2018 (11) TMI 167 - AT - Service Tax

Management, maintenance and repair services - generation of power by the appellant - whether excisable product or not - whether the amounts received as consideration by the appellant for operating power plant on behalf of his client would be liable for the discharge of service tax under the heading management, maintenance and repair services? Held that - The appellant is getting separate consideration for operation of the power plant and for maintenance and repair of the power plant. Appellant discharges the tax liability on the portion received as maintenance and repair services but has claimed that no tax is payable on operating part of the contract. The issue is no more res integra. The Tribunal in the case of GVK power and infrastructure Ltd. 2018 (2) TMI 1027 - CESTAT HYDERABAD , where it was held that this maintenance under taken by the appellant is in order to keep the power plant in the working conditions; there is no interruption in power generation and transmission to the power grid. - operation of power plant is not taxable under maintenance and repair services. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Appeals against service tax liability orders; Classification of services under "management, maintenance and repair services"; Taxability of electricity generation as a manufactured product; Tax liability on out-of-pocket expenses.

Analysis:
1. The appeals were against service tax liability orders for the period between 16.06.2005 to March 2014, related to operation and maintenance services provided to a power plant. The appellant contended that the service tax demand was only for the operation part of the contract, distinct from maintenance and repair services. The lower authorities confirmed the demands, but the first appellate authority set them aside, deeming power generation as non-excisable during the said period.

2. The appellant argued that the operation and maintenance agreement with the power plant included aspects of guaranteeing 24x7 power and maintenance of the plant. They maintained that the service tax liability should fall under "business auxiliary services" rather than "management, maintenance and repair services." Reference was made to a previous decision involving GVK Power and Infrastructure Ltd to support this argument.

3. The departmental representative supported the lower authorities' findings, asserting that the operation of a power plant encompasses activities classifiable under "management, maintenance and repair services." It was contended that the lower authorities' conclusions were accurate.

4. The central issue was whether the consideration received by the appellant for operating the power plant should be subject to service tax under "management, maintenance and repair services." The appellant had a separate agreement for maintenance and repair services, for which they discharged the tax liability.

5. The Tribunal examined the facts, noting that the appellant had a distinct agreement with the power plant for operation and maintenance, receiving separate consideration for each. The appellant paid tax on maintenance and repair services but contested the taxability of the operation part of the contract.

6. Referring to a previous case involving GVK Power and Infrastructure Ltd, the Tribunal found that the consideration received for running the power plant was not solely for maintenance and repair but also for effective operation. The Tribunal held in favor of the appellant, setting aside the impugned orders and allowing the appeals.

7. Regarding the revenue's appeal on the taxability of electricity generation as a manufactured product, the Tribunal relied on a previous decision involving NTPC Sail Power Company Pvt Ltd. The Tribunal rejected the revenue's appeal, affirming the non-taxability of electricity generation as a manufactured product.

8. The Tribunal also addressed an appeal by the appellant regarding tax liability on out-of-pocket expenses. Citing the judgment of the Apex Court in Union of India Vs Intercontinental Consultants and Technocrats Pvt Ltd, the Tribunal held that reimbursable expenses cannot be taxed under the Finance Act, 1994. Consequently, this portion of the demand was deemed unsustainable, and the appeal was allowed.

This detailed analysis covers the issues involved in the legal judgment comprehensively, outlining the arguments presented, the Tribunal's findings, and the basis for the decisions made.