TaxTMI 
TaxTMI 
2017 (6) TMI 225
X X X X Extracts X X X X
X X X X Extracts X X X X
....velop, design, engineer, finance, procure, 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. Appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fect from 1.7.2003 when these services became taxable. They were paying service tax under this category on the 45% of the Operator 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 Maintena....
X X X X Extracts X X X X
X X X X Extracts X X X X
....01/2008 & April 2007 to November 2007 Service tax demand on operation charges (55% of the invoice value) 78,90,555 Total: 1,89,05,916 U/s.75 U/s.76 5. ST/5/2010 SCN No.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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aintain a maintenance reserve in case if any major maintenance is required. Only, on such an event, the amount of maintenance reserve which is kept as the deposit with appellant can be used for meeting expenses of maintenance/ repair. That this amount was never given to the appellants. Consequently having never realised this amount from 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 rais....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... maintenance/repair was available only in the invoices issued by them to SPCPL which was made available to the department only after the investigation was taken up. 7.3 With effect from 10.9.2004, on account of introduction of the new CENVAT Credit Rules, 2004, the appellants took credits of the excise duty paid on the components and spares used for maintenance work and at the same 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the issues, the relevant provisions are noticed as under:- Definition of "Maintenance or Repair Service" with effect from 1.7.2003 is as follows:- "65(64) 'maintenance or repair' means any service provided by (i) any person under a maintenance contract or agreement; or (ii) a manufacturer or any person authorized by him, in relation to maintenance or repair or servicing of any goods or 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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the cost of spares and consumables and therefore eligible for deduction. Nonetheless, a closer inspection reveals that such VAT was being paid by classifying the activity as "Works Contract Service". We are unable to fathom the reason for the appellants having declared a different nature of activity before the VAT authorities. Be that as it may, for the purposes of the service tax law, deduction of cost of materials and consumables can be permitted only if there is a sale involved and there being no sale involved in the entire exercise, appellant has necessarily 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 R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsidered opinion, there cannot be any service tax liability on the said MMR account. 10. The next issue to be addressed is the taxability of operation charges. For the period with effect from 16.6.2005, the department has raised demand on 55% of the amount apportioned towards operation charges. It is the case of the department that the activities would fall under the category of Maintenance or Repair service as amended. Thus, the department is of the view that the activity of production of electricity in the power plant would amount to management of immovable property, as provided 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 electri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ertake the operation and maintenance of the facility. He found that though CMS was operating the facility for generating electricity, the entire activity was carried on by CMS on behalf of ST-CMS. The Commissioner also observed : "the agreement also provides for incentive payments/liquidated damages/environmental fines......" This does not happen when any agency provides service to another. A service provider is not responsible to achieve any performance target referring to which it becomes entitled to any reward or incurs penalties. Such provisions in the O&M contract fortify our finding that the appellants 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the case of job work as has taken place in regard to project contracts in sales tax. In these facts and circumstances, the appeal is allowed after setting aside the impugned order." (c) CLP Power Pvt. Ltd. Vs. Commissioner of Service Tax, Bombay - Final Order No.A90709 to 90712/2016/STB/CLP. The relevant portion is extracted below:- "..... In the present case, admittedly, there are two agreements into existence, one is clearly for operation of power plant and second is for maintenance on which appellant discharged the service tax. The agreement of operation of plant is neither involved any management of either plant 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 s....