it was found that the amounts received by the appellant were for running the power plants effectively, not solely for maintenance and repair. The Tribunal referred to various case laws and concluded that the operation of power plants does not fall under taxable maintenance and repair services.6. The Tribunal also held that the generation of electricity is considered a manufacturing activity, supported by the judgment in the case of NTPC Sail Power Co. Pvt Ltd. The Tribunal rejected the argument that the contracts could be vivisected for separate taxation under various services.7. The Tribunal found that the factual matrix did not support the tax liability on maintenance and repair charges as argued by the revenue authorities. Therefore, the impugned orders were set aside, and the appeals were allowed in favor of the appellant.