2011 (5) TMI 179 - AT - Service Tax

Demand - Maintenance or Repairs service - Time barred - the introduction of service tax law on maintenance or repairs was in initial stage during the relevant period and the perusal of rate of contract entered by the appellant would indicate that the amount paid for job done and hence can be considered as a rate contract, there could be a legitimate understanding of the appellant that they are not liable to discharge service tax liability under the maintenance or repair services - the amount of service tax within the period of limitation needs to be recalculated by the lower authorities, considering the amount received as cum-duty amount and to be recovered from the appellant with appropriate rate of interest as provided under the law - they are not liable to discharge the service tax liability as per the agreement entered by them due to which the appellant may not have discharged service tax liability under section 73(1) of Finance Act, 1994 - service tax liability and interest thereof within the period of limitation from the date of show-cause Notice are upheld and confirmed and service tax liability beyond the period of limitation is set aside. Penalties imposed on the appellant are also set aside - Appeal is dismissed

Summary

Issues:
Service tax liability of appellants for the period 1-7-2003 to March, 2005 under maintenance and repairs service.

Analysis:
The appeals revolve around the service tax liability of the appellants for the mentioned period under the category of maintenance and repair services. Both lower authorities concluded that the appellants are liable for service tax, interest, and penalties based on their contracts with Kota Thermal Power Station (KTPS) for maintenance or repair services. The appellants argued that their contracts were rate contracts and not subject to service tax. The Departmental Representative contended that the contracts indeed involved maintenance work. The Tribunal found that the definition of maintenance or repair service during the relevant period covered services provided under a maintenance contract or agreement, making them taxable under the Finance Act, 1994.

The Tribunal examined the agreements between the appellants and KTPS, noting that the contracts specified capital, routine, and breakdown maintenance of the ash handling plant. It was revealed that payments were made only for repair jobs undertaken, not the entire contract amount. The Tribunal acknowledged that the appellants might have genuinely believed their contracts were rate contracts, leading to a non-payment of service tax. The Tribunal also observed that the introduction of service tax on maintenance or repairs was in its initial stages during the relevant period, contributing to the appellants' misunderstanding.

Regarding the demand within the limitation period, the Tribunal confirmed that services rendered by the appellants fell under maintenance or repair services and required recalculating the service tax amount within the limitation period. The Tribunal remitted the matter back to the adjudicating authority for this purpose. Considering the appellants' legitimate belief regarding service tax liability, the Tribunal set aside the penalties imposed on them under section 80 of the Finance Act, 1994.

In conclusion, the Tribunal upheld the service tax liability and interest within the limitation period from the date of the show-cause notice, while setting aside the service tax liability beyond the limitation period and the penalties imposed on the appellants. The appeals were disposed of accordingly.