2017 (6) TMI 278 - AT - Service Tax

Consulting Engineers Service - operation of power plant - Maintenance and Repair Services - whether charges received by the appellant for operation of the power plant would fall under management or repair services or otherwise? - Held that - this very Bench of the Tribunal in the case of M/s. Shapoorji Pallonji Infrastructure Capital Company Limited, M/s. Operational Energy Group of India Pvt. Ltd. Versus Commissioner of Service Tax, Chennai 2017 (6) TMI 225 - CESTAT CHENNAI , held that the demand of service tax on operation charges (i.e. 55% of the fees paid to the appellant) is not sustainable - demand set aside - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Classification of services under Consulting Engineer Service.
2. Classification of services under Maintenance or Repair Service.
3. Inclusion of cost of consumables and spares in the gross value for service tax.
4. Applicability of extended period for service tax demand.
5. Penalties imposed for non-disclosure of taxable services.

Issue-wise Detailed Analysis:

1. Classification of Services under Consulting Engineer Service:
The primary issue in Appeal No. 03/2004 was whether the appellant's activities fell under the category of Consulting Engineer Service for the period from November 1998 to April 2001. The Department contended that the services provided by the appellant prior to 2003 should be classified under Consulting Engineer Service. However, the Tribunal referred to the judgment in Rolls Royce Indus. Power (I) Ltd. Vs CCE Vishakhapatnam, which held that the operation and maintenance of a power plant do not fall under Consulting Engineer Service. Consequently, the Tribunal found the Department's claim unsustainable and dismissed the appeal.

2. Classification of Services under Maintenance or Repair Service:
The other appeals (Nos. 95/2008, 184/2010, 207/2010, and 284/2011) involved the classification of services under Maintenance or Repair Service. The Department argued that the appellant's activities should be categorized under this service. However, the Tribunal, referencing its earlier decision in Shapoorji Pallonji Infrastructure Capital Co. Ltd. Vs CST Chennai, concluded that the operation of a power plant is not equivalent to the management of immovable property and does not fall under Maintenance or Repair Service. The Tribunal emphasized that the primary activity was the generation of electricity, which is an excisable product, and any maintenance was incidental. Therefore, the demand for service tax on operation charges was set aside.

3. Inclusion of Cost of Consumables and Spares in Gross Value:
In Appeal Nos. ST/175/2007 and ST/283/2012, the issue was whether the cost of consumables and spares used in providing maintenance services should be included in the gross value for service tax purposes. The Tribunal upheld the inclusion of these costs in the gross value, dismissing the appeals on this aspect. However, the demand for service tax on Major Maintenance Reserve (MMR) was set aside.

4. Applicability of Extended Period for Service Tax Demand:
The Tribunal noted that the appellant did not disclose the entire gross value of taxable services in their ST-3 returns, reflecting the value only after deducting the cost of materials. This non-disclosure justified the invocation of the extended period for service tax demand. Thus, the Tribunal upheld the use of the extended period for the demand.

5. Penalties Imposed for Non-disclosure of Taxable Services:
The Tribunal acknowledged the confusion regarding the taxability of these services and decided to set aside the penalties imposed in the impugned orders. The Tribunal recognized that the appellant's failure to disclose the full gross value of taxable services was due to this confusion, and thus, penalties were not warranted.

Conclusion:
The Tribunal dismissed the Department's appeal (No. ST/3/2004) and allowed the appellant's appeals (Nos. ST/95/2008, ST/184/2010, ST/207/2010, and ST/284/2011) with consequential relief. The appeals related to the inclusion of consumables and spares in the gross value were partly allowed, with penalties being set aside due to the confusion on taxability. The cross-objection filed by the appellant in the Department's appeal was disposed of accordingly.