TaxTMI 
TaxTMI 
2017 (6) TMI 225
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.... construct, own, operate, maintain and repair, a diesel generator based power generating unit in Tamilnadu so as to make available and sell the power to TNEB. The company, SPCL, was also given the right to enter into contracts for operation and maintenance of the power plant with any person experienced in such activities. Accordingly, on 3.12.1999, SPCL as the owner of the power plant entered into an "Operation and Maintenance Agreement" with Ogden, Madhya Pradesh Operating Power Ltd., as Operator. The power generated in the power plant is sold to TNEB under a Power Purchase Agreement. M/s. Ogden was taken over by the appellants namely, M/s. Covanta Samalpatti Operating Pvt. Ltd. Later, the name of the appellants was changed as M/s.Shapoorji Pallonji Samalpatti Operator Services Pvt. Ltd which got merged with M/s.Shapoorji Pallonji Infrastructure Capital Company Limited. The appellants have filed miscellaneous applications for amendment of their name in appeals and the same stands allowed vide order dated 19.12.2016. Thus, the name of the appellant as amended by the Misc. application in the different appeals are as under:- S. No. Appeal No. Name of the Appellant To be changed ....
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....ator Fee received by them. Later, they entertained a view that they are not liable to pay service tax on such maintenance and repair activities, and filed refund claims. While paying the service tax on maintenance and repair services, the appellants had deducted the cost of consumable and spares used for such maintenance and repair activities. The cost of such materials were deducted by the appellants on the premise that they were paying sales tax on such items under the category of Works Contract Service as per TNGST Act and later under the VAT Act, 2005. According to Department, such costs of materials are not eligible for deduction and has to be included in the value of taxable services. It was also alleged that appellants have wrongly availed CENVAT credit on consumables and spares with effect from 10.9.2004. Thus, first count on which demand is raised is the differential amount of service tax (after including cost of spares & consumables) on maintenance and repair services. 3. The second count on which demand is raised is regarding the Major Maintenance Reserve (MMR). In terms of clause 2.12 of the Agreement, it is agreed between the parties that the operator/appellant has to....
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....o.179/2008 Dt.10/07/2008 &December 2007 to May 2008 Service tax demand on operation charges (55% of the invoice value) 58,74,877 U/s.75 U/s.76 6. ST/96/2011 SCN No.520/2009 & June 2008 to March 2009 Service tax demand on operation charges (55% of the invoice value) 1,04,38,487 U/s.75 U/s.76 7. ST/265/2012 & ST/266/2012 SCN No. 434/2010 dt. 04/08/2010 & April 2009 to March 2010 Service tax demand on operation charges (55% of the invoice value) 1,09,70,668 U/s.75 U/s.76 SCN No. 116/2011 Dt. 04/04/2011 & April 2010 to September 2010 Service tax demand on operation charges (55% of the invoice value) 60,17,000 U/s.75 U/s.76 Total: 1,69,87,668 8. ST/103/2008 SCN No. 103/2007 dt. 9.8.07 16.605 to 17.4.06 Service tax demand on operation charges under management maintenance of immovable property 73,20,717/- u/s 75 U/s 76 Rs. 75,00,000/- (U/s 78) ARGUMENTS ON BEHALF OF THE APPELALNTS:- 6.1 Submissions of the appellants are threefold namely (a) that the demand on the maintenance and repair services is not sustainable for the reasons that the agreement is to provide operation and mai....
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....SPCL this remained only as a deposit not accruing as a consideration to the appellants. It is well settled that even if deposits were received on a returnable basis they do not become a consideration for services. As no occasion arose by way of major breakdown maintenance, the MMR which has been not so far paid to the appellants, is not taxable. 6.4 Since levy is not attracted under Maintenance and repair services, but the appellants had paid the service tax thereon, they filed refund claims. The claims were rejected on the ground that appellants were liable to pay service tax under the head Maintenance and Repair services. 6.5 Though appellants had paid service tax at the relevant time on the Maintenance and repair services even though they had received consideration as a whole for Operation and maintenance and repair, the Department has raised demand and confirmed the same on the consideration received by appellants for activities of "operation" of the power plant also. According to the department the activity would fall under Management of Immovable property coming under BAS. The demand on the consideration for operating the power plant is totally unsustainable under the head ....
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....ame time they continued the practice of discharging service tax on the value computed which excludes the cost of material. Thus, there was a clear misdeclaration of facts, with intent to evade tax from 10.9.2004. 7.4 The contract with SPCPL clearly shows that it is for "Operation and Maintenance" of the power plant. The operation of power plant was for the purpose of producing electricity and for this purpose they also maintain the machinery by way of repairs and replacement of spare parts. A careful study of the agreement would show that in addition to operation of the plant, the appellants were entrusted with the maintenance of the various machineries available in the said plant and therefore, a part of the consideration received is clearly discernible towards maintenance service undertaken by them, which is liable to service tax. 7.5 Though the appellants state that the contract is a composite one and cannot be vivisected, this argument does not help their case in view of the decision of the Larger Bench of the Tribunal in the case of Commissioner of Central Excise, Raipur Vs. BSBK Pvt. Ltd reported in 2010 (18) S.T.R. 555 (Tri.LB). 7.6 The argument of the appellants that the....
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....equipment, excluding motor vehicle", "65(105) taxable service means any service provided - (zzg) to a customer, by any person in relation to maintenance or repair". The above definition was amended with effect from 16.6.2005, which reads as under:- "65(64) 'maintenance or repair' means any service provided by (i) any person under a contract or agreement: or (ii) a manufacturer or any person authorized by him, in relation to, - (a) maintenance or repair including reconditioning or restoration, or servicing of any goods or equipment, excluding motor vehicle; or (b) maintenance or management of immovable property, Business Auxiliary Service means any service in relation to,- (i) promotion or marketing or sale of goods produced or provided by or belonging to the client, or (ii) promotion or marketing or service provided by the client: or [Explanation For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "service in relation to promotion or marketing of service provided by the client", includes any service provided in relation to promotion or marketing of games of change, organised, conducted or promoted by the c....
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....ssarily to discharge tax liability on the entire gross value of the maintenance or repair services on the full amount demarcated by them as maintenance or repair service, being 45% of the total amount paid to them. We, therefore, do not find any infirmity in the confirmation of tax liability on this score in the various impugned orders. Further, when the appellants themselves have vivisected the contract by apportioning 45% towards maintenance charges and 55% as operation fee, the contention raised by them that it is a composite contract is only to be brushed aside. 9. Coming to the dispute of taxability of Major Maintenance Reserve (MMR), it would be useful to reproduce the relevant portion in the agreement in that regard:- "2.12 Major Maintenance Reserve. This will be the maintenance reserve for the major maintenance as agreed between the Operator, the Owner and the Lenders. Upon the date being the first anniversary of COD, the Operator shall deposit in cash or by way of letter of credit in a Major Maintenance Reserve Account, to be established pursuant to the Trust and Retention Account Agreement to be executed amongst the Lenders, the Owner and the account bank, the sum o....
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....d in sub clause (b) of Subsection (ii) of Section 65 (64) of the Finance Act, 1994. 10.1 The learned counsel for the appellant has countered this allegation stating that the activity would not fall under management of immovable property. That it will get covered under the definition of Business Auxiliary Service; the dominant activity carried out in the power plant being generation of electricity and maintenance of the power plant being only an incidental one. That generation of electricity amounts to manufacture of goods within the meaning of section 2(f) of the Central Excise Act, 1944. That electricity is mentioned under Chapter Heading 27.16 of the First Schedule to the Central Excise Tariff Act, 1985, with effect from 1.3.2005 and electricity being an excisable product, though with nil rate of duty. We have to say that this argument of the appellant is not without substance. The major activity in the power plant is production of electricity which is an excisable product. Further, activity of production of electricity cannot be equated with management of immovable property. In a situation where the property is entrusted for management, the dominant intention would be to manage....
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....pellants were not rendering any advisory services and were engaged in activities which could be measured such as generation of power in the instant case. "31. We have seen that in generating power, the appellant did not render any advice to improve the functioning of the working system of another organization. They ran the facility and organized the required materials through the owner and services of their own staff. These activities did not constitute services to any other person/organisation. These impugned functions were incidental to their main activity of producing power. The O&M contract is a works contract and it is bad in law to vivisect it and tax certain activities covered by the contract. A reading of the whole contract makes it plain that the same was intended to ensure generation and supply of power as per PPA and not for rendering any service to the owner." (b) Rolls Royce Indus. Power (I) Ltd. Vs. Commissioner of Central Excise, Vishakhapatnam 2006 (3) STR 292 (Tri.) "6. We have perused the records and considered the submissions made by both sides. The issue raised is the true meaning and scope of operation and maintenance agreement dated 14-3-95. The appellan....
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....t or maintenance or repair. Entire plant was taken over by the appellant for operation. Therefore, the same does not fall under Management, Maintenance or Repair Service. As per our above discussion as well as settled legal position on the identical issue as per the above judgments, we are of the view that the impugned order is not sustainable, therefore, the same is set aside." 11. In the light of the discussions and also following the ratio laid down by the Tribunal in the cases referred supra, we have no hesitation in holding that the demand of service tax on operation charges (i.e. 55% of the fees paid to the appellant) is not sustainable. Hence, will have to be set aside, which we hereby order accordingly. The appeals are disposed of in the following manner:- (i) ST/175/2007 - It is held that cost of consumables and spares used in providing maintenance service to be included in gross value and the appeal in that respect is dismissed. The demand of service tax on Major Maintenance Reserve (MMR) is set aside and appeal on that aspect is allowed. (ii) ST/283/2012 - cost of consumables and spares used in providing maintenance service upheld and the appeal in that respect is d....