2011 (3) TMI 211 - AT - Service Tax

Demand - Repair and maintenance contract - retreading of old tyres - Manufacturing activity versus service activity - Held that - retreading of tyre is a service provided consuming certain goods in the process to add economic life to the used tyre and make the same usable. There was economic activity carried out for consideration. The activity was repair of old tyre for making the same usable. - The meaning of repair or maintenance under section 65 (64) of Finance Act, 1994 during the material period does not necessarily require a written contract or agreement to be entered into by the parties. - Decided in favor of revenue.

Summary

Issues:
1. Whether services provided by the appellants under maintenance and repair category are liable to service tax.
2. Whether the appellants suppressed facts leading to the invokable extended period and penalty under sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:

Issue 1:
The appellants challenged the decision that services provided by them under maintenance and repair category are liable to service tax. The first appellate authority found that the appellants were retreading old tires for the Defense Department, which was considered maintenance and repair activity under Section 65(64) of the Act. The adjudication involved two show cause notices for recovery of service tax, interest, and penalties. The impugned order confirmed the service tax demand, levied interest, and imposed penalties under various sections of the Act.

Issue 2:
The appellants argued that retreading old tires was not maintenance or repair activity prior to 16.6.2005, as defined under Section 65(64) of the Act. They contended that the retreading was a manufacturing activity and not a service. The appellants emphasized that repairs or servicing not covered by maintenance contracts were not taxable. However, the appellate authority held that the retreading activity constituted maintenance and repair service, making the appellants liable for service tax. The Revenue supported this stance, stating that repair and maintenance activities under any contract were taxable, regardless of the type of agreement.

The analysis of Section 65(64) revealed that services provided under maintenance contracts or agreements were taxable. The work orders issued by the Defense department indicated that the retreading activity was subject to warranty and commercial obligations, constituting a service for consideration. The tribunal concluded that a binding contract existed between the parties for the retreading service, even without a written agreement. The absence of a legislative requirement for a written contract led to the dismissal of the appeal, as the appellants were found liable for service tax on the retreading activity.