2009 (9) TMI 417 - AT - Service Tax

Tribunal allows input-service credit appeal, emphasizing no separation for composite services

The appellant contested the eligibility of input-service credit on charges from an operation and maintenance contract. The Tribunal found that the ... Cenvat Credit- the appellant entered into a contract with M/s. Hindustan Zinc Ltd. for the operation and maintenance of Chanderiya Captive Power Plant at Chittorgarh, Rajasthan. The appellant is also registered with Service Tax Department under the category of repair and maintenance. The findings of the Commissioner (Appeals) is that the appellant wrongly availed input-service credit on unloading charges, which is not for the maintenance and it is used for the operation purposes. The Commissioner (Appeals) also allowed input-service credit on car hiring charges, insurance charges, storage charges to the extent of shape of maintenance fee i.e., 49.60 per cent as per the contract. The Commissioner (Appeals) observed that the contract is for operational and maintenance and, therefore, the appellant is eligible for input-credit only in respect of maintenance and not for the operational purposes. Held that- is one composite service, the Department cannot split it into plant operation and plant maintenance for the purpose of permitting Cenvat credit and deny Cenvat credit in respect of input goods and services used for plant operation. In view of this, I hold the impugned order is not sustainable. The same is set aside. The appeals are allowed.” Issues:1. Eligibility of input-service credit on specific charges related to operation and maintenance contract.Analysis:The case involved the eligibility of input-service credit on charges related to an operation and maintenance contract entered into by the appellant with a company. The Commissioner (Appeals) had allowed input-service credit on certain charges to the extent of maintenance fee, but disallowed credit on other charges related to operation. The appellant contended that they had paid service tax on the entire contractual amount under repair and maintenance, and the Department's treatment of the contract as a composite service for tax calculation purposes was not permissible.The Judicial Member, after hearing the ld. SDR and examining the records, found that the appellant's agreement with the company mentioned separate charges for plant operation and maintenance. Despite this, the Department treated the entire service as one composite service, leading to charging service tax on the total amount, including charges for plant operation. The Tribunal had previously set aside similar impugned orders in the appellant's favor, emphasizing that once an activity is treated as a composite service, it cannot be split for the purpose of permitting Cenvat credit. Therefore, the impugned order was deemed unsustainable, and the appeal was allowed with consequential relief.In conclusion, the judgment clarified the treatment of composite services in relation to input-service credit eligibility, highlighting the importance of consistency in tax treatment and credit allowance for services rendered under specific contracts. The decision provided relief to the appellant by setting aside the impugned order and allowing the appeal in their favor.