2007 (5) TMI 189 - AT - Service Tax

Tribunal overturns service tax demand for appellants, ruling services not taxable.

The Tribunal allowed both appeals, determining that the appellants did not provide taxable services under the categories of Management Consultant, ... Assessee operates and maintains the power plant in terms of the O&M (Operations and Maintenance) agreement – impugned O&M is a works contract & it is bad in law to vivisect it – impugned contract shows that the same was intended to ensure generation and supply of power as per PPA(power purchase agreement) and not for rendering any service to the owner -– assessee not liable to be pay tax under different heads such as Management consultants, C/F agent, or Consulting engineering Issues Involved:1. Classification of services rendered by the appellants.2. Liability to service tax under various categories.3. Applicability of Business Auxiliary Service.4. Applicability of Maintenance or Repair Service.5. Validity of the demand notice and penalties.6. Limitation period for issuing demand notice.Detailed Analysis:1. Classification of Services Rendered by the Appellants:The core issue revolves around whether the services rendered by the appellants can be classified under Management Consultant, Consulting Engineer, and Clearing and Forwarding Agent services. The Tribunal found that the appellants were responsible for the operation and maintenance of a power plant, which included ancillary activities necessary for running the plant. The Tribunal concluded that the appellants were managing the facility (the power plant) and not the organization (ST-CMS). Therefore, the appellants did not provide Management Consultancy services as defined under Section 65 of the Finance Act, 1994.2. Liability to Service Tax Under Various Categories:The Tribunal examined the original orders which categorized the services rendered by the appellants as Management Consultancy, Consulting Engineer, and Clearing and Forwarding Agent services. The Tribunal found that the primary function of the appellants was to generate and transmit power, and the ancillary activities were incidental to this main function. Therefore, these activities could not be classified as separate taxable services under the aforementioned categories.3. Applicability of Business Auxiliary Service:The Commissioner had also classified the services rendered by the appellants under Business Auxiliary Service. However, the Tribunal noted that electricity is considered 'goods' and its generation amounts to 'manufacture' as defined in Section 2(f) of the Central Excise Act, 1944. Since any activity that amounts to 'manufacture' is excluded from the definition of Business Auxiliary Service, the Tribunal held that the appellants' activities were not liable to tax under this category.4. Applicability of Maintenance or Repair Service:The Tribunal addressed the argument that the appellants were engaged in Maintenance or Repair Service. It was found that the maintenance or repair of equipment was either covered under warranty or outsourced to other service providers. Therefore, the appellants did not render Maintenance or Repair Service as defined under the Act.5. Validity of the Demand Notice and Penalties:The Tribunal noted that the lower authorities had not provided a break-up of the tax attributable to different categories of services. It was emphasized that tax cannot be levied without specifying the taxable value for each service. The Tribunal also found that the appellants had not suppressed any information with the intent to evade tax, and therefore, the penalties imposed were not justified.6. Limitation Period for Issuing Demand Notice:The Tribunal considered the argument regarding the limitation period for issuing the demand notice. It was noted that the demand for the period 3/2003 to 9/2004 was raised in the Show Cause Notice dated 21.1.2005. Given that the appellants were under the bona fide belief that they were not rendering any taxable service, the invocation of the extended period of limitation was not justified.Conclusion:The Tribunal allowed both appeals, concluding that the appellants did not render any taxable services under the categories of Management Consultant, Consulting Engineer, Clearing and Forwarding Agent, Business Auxiliary Service, or Maintenance or Repair Service. Consequently, the demand for service tax, interest, and penalties was set aside.