2011 (2) TMI 123 - AT - Service Tax

Demand - operation and maintenance of a power plant - Maintenance or repair service versus Business Auxiliary Service - The issue regarding applicability of section 65 of the Finance Act was specifically raised by the appellants in reply to the show-cause notice - The issue regarding applicability of section 65 of the Finance Act was specifically raised by the appellants in reply to the show-cause notice - The impugned orders are set aside without going into the issue of limitation and a matter is remanded to the adjudicating authority for de novo adjudication - Appeals are disposed of by way of remand

Issues Involved:

1. Classification of services provided by the appellants.
2. Applicability of service tax on the services provided.
3. Invocation of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellants:

The appellants entered into an agreement with M/s. GVK Industries Ltd. for the operation and maintenance of a power plant. The primary contention of the appellants was that their main service was the generation of electricity, and maintenance was only incidental. They argued that they should not be classified as providers of maintenance or repair services. The appellants cited the statutory definitions under the Finance Act and relied on the Tribunal's decision in the case of C.M.S. (India) Operation & Maintenance Co. (P.) Ltd. v. CCE, which supported their stance.

The Revenue, however, contended that the contract was primarily for repair and maintenance services, as the appellants were compensated separately for these services. The Revenue relied on section 65A of the Finance Act, which provides a methodology for classifying composite services, arguing that the essential character of the agreement was maintenance and repair service.

2. Applicability of Service Tax on the Services Provided:

The adjudicating authority confirmed the demands by treating the appellants as providers of management, maintenance, or repair services. The statutory definitions of "maintenance or repair service" and "management, maintenance or repair" under the Finance Act were considered. The appellants argued that their services could at most be classified under Business Auxiliary Service (BAS) as they were manufacturing electricity on behalf of M/s. GVK Industries Ltd. They also pointed out that the adjudicating orders did not consider their arguments regarding the classification methodology under section 65A of the Finance Act.

The Tribunal found that the adjudicating authority did not take into consideration the provisions of section 65A and the appellants' contention that they were providing BAS. The Tribunal referred to its decision in the case of Indian Farmers Fertilizer Co-op. Ltd., which held that in composite agreements, the total consideration should be bifurcated for the purpose of valuing taxable services.

3. Invocation of the Extended Period of Limitation:

The appellants argued against the invocation of the extended period of limitation, stating that the Revenue was already aware of the agreement since 1999, as evidenced by a previous show-cause notice. They contended that the allegation of suppression with the intention to evade tax was not sustainable, and hence, demands beyond the normal period of limitation were not justified.

The Tribunal did not make a specific finding on the issue of limitation but noted that the matter needed to be reconsidered by the adjudicating authority. The Tribunal set aside the impugned orders and remanded the matter for de novo adjudication, directing the adjudicating authority to address all issues after affording an opportunity to the appellants.

Final Order:

The impugned orders were set aside, and the matter was remanded to the adjudicating authority for de novo adjudication. The adjudicating authority was directed to reconsider the issues, including the classification of services and the applicability of service tax, after providing an opportunity to the appellants. The appeals were disposed of by way of remand.

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