2017 (3) TMI 18 - AT - Service Tax

Demand of service tax on amount paid under Joint development agreement (JDA / MOU) - sharing of revenue and expenses - Development of Windfarm and related activities - The respondent entered into an MOU with M/s. Vestas-RRB for sharing of work and responsibilities in operationalising the said wind farm - whether it is correct to hold that the respondents were providing various taxable services like erection, commissioning or installation services, Commercial or industrial construction services, scientific and technical consultancy services to M/s. Vestas RRB? Held that - There is no agreement to provide or receive service between the parties in the MOU. Both the parties are mutually interested in attracting the investors to invest in the wind farm and to operationalise 25 wind mills for mutual benefit - the nature of service taxable classification and consideration attributable to such individual services have not been indicated at all - The amount received from M/s. Vestas RRB in terms of the MOU was summarily considered as a consideration for taxable service without examination and pointing out the nature of service and its classification - appeal dismissed - decided against Revenue.

Summary

Issues:
Interpretation of MOU for windfarm development services, Liability to pay service tax, Nature of services provided, Recipient-service provider relationship, Consideration for taxable services

Analysis:
The case involves a dispute regarding the liability to pay service tax on the development of a windfarm by the respondent in collaboration with M/s. Vestas RRB. The Revenue alleged that the respondent provided taxable services to M/s. Vestas RRB, leading to a demand for service tax. The Original Authority confirmed the demand, but the Commissioner (Appeals) set it aside, prompting the Revenue's appeal.

The Revenue argued that the respondent, as per the MOU, was obligated to provide services to M/s. Vestas RRB and acted as a contractor for the project. They contended that being a recipient of services from sub-contractors did not absolve the respondent from service tax liability.

On the other hand, the respondent's counsel emphasized that the MOU delineated a joint arrangement's scope and intent, with responsibilities clearly defined. The respondent's role was to develop the windfarm, financed by M/s. Vestas RRB, without the latter gaining possession or control. The payments made were not for services rendered but for project development.

Upon review, the Tribunal found that the MOU outlined a mutual interest in attracting investors for the windfarm project, with no service provider-recipient relationship established. The Revenue failed to specify the nature of taxable services or their classification, merely assuming consideration for taxable services without proper examination. Consequently, the Tribunal dismissed the Revenue's appeal.

The Tribunal's decision hinged on the lack of evidence establishing a service provider-recipient relationship and the absence of a clear classification of taxable services. The MOU's intent, the nature of payments, and the mutual interest in project development were pivotal in determining the absence of service tax liability in this case.