2010 (8) TMI 704 - AT - Service Tax

Operation and Maintenance Services - replacement of membrane - whole plant has been handed over to the appellants for a period of seven years and therefore it has become their asset. - Held that - final conclusion can be arrived only after the agreement between the parties is examined in detail and the other legal aspects are considered, appellants are required to make a deposit of an amount of Rs. 50 lakhs towards service tax within eight weeks from today and report compliance, the requirement of deposit of the balance amount of service tax, interest, penalty etc. are waived. Further stay against recovery of the balance amounts of dues is granted during the pendency of appeal.

Issues:
1. Whether the nature of work undertaken by the appellant constitutes a composite maintenance contract for liability to pay service tax.
2. Confirmation of demand for service tax, interest, and penalties against the appellant.
3. Interpretation of the agreement between the parties regarding the maintenance and repair services provided.
4. Decision on the deposit amount towards service tax and granting stay against recovery of the balance amounts during the appeal.

Issue 1:
The judgment dealt with determining whether the work undertaken by the appellant, as per the agreement with Tamilnadu Water Supply and Drainage Board, qualified as a composite maintenance contract for service tax liability. The Central Excise audit revealed discrepancies in service tax payments for 'Operation and Maintenance Services' provided to TWAD. The agreement outlined tasks such as rejuvenation, replacement of membranes, maintenance of water systems, and supply of potable water. The appellant argued that they were not providing maintenance and repair services but had taken over the plant for seven years, claiming depreciation for work done. The Department contended that the tasks performed fell under maintenance and repair services due to the nature of the agreement and payment terms based on water supply.

Issue 2:
The impugned order confirmed a demand for service tax of Rs. 94,66,715 against the appellant, along with interest and penalties under the Finance Act, 1994. The Tribunal considered the arguments presented by both parties regarding the classification of services provided under the agreement. The Department's position was that the appellant's activities constituted a maintenance and repair contract, warranting service tax liability from a specified date. The appellant contested this characterization, emphasizing their ownership of the plant and the nature of the services rendered under the agreement.

Issue 3:
The Tribunal acknowledged the validity of the Department's arguments regarding the maintenance and repair nature of the services provided by the appellant as per the agreement with TWAD. However, the Tribunal deemed it necessary to further examine the agreement and other legal aspects before reaching a final conclusion. Considering the arguable nature of the issue and the absence of financial constraints, the Tribunal directed the appellant to deposit Rs. 50 lakhs towards service tax within a stipulated period. The Tribunal granted a stay against the recovery of the remaining amounts during the pendency of the appeal, pending a detailed examination of the agreement and legal considerations.

Issue 4:
In light of the arguments and evidence presented by both parties, the Tribunal decided to require the appellant to make a deposit of Rs. 50 lakhs towards service tax within a specified timeframe. The Tribunal waived the requirement for the deposit of the balance amount of service tax, interest, and penalties if the initial deposit was made as directed. Additionally, the Tribunal granted a stay against the recovery of the remaining dues during the appeal process, allowing for a comprehensive review of the agreement and legal aspects involved in the case.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Ahmedabad highlights the key issues addressed, the arguments presented by the parties, and the Tribunal's decision regarding the liability for service tax, interest, penalties, and the deposit amount required from the appellant.

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