2013 (12) TMI 1426 - AT - Service Tax

Demand of service tax - Repair of damaged electric motors - Penalty u/s 75A and 76 - Held that - As per entry at Section 65(64) as it stood at the relevant time and reproduced above only activities carried out under a maintenance contract was covered in clause (i). The appellants had no maintenance contract with their customers. Clause (ii) was applicable only to a manufacturer of the goods or persons authorized by him. The appellants were not the manufacturer of the goods or a person authorized by such manufacturer. So the activity was not covered by the definition at Section 65(64) at the relevant time. So the demand is not maintainable. Consequently interest and penalties also does not arise - Decided in favour of assessee.

Summary

Issues:
Interpretation of the definition of "maintenance or repair" under Section 65(64) of the Finance Act, 1994 for the purpose of service tax liability.

Analysis:
The case involved the Appellants engaged in repairing damaged electric motors against rate contracts without any maintenance agreements during the period from July 2003 to December 2003. The Revenue issued a Show Cause Notice demanding service tax for the services rendered during this period. The adjudicating authority confirmed a demand for the service rendered from July 1, 2003, under the tax net, imposing interest and penalties. On appeal, the Commissioner (Appeal) reduced the penalties under Sections 76 and 75A. The Appellants contended that only activities under a maintenance contract were taxable during the relevant period based on the definition under Section 65(64) inserted by the Finance Act, 2003.

The Appellants argued that the taxable activity during the relevant period was defined under a new entry inserted by the Finance Act, 2003 in the Finance Act, 1994 under Section 65(64). They emphasized that clause (i) of the definition covered activities under a maintenance contract or agreement, which they did not have with their customers for the repair work. They pointed out that clause (ii) applied to manufacturers or persons authorized by them for repair work, which did not include the Appellants. The Revenue contended that the repair work done under specific rate contracts constituted an agreement and fell under the taxable entry of Section 65(64).

After considering the arguments, the Tribunal analyzed Section 65(64) and concluded that only activities carried out under a maintenance contract were covered by clause (i) of the definition. Since the Appellants did not have maintenance contracts with their customers, their activities did not fall under this clause. Additionally, clause (ii) applied to manufacturers or authorized persons, which did not include the Appellants. Therefore, the Tribunal held that the demand for service tax was not sustainable based on the definition under Section 65(64) during the relevant period. Consequently, interest and penalties were also deemed not applicable. As a result, the impugned orders of the lower authorities were set aside, and the appeal was allowed. The judgment was pronounced on May 16, 2012.