2014 (5) TMI 651 - AT - Service Tax

Valuation of service - Addition of price of electricity for determining the taxable value for purpose of service tax - quantum of service tax liability - operation and maintenance of the plant relating to two of its customers - Held that - gross amount charged by the service provider for the service provided is as per the agreement. The price of electricity cannot be considered as an additional consideration received by the appellant form their customers. The appellant does not get benefitted by the free supply of the electricity in any way. Further, the electricity is consumed in the manufacture of oxygen. Thus, electricity is an input for the manufacture of oxygen. Oxygen, in turn, is used by the appellant s clients in the manufacture of iron and steel products. Electricity cannot be considered as an input for providing the services of operation of air separation plant, it cannot be considered as an additional consideration flowing to the appellant from their client for providing the service of operation of plant and cannot be considered as part of the gross amount charged for the service of operation of the plant - Decided in favour of assessee.

Issues Involved:
Valuation of service for operation and maintenance provided by the appellant, inclusion of the price of electricity in determining taxable value for service tax liability.

Analysis:

Valuation of Service:
The appellant, engaged in setting up an air separation plant at the customer's premises, leases the plant to customers and undertakes its operation and maintenance. The dispute concerns the service tax liability related to operation and maintenance for two customers. The appellant pays service tax under the category of 'consulting engineer service.' The Revenue contends that the price of electricity should be added to determine the taxable value. The adjudicating authority held that electricity is integral to the service provided. However, the Tribunal notes that the activity of operating a plant for manufacturing goods may not fall under consulting engineer or management, maintenance, or repair service. Electricity used in plant operation for producing oxygen is not considered an input for the service provided by the appellant, hence not an additional consideration.

Legal Framework:
The Tribunal refers to Section 65(31) and Section 105(g) of the Finance Act defining consulting engineer service and taxable service respectively. The value determination for taxable service is governed by Section 67 of the Finance Act and Rule 3 of the Service Tax (Determination of Value) Rules, 2006. The gross amount charged by the service provider is the basis for determining the value of taxable service. The rules specify that the value shall be equivalent to the gross amount charged by the service provider or the cost of provision of the service.

Conclusion:
The Tribunal finds that the price of electricity cannot be considered an additional consideration received by the appellant from their customers. Since electricity is used in manufacturing oxygen, which is further utilized by the appellant's clients, it is not part of the gross amount charged for the service. The Tribunal rules in favor of the appellant, stating that electricity is not an input for providing the service of operating the air separation plant. The decision is made in favor of the appellant, and all appeals are allowed, including the one with an extended period of limitation.

Judgment:
The Tribunal, comprising S S Kang and P K Jain, JJ., pronounced the judgment on 29.4.2014. The appellant's appeal regarding the valuation of service for operation and maintenance, specifically the inclusion of electricity price, was allowed. The legal framework and the specific circumstances led to the decision in favor of the appellant, emphasizing that electricity is not an additional consideration for the service provided.

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